UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB


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


                  For the quarterly period ended: May 31, 2006


[_]   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         (I.R.S. Employer Identification No.)
  of incorporation or organization)


1801 CENTURY PARK EAST, SUITE 1830, LOS ANGELES, CALIFORNIA        90067-2320
-----------------------------------------------------------        ----------
        (Address of principal executive offices)                   (Zip Code)

Issuer's telephone number (310) 282-8646

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

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

                         Common Stock, par value $0.0001
                                (Title of class)

Check  whether the Issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

State the number of shares outstanding of each of the issuer's classes of common
equity, as of July 24, 2006: 13,276,522

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

<PAGE>
                                TABLE OF CONTENTS
                                                                            Page
Part I - Financial Information

      Item 1  Financial Statements (Unaudited)

              Condensed Consolidated Balance Sheet as of
               May 31, 2006                                                  F-1

              Condensed Consolidated Statements of Operations
               and Comprehensive Loss for the three months
               ended May 31, 2006 and 2005                                   F-2

              Condensed Consolidated Statements of Cash Flows
               for the three months ended May 31, 2006
               and 2005                                                      F-3

              Notes to Condensed Consolidated Financial Statements           F-4

      Item 2  Management's Discussion and Analysis or Plan of Operation       1

      Item 3  Controls and Procedures                                         9

Part II - Other Information

      Item 1  Legal Proceedings                                              10

      Item 1A Risk Factors                                                   10

      Item 2  Unregistered Sales of Equity Securities and Use of Proceeds    13

      Item 3  Defaults upon Senior Securities                                13

      Item 4  Submission of Matters to a Vote of Security Holders            13

      Item 5  Other Information                                              13

      Item 6  Exhibits                                                       14

                                        i


<PAGE>
                         PART I - FINANCIAL INFORMATION


Item 1:  Condensed Consolidated Financial Statements (Unaudited)


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



                                       ii
<PAGE>
                   ASTRATA GROUP INCORPORATED AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                            (UNAUDITED) MAY 31, 2006


                                 ASSETS
Current assets:

     Cash and cash equivalents                                $    251,261

     Trade and other receivables, net                            1,105,498

     Inventories                                                   305,796

     Deferred financing costs, net                                  88,829

     Other assets                                                  239,213

     Current assets held for sale                                3,350,480
                                                              ------------

Total current assets                                             5,341,077

Other assets held for sale                                       1,073,777

Property and equipment, net                                        616,256

Goodwill                                                           300,000

Investment in and advances to affiliate                             60,973
                                                              ------------
Total assets                                                  $  7,392,083
                                                              ============
                 LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable                                         $  5,850,012
     Salaries and benefits payable to officers and
     directors                                                   1,548,629

     Registration rights penalties                                 994,655

     Derivative warrant liability                                  445,600

     Interest payable                                              578,593

     Line of credit                                                107,238

     Income taxes payable                                           18,904

     Notes payable to stockholders                               2,610,173

     Advances from stockholders                                    671,311

     Liabilities related to assets held for sale                 5,051,724

     Redeemable preferred stock of subsidiary                      456,380

     Current portion of long-term liabilities                       31,493
                                                              ------------
Total current liabilities                                       18,364,712

Debenture, net                                                     287,957

Long-term liabilities                                               36,042

Deferred tax liability                                               5,618

Other liabilities related to assets held for sale                  164,477
                                                              ------------
Total liabilities                                               18,858,806
                                                              ------------
Minority interest
                                                                    40,449
Commitments and contingencies
Stockholders' deficit:
     Preferred stock, $0.0001 par value, 10,000,000 shares

       authorized, none issued or outstanding                           --
     Common stock, $0.0001 par value, 40,000,000 shares

       authorized, 12,841,595 shares issued and outstanding          1,284
     Additional paid-in capital, net                            13,803,214

     Deferred compensation cost                                   (252,750)
     Accumulated deficit                                       (25,045,906)

     Accumulated other comprehensive loss                          (13,014)
                                                              ------------
Total stockholders' deficit                                    (11,507,172)
                                                              ------------
Total liabilities and stockholders' deficit                   $  7,392,083
                                                              ============


  See accompanying notes to these condensed consolidated financial statements.

                                      F-1
<PAGE>

                   ASTRATA GROUP INCORPORATED AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
                FOR THE THREE MONTHS ENDED MAY 31, 2006 AND 2005
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                          2006              2005
                                                                      ------------      ------------
<S>                                                                   <C>               <C>
Net sales                                                             $    426,338      $    455,238
Cost of goods sold                                                         304,688           256,527
                                                                      ------------      ------------
Gross profit                                                               121,650           198,711
Other selling, general and administrative expenses                       1,541,016         1,984,797
Stock-based compensation                                                   463,707                --
                                                                      ------------      ------------
Operating (loss)                                                        (1,883,073)       (1,786,086)
                                                                      ------------      ------------
Other income (expense):
     Interest expense                                                     (228,890)         (494,641)
     Change in fair value of derivative warrant liability                  284,996                --
     Other income                                                              316               643
                                                                      ------------      ------------
Total other (expense) income                                                56,422          (493,998)
                                                                      ------------      ------------

(Loss) before minority interest                                         (1,826,651)       (2,280,084)
Minority interest                                                             (335)           19,637
Equity in net (loss) of affiliate                                          (11,761)               --
                                                                      ------------      ------------
Net (loss) from continuing operations                                   (1,838,747)       (2,260,447)
(Loss) on discontinued operations, net of tax                             (931,174)         (523,287)
                                                                      ------------      ------------
Net (loss)                                                            $ (2,769,921)     $ (2,783,734)
                                                                      ============      ============

Comprehensive (loss) and its components consist of the following:
     Net (loss)                                                       $ (2,769,921)     $ (2,783,734)
     Foreign currency translation
     adjustment, net of tax                                                (83,520)         (165,056)
                                                                      ------------      ------------
Comprehensive (loss)                                                  $ (2,853,441)     $ (2,948,790)
                                                                      ============      ============

(Loss) per common share basic and diluted:
     Continuing operations                                            $      (0.15)     $      (0.19)
     Discontinued operations                                                 (0.07)            (0.05)
                                                                      ------------      ------------
                                                                      $      (0.22)     $      (0.24)
                                                                      ============      ============

Weighted average common shares outstanding:
     Basic and diluted                                                  12,676,878        11,713,604
                                                                      ============      ============
</TABLE>


   See accompanying notes to these condensed consolidated financial statements.

                                      F-2
<PAGE>
                   ASTRATA GROUP INCORPORATED AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE THREE MONTHS ENDED MAY 31, 2006 AND 2005
                                   (UNAUDITED)


<TABLE>
<CAPTION>


                                                           2006           2005
                                                                      (As Restated)
                                                        -----------    -----------

<S>                                                     <C>            <C>
CASH FLOW FROM OPERATING ACTIVITIES:
     Net loss                                           $(2,769,921)   $(2,783,734)
     Adjustments to reconcile net loss to net
     cash (used in) operating activities:

        Loss (gain) on sale of property and equipment         2,405         (4,814)

        Depreciation and amortization                       182,413        227,427

        Loss on early termination of lease                  101,886             --

        Amortization of deferred compensation cost          100,125         93,750

        Deferred finance costs and debt discount           (160,568)       358,025

        Issuance of stock for services                       38,251         74,375

        Issuance of stock for compensation                  463,707             --

        Equity in net loss of affiliate                      11,761          9,965

        Minority interest                                       335        (19,636)

        Deferred income taxes                                    --        (15,593)

        Unrealized foreign currency exchange gain           (16,922)      (113,940)
     Changes in operating assets and liabilities:

        Accounts receivable                              (1,639,608)      (485,466)

        Inventories                                         156,423       (199,090)

        Other assets                                        (25,109)        70,310

        Accounts payable and accrued liabilities          2,407,137        918,422

        Taxes payable                                        18,904             --

        Deferred tax liability                              (21,097)            --
                                                        -----------    -----------

Net cash used in operating activities                    (1,149,878)    (1,869,999)
                                                        -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:

     Purchase of property and equipment                     (52,372)      (185,984)

     Proceeds from sale of assets                            36,978         14,899

     Investment in affiliates                               (23,993)       (61,532)

     Cash of acquired company                                (1,499)            --
                                                        -----------    -----------

Net cash used in investing activities                       (40,886)      (232,617)
                                                        -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:

     Repayment of line of credit                                 --       (146,992)

     Repayment of long term liabilities                     (14,968)        (8,787)

     Repayment of bridge loan                                    --     (1,500,000)

     Proceeds from lines of credit, net                     629,095             --

     Proceeds from advances by stockholders                 330,340        340,181

     Proceeds from issuance of common stock                      --      3,073,234
                                                        -----------    -----------

Net cash provided by financing activities                   944,467      1,757,636
                                                        -----------    -----------


</TABLE>


                                      F-3

<PAGE>


<TABLE>
<CAPTION>
                                                           2006           2005
                                                                      (As Restated)
                                                        -----------    -----------
<S>                                                     <C>            <C>
Effect of foreign currency translation

     on cash and cash equivalents                            61,026        (51,244)

Net (decrease) in cash and cash equivalents                (185,271)      (396,224)

Cash and cash equivalents at beginning of period            436,532      1,281,064
                                                        -----------    -----------

Cash and cash equivalents at end of period              $   251,261    $   884,840
                                                        ===========    ===========

Cash paid during the period for:

     Interest                                           $     2,339    $    60,516
                                                        ===========    ===========
     Income taxes

                                                        $        --        $    --
                                                        ===========    ===========


</TABLE>


              See the accompanying notes for information on other
                  non-cash investing and financing activities.

  See accompanying notes to these condensed consolidated financial statements


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

1.    ORGANIZATION AND NATURE OF OPERATIONS

Organization

      Astrata Group Incorporated  ("Astrata Group") and subsidiaries  (sometimes
hereinafter collectively referred to as the "Company," "we," and "our") operates
in the Telematics sector of the Global Positioning System ("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 and construction.


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


      Telematics   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.

Liquidity and Going Concern Considerations


      The accompanying  condensed  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 quarter  ended May 31, 2006, we had a
net loss of  approximately  $2.8 million and negative  cash flow from  operating
activities of approximately $1.1 million. In addition,  we had a working capital
deficit of approximately $13.0 million as of May 31, 2006.


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

      In the first quarter of fiscal 2007,  management revised our business plan
to focus on the more  developed  markets  in  Europe,  South East Asia and North
America.  As our core  strategic  direction  is now to  focus on the  telematics
market rather than the geomatics  market,  the Company entered into  discussions
regarding the sale of the geomatics business.  The sale of this business,  which
was  disclosed as a subsequent  event in the February 28, 2006 Form 10-KSB filed
July 18, 2006,  and the winding down of our remaining  South African  operations
will yield annual savings of approximately $5.8 million, or 41% of the Company's
annual selling, general and administrative expenses with an associated headcount
reduction of over 120 members of staff, a  Company-wide  reduction of about 60%.
The Company is now in separate discussions for an equity raise;  however,  until
these  discussions  have  further  matured,  their  success  (if any)  cannot be
reliably determined.

                                      F-4

<PAGE>

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

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

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

2.    CERTAIN SIGNIFICANT ACCOUNTING POLICIES


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

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


Principles of Consolidation

      The condensed  consolidated  financial  statements include the accounts of
Astrata Group Incorporated and its majority-owned subsidiaries in which it has a
controlling financial interest.  All significant  intercompany  transactions and
balances have been eliminated in consolidation.

      Equity  investments  in which the Company  owns at least 20% of the voting
interest, or otherwise exercises significant influence over the investee, but in
which the Company does not have a controlling  financial  interest are accounted
for using the equity method.

Use of Estimates

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

Concentrations


      The  financial  instrument  that  potentially  exposes  the  Company  to a
concentration of credit risk principally  consists of cash. The Company deposits
its cash with high credit financial institutions, principally in the Republic of
South Africa. This country does not have any institutional  depository insurance
comparable to the United States, which insures bank balances up to $100,000.  At
May 31, 2006, the Company's bank balances approximated $370,000. The Company had
approximately  $13,000  in bank  accounts  in the U.S.,  which is covered by the
Federal Deposit Insurance Corporation limit of $100,000.


      The Company does not require  collateral from its customers,  but performs
ongoing credit evaluations of its customers'  financial  condition.  Credit risk
with respect to the accounts  receivable is limited  because of the large number
of  customers  included  in the  Company's  customer  base  and  the  geographic
dispersion of those  customers.  The Company also performs  periodic  reviews of
collectability  and provides an  allowance  for  doubtful  accounts  receivable.
Management  considers the allowance for doubtful accounts  receivable at May 31,
2006 of approximately $86,000 to be adequate.

                                      F-5
<PAGE>

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

Inventories

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

Property and Equipment

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

Deferred Financing Costs


      Direct costs of securing debt financing are capitalized and amortized over
the term of the related debt using the straight-line method. When a loan is paid
in full, any unamortized  financing costs are removed from the related  accounts
and charged to  operations.  During the quarter ended May 31, 2006 and 2005, the
Company recorded  approximately  $9,000 and $227,000,  respectively,  of finance
charges in relation to the unamortized  portion of deferred  financing costs for
certain debt that was refinanced.


Goodwill and Other Intangible Assets

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

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

Long-Lived Assets

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

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

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

                                      F-6
<PAGE>

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

Discontinued Operations

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


      The accompanying  condensed  consolidated  statement of operations for the
quarter  ended May 31,  2005 has been  reclassified  to  separately  report  the
discontinued operations discussed above.


Revenue Recognition

General


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


Sales as a Distributor

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

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

Contract Accounting

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

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

Services Revenue

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

                                      F-7
<PAGE>

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

Other Matters

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

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

Research and Development Costs

      Research and development  costs relating to GPS  positioning  hardware and
software systems (including the Astrata  "Geo-Location  Platform") to be sold or
otherwise  marketed that are incurred  before  technological  feasibility of the
product  has been  established  and after  general  release  of the  product  to
customers are expensed as incurred.

      Management  believes that  technological  feasibility  is not  established
until  a beta  version  of the  software  product  exists.  Historically,  costs
incurred  during the period from when a beta version is available  until general
release to the public have not been material.  Accordingly,  the Company has not
capitalized any computer 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 March 1, 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  $464,000  for the quarter  ended May 31,  2006.  This expense was
recorded  as stock  compensation  in the  accompanying  May 31,  2006  condensed
consolidated statement of operations.


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


                                      F-8
<PAGE>

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

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

                                                     Three Months Ended
                                                           May 31,
                                                            2006
                                                         ----------


General and administrative                                 $(463,707)
                                                           =========
Net share-based compensation effect
   in net loss from continuing operations                  $(463,707)
                                                           =========

Basic and diluted loss per common share                    $   (0.04)
                                                           =========



      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 2007 was insignificant.

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




                                                      Three Months Ended
                                                            May 31,
                                                             2005
                                                          -----------

Net loss as reported                                      $(2,783,734)
   Less: Total stock-based employee compensation
    expense determined under the Black-Scholes
    option pricing model, net of tax                         (435,962)*
                                                          -----------
Pro forma net loss                                        $(3,219,696)
                                                          ===========

Basic and diluted loss per common share:
   As reported                                            $     (0.24)
                                                          ===========
   Pro forma                                              $     (0.27)
                                                          ===========

      * This  amount  has been  revised to correct  the  information  previously
      reported in the  Company's  May 31, 2005 Form 10-QSB filed with the SEC on
      July 17, 2005.

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

                                      F-9
<PAGE>

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

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


                                             Three Months Ended
                                                   May 31
                                       ------------------------------
                                          2006                2005
                                       ----------          ----------
         Annual dividends                 zero                zero
         Expected volatility              133%                140%
         Risk free interest rate          3.7%                 3%
         Expected life                 3.5 years            3.5 years

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


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


                                                      Weighted
                                         Weighted      Average
                                         Average      Remaining      Aggregate
                             Number of   Exercise    Contractual     Intrinsic
                              Shares      Price     Term in Years    Value (1)
---------------------------  ---------   --------   -------------    ---------

Vested                         532,383    $  3.76        3.7          $13,333
Expected to vest             1,264,767       3.76        3.7           46,667
                           -----------                               --------
     Total                   1,797,150                                $60,000
                            ===========                              ========

(1) These amounts represent the difference between the exercise price and $1.40,
the closing market price of the Company's common stock on May 31, 2006 as quoted
on  the  Over-the-Counter  Bulletin  Board  under  the  symbol  "ATTG"  for  all
in-the-money options outstanding.


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


                                                   Outstanding Options
                                           -------------------------------------
                               Shares                   Weighted       Aggregate
                             Available     Number of     Average       Intrinsic
                             for Grant     Shares     Exercise Price   Value (1)
---------------------------  ---------     ------     --------------   ---------
February 28, 2006               602,850   1,797,150      $ 3.76        $ 450,000
                                                                       =========
Grants                               --          --          --
Exercises                            --          --          --
Cancellations                        --          --          --
                             ----------  ----------      ------
May 31, 2006                    602,850   1,797,150      $ 3.76        $  60,000
                             ==========  ==========      ======        =========

Options exerciseable at:
February 28, 2006                          482,383       $ 3.76
May 31, 2006                               532,383         3.76




-----------
(1)   Represents the difference  between the exercise price and the February 28,
      2006 or May 31, 2006 market price of the Company's common stock.



                                      F-10
<PAGE>

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

Recently Issued Accounting Pronouncements


      Neither the Financial  Accounting  Standards Board (including its Emerging
Issues Task Force),  the American  Institute of Certified Public Accountants nor
the SEC have issued any  accounting  pronouncements  since the Company filed its
February 28, 2006 Form 10-KSB on July 18, 2006 that are  believed by  management
to have a  material  impact on the  Company's  present  or  future  consolidated
financial statements.



3.    INVENTORY

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

                       Europe         Asia         Total
                      --------      --------      --------
Raw materials         $     --      $     --      $     --
Work in progress            --            --            --
Finished goods         155,801       149,995       305,796
                      --------      --------      --------
     Totals           $155,801      $149,995      $305,796
                      ========      ========      ========


4.    NOTES PAYABLE TO STOCKHOLDER


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


5.    OTHER DEBT TRANSACTIONS

Lines of Credit


      Astrata  South Africa (Pty) Limited  ("Astrata  SA") has secured a line of
credit for use in its South Africa operations.  The line of credit is secured by
certain  trade  accounts  receivable  and  allows  for  funding up to 70% of the
outstanding  accounts  receivable with a maximum of approximately  $1.7 million.
Interest  on the  outstanding  balance is charged at the  current  prime rate in
South  Africa  (10.5%  as  of  May  31,  2006).   The  outstanding   balance  is
approximately  $1,226,000 as of May 31, 2006, and  approximately  $1,119,000 of
such balance is included in "liabilities related to assets held for sale" in the
accompanying condensed consolidated balance sheet.


      In June 2005, Astrata SA obtained a R7,000,000 line of credit from a South
African finance company.  This revolving facility is repayable within sixty days
of funding with  interest at 2% above the South African prime rate plus a 3% fee
on each  advance,  and is  secured  by  subordination  of  certain  intercompany
liabilities  of Astrata  SA and its  subsidiary,  and a bond  secured by certain
assets (up to  R12,000,000)  of the Company's  South African  subsidiaries.  The
outstanding  balance  is  approximately  $464,000  as of May  31,  2006,  and is
included in  "liabilities  related to assets held for sale" in the  accompanying
condensed consolidated balance sheet.


      See Note 10 and the "Sale of Geomatics  Business in South Africa"  section
of Note 11 for additional  information regarding the line of credit discussed in
the preceding paragraph.


                                      F-11
<PAGE>

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

Debt Financing Transaction

      In October  2005,  the  Company  completed a private  placement  financing
transaction and agreed to issue secured  convertible notes payable to a group of
accredited  investors in the total amount of  $2,170,000.  The Company  received
$700,000 in cash on October 7, 2005,  and  $500,000 on November  22,  2005.  The
remaining $550,000 of net proceeds has been placed in an escrow account and will
be released  when the  related  registration  statement  (see below) is declared
effective  by the SEC.  These notes  payable,  which are due October  2008,  are
convertible  into  shares  of the  Company's  common  stock  at any  time at the
holder's option at a price of $0.78 per share.

      In connection with the above, the  creditors/warrant  holders (hereinafter
collectively  referred to as "the investors") in the October 2005 debt financing
transaction (the "debt financing  transaction") have certain registration rights
for the common stock  underlying both the warrants and the convertible  debt. On
October 27, 2005,  the Company  satisfied the  filing-date  deadline  (which was
November 21, 2005) by filing the second amendment of its Form SB-2  registration
statement.  See  Note 7 for a  discussion  of  accounting  for  the  contractual
financial penalties associated with the investors' other registration rights.

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

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

                                                          Exercise or Conversion
                                                             Price Per Share
                                                           -------------------
                                                           Original  Adjusted
                                                            Amount    Amount
                                                           -------   ---------
48,000 warrants outstanding at February 28, 2005           $  2.00   $  1.74

580,148 warrants outstanding at February 28, 2005             5.00      3.91

1,043,106 warrants issued in April/May 2005                   3.50      2.87

Other warrants issued after February 28, 2005:

     108,196 warrants                                         5.00      3.91

     4.955 warrants                                           3.50      2.87

$1,884,000 of convertible debt
 outstanding at February 28, 2006                             5.00      3.91

                                      F-12
<PAGE>

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

6.    EQUITY TRANSACTIONS

Issuance of Common Stock and Other Equity Instruments

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

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

7.    OTHER COMMITMENTS AND CONTINGENCIES

Legal Matters


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


Operating Leases

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


                        2008      $    503,038
                        2009           343,635
                        2010           366,811
                        2011           333,303
                  Thereafter             3,527
                                 -------------
                                  $  1,550,314
                                 =============


      The Centurion,  South African  facilities were divested with the Geomatics
business in South Africa effective June 1, 2006 and the Stellenbosch  facilities
were released in the second quarter of fiscal 2007.  This will reduce the future
lease commitments by approximately 80% of the fiscal amounts in the above table.


      Rent expense approximated $140,000 and $187,000 for the three months ended
May 31, 2006 and May 31, 2005, respectively.


                                      F-13
<PAGE>

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

Government Contract


      In December  2004, a subsidiary  of the Company was awarded a  fixed-price
contract to provide the Singapore  government's Civil Defense Force (the "SCDF")
with software and hardware in an integrated  control system  designed to provide
real-time  tracking (the  "System") of vehicles that are authorized to transport
hazardous  materials  within the country.  The contract amount  approximates 2.0
million  Singapore  dollars,  or about  $1.2  million  as of May 31,  2005  (the
"Contract").  During the quarter  ended May 31,  2005,  the  Company  recognized
revenue on the Contract of approximately $0.1 million.


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

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

Registration Rights Penalties

      The  Company is  contractually  liable for certain  penalties  because its
registration  statement (on Form SB-2) was not declared  effective by the SEC by
the deadline dates.  Based on the estimated  effective date of such registration
statement and the effectiveness-date  contractual deadlines,  as of May 31, 2006
the Company has accrued estimated  penalties of approximately  $995,000 relating
to the  October  2005 debt  financing  transaction  discussed  in Note 5 and the
April/May 2005 sale of equity units.

Other Matters


      From  June 1,  2006 to July 31,  2006,  the South  African  Rand  weakened
against the U.S. dollar by approximately 2.5%.



8.    SEGMENT REPORTING AND GEOGRAPHIC INFORMATION

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

Geomatics

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

      As more fully  explained  in Note 11,  the  Company  exited the  Geomatics
segment in June 2006. See Note 10 for information about assets held for sale and
related liabilities in connection with discontinued operations.

                                      F-14
<PAGE>

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

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.

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

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


For the three months ended May 31, 2006:
<TABLE>
<CAPTION>
                 Property and                   Gross
                  Equipment,                    Profit       Operating     Operating
                     net         Revenue        (Loss)       Expenses        (Loss)
                 -----------   -----------   -----------    -----------   -----------
<S>              <C>           <C>           <C>            <C>           <C>
Asia             $   391,235   $   364,888   $   172,007    $   425,658   $  (253,651)
United States          2,346             -             -      1,137,586    (1,137,586)
Western Europe       222,675        61,450       (50,357)       441,479      (491,836)
                 -----------   -----------   -----------    -----------   -----------
Total            $   616,256   $   426,338   $   121,650    $ 2,004,723   $(1,883,073)
                 ===========  ============   ===========    ===========   ===========


For the three months ended May 31, 2005:

                 Property and                   Gross
                  Equipment,                    Profit       Operating     Operating
                     net         Revenue        (Loss)       Expenses        (Loss)
                 -----------   -----------   -----------    -----------   -----------
Asia             $   390,291   $   450,106   $   200,844    $   574,809   $  (373,965)
United States          4,693            --            --        476,349      (476,349)
Western Europe       325,749         5,132        (2,133)       933,639      (935,772)
                 -----------   -----------   -----------    -----------   -----------
Total            $   720,733   $   455,238   $   198,711    $ 1,984,797   $(1,786,086)
                 ===========   ===========   ===========    ===========   ===========
</TABLE>

               See Note 3 for geographic information on inventory.

                                      F-15

<PAGE>

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

9.    LOSS PER COMMON SHARE


      The following is a  reconciliation  of the numerators and  denominators of
the basic and diluted  loss per common share  computations  for the three months
ended May 31, 2006 and 2005:
<TABLE>
<CAPTION>
                                                             Three Months  Three Months
                                                                Ended          Ended
                                                             May 31, 2006   May 31, 2005
                                                             -----------    ------------
<S>                                                         <C>             <C>
Numerator for basic and diluted loss per common share:
     Net loss from continuing operations charged to
         common shareholders                                $ (1,838,747)   $ (2,260,447)
                                                             ===========    ============
     Total net loss charged to common shareholders            (2,769,921)     (2,783,734)
                                                             ===========    ============

Denominator for basic and diluted loss per common share:
     Weighted average number of common shares outstanding     12,676,878      11,713,604

Basic and diluted loss per common share:
     From continuing operations                              $     (0.15)    $    (0.19)
     Total net loss                                                (0.22)         (0.24)
</TABLE>


10.   DISCONTINUED OPERATIONS

      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  (see the "Sale of  Geomatics  Business  in South  Africa"
section of Note 11 for additional  information).  The Company did not consummate
any disposal transactions related to discontinued  operations during the May 31,
2006  quarter;   however,  as  also  discussed  in  Note  11,  certain  disposal
transactions  were  completed in the second quarter of fiscal 2007. In addition,
management closed Astrata Systems (Pty) Limited ("Astrata  Systems"),  which was
located in South Africa, on May 31, 2006.

      Management  believes  that  the  Company  has not  incurred  any  material
contingent  liabilities in connection with the transactions and events described
or  referenced  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 May 31,  2006  quarter;  see the  last
paragraph  of the  "Closure of South  African  Operations  and  Related  Events"
section of Note 11 for  additional  information.  As described in the  following
paragraph,  operations  reported as discontinued in the  accompanying  condensed
consolidated   statements  of  operations  are  not  expected  to  generate  any
significant continuing cash flows after May 31, 2006.

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


                                      F-16
<PAGE>


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



                              Assets Held for Sale
                              --------------------

                              Current        Other
                               Assets        Assets
                            ------------  ------------
Trade and other receivables $  1,911,651
Inventories                    1,374,395
Other current assets              64,434
Property plant & equipment                $     99,943
Goodwill                                       476,621
Other intangible assets                        497,213
                            ------------  ------------
   Totals                   $  3,350,480  $  1,073,777
                            ============  ============


                          Liabilities Related to Assets
                                  Held for Sale
                          -----------------------------
                              Current        Other
                            Liabilities   Liabilities
                            ------------  ------------
Trade and accrued payables  $  3,441,277
Lines of credit                1,583,309
Other current liabilities         27,138
Long-term liabilities                     $    39,054
Deferred tax liability                        125,423
                            ------------  ------------
    Totals                  $  5,051,724  $    164,477
                            ============  ============

      The loss from  discontinued  operations for the quarter ended May 31, 2006
includes  the net loss of  Astrata  SA of  approximately  $218,000.  Over 90% of
Astrata SA's revenues for the May 31, 2006 quarter (which totaled  approximately
$3.4 million) relate to the Company's former Geomatics operations. The remaining
loss from discontinued operations  (approximately  $713,000) relates exclusively
to the Company's Telematics  operations in South Africa. The Telematics business
generated revenues of approximately  $235,000 in South Africa during the quarter
ended May 31, 2006. The loss from  discontinued  operations  reported in the May
31, 2006 quarter includes interest expense of approximately $60,000.



                                      F-17
<PAGE>

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

11.   SUBSEQUENT EVENTS

Common Stock Issuances


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

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


Related Party Loans

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

Sale of Geomatics Business in South Africa

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

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

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

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

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

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

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

                                      F-18
<PAGE>

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

Closure of South African Operations and Related Events

      Effective May 31, 2006, all of the remaining  employees of Astrata Systems
and Astrata SA who did not become  employees of Astrata  Geomatics (Pty) Limited
(see above) were terminated.  On June 27, 2006,  management commenced the formal
process of  liquidating  Astrata  Systems.  The assets of Astrata  Group and its
other  subsidiaries  are not  available  to satisfy the  liabilities  of Astrata
Systems, whose tangible assets were not significant as of May 31, 2006.

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

      Management  considered the  transactions  and events  described in the two
immediately preceding paragraphs and in the "Sale of Geomatics Business in South
Africa" section of this Note in (a) measuring the adjustment to reduce inventory
to its estimated net realizable value and (b) reviewing the Company's intangible
and other long-lived assets for possible impairment as of February 28, 2006. The
matters  described  in the  preceding  sentence  resulted  in total  fiscal 2006
expense of approximately  $2,470,000.  See the Company's  February 28, 2006 Form
10-KSB (filed July 18, 2006) for additional information.

Major Sales Order

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

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

12.   RESTATEMENT OF MAY 31, 2005 STATEMENT OF CASH FLOWS

      The matter described below was originally reported in the second amendment
of the Company's Form SB-2 registration statement,  which was filed with the SEC
on October 27, 2005.

      Subsequent  to June 27, 2005 (and after the Company filed its May 31, 2005
Form 10-QSB,) it came to the attention of management that the computation of the
effect of foreign  currency  exchange rate changes on cash and cash  equivalents
for the  quarter  ended  May 31,  2005 was not in  accordance  with  SFAS No. 95
("Statement   of  Cash  Flows").   Accordingly,   the   accompanying   condensed
consolidated statement of cash flows for the quarter ended May 31, 2005 has been
retroactively adjusted as summarized below:


<TABLE>
<CAPTION>
                                                 As Previously    Retroactive
                                                    Reported       Adjustment        As Restated
<S>                                                <C>              <C>               <C>

Effect of foreign currency exchange rate
   changes on cash and cash equivalents            $ (165,056)      $ 113,812         $ (51,244)
                                                   ==========       =========         =========
</TABLE>



                                      F-19
<PAGE>

Item  2: Management's Discussion and Analysis

Overview

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

Forward-Looking Statements

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

Company Overview

Strategic Direction

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

Structural Adjustments

      During the quarter ended May 31, 2006, a number of core structural changes
were implemented.

These included decisions to:

      o     Withdraw from Geomatics and focus exclusively on Telematics;

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

      o     Outsource all manufacturing activities;

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

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

                                       1
<PAGE>

Operational Considerations

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

      In line with our structural  realignment  during the quarter ended May 31,
2006,  Astrata  entered  into a number of  agreements  to  dispose  of its South
African  operations.  The effective date for these transactions is June 1, 2006.
South  African  based  operations  that were not sold by this  date were  closed
effective May 31, 2006.

Major Sales Orders

      In June  2006  Astrata  announced  the  award of a sales  order  valued at
approximately  $17 million  from AST Europe  Group AB for the delivery of 50,000
telematics  units along with the associated  software.  The Company expects this
order to be delivered during fiscal 2007.

      In our press release  dated  January  2006, we stated that "Several  large
homeland  security  projects  are  under  negotiation,  none of  which  has been
included in our current revenue estimate.  Award of any of these projects should
significantly  enhance  fiscal 2007  results".  These orders remain under active
negotiation but, due to the size and complexity of homeland  security  projects,
require  significant levels of overhead  investment in advance of project award.
There is no  guarantee of  successful  final award but, as stated  earlier,  the
consummation  of any of these projects should  significantly  enhance the fiscal
2007 results.

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

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

Revenues

      Net revenues  were  approximately  $426,000 for the three months ended May
31, 2006; a decrease of approximately $29,000 compared to the three months ended
May 31, 2005 of  approximately  $455,000.  Astrata's  core  objective is to be a
major  service  provider  and supplier in the  Telematics  market  sector.  This
objective has been further  refined by exiting the South African based geomatics
segment and focusing on the Homeland  Security and Business to Business  sectors
where the demand for complex integrated  telematics  solutions is driving market
growth in North America, Europe and South East Asia.

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

Gross profits

      Gross profit decreased approximately $77,000 to approximately $122,000 for
the three months  ended May 31, 2006  compared to the three months ended May 31,
2005 of  approximately  $199,000.  Gross  profits  as a  percentage  of  revenue
decreased from 44% to 29%.

      The major element in this decline is low utilization on  telecommunication
contracts in Europe.  Management  is taking a number of actions to improve these
utilization rates.

                                       2
<PAGE>

Selling, general and administrative expenses

      Selling general and administrative expenses for the three months ended May
31, 2006 were  approximately  $1.5  million,  a decrease of  approximately  $0.5
million  compared to the three months ended May 31, 2005 of  approximately  $2.0
million.  For the three months ended May 31, 2005,  the $2.0 million was related
to $0.9  million in Europe,  $0.6  million in Asia and  corporate  overheads  of
approximately $0.5 million.

      In  Asia,  expenses  for  the  three  months  ending  May  31,  2006  were
approximately  $426,000,  a decline of  approximately  $149,000  compared to the
three months ended May 31, 2005 of  approximately  $575,000.  These expenses are
primarily related to staffing, facilities and travel costs.


      In  Europe,  expenses  for the  three  months  ending  May 31,  2006  were
approximately  $441,000,  a decline of  approximately  $492,000  compared to the
three months ended May 31, 2005 of  approximately  $933,000.  These expenses are
primarily  related to staffing,  facilities and travel costs. The London offices
leased  by  Astrata  Europe  Ltd  were  released  in  May  2006  and a  loss  of
approximately  $102,000,  which is included  in the  $441,000  expenses  for the
quarter  ending  May 31,  2006,  was  recorded  in  connection  with  the  early
termination of such lease.


      Corporate  expenses  for  the  three  months  ending  May  31,  2006  were
approximately  $674,000,  an increase of approximately  $198,000 compared to the
three months ending May 31, 2005 of approximately  $476,000. The principal items
underlying  this increase  includes  termination  payments of $54,000;  expenses
previously  reported  in Asia  (that  relate to  terminated  staff) of  $82,000.
Corporate  expenses  also  include  public  company  expenses  of  approximately
$237,000 (in respect of accounting,  auditing, legal fees and director fees) and
administrative  expenses of  approximately  $ 301,000  (primarily  in respect of
marketing, salaries, facilities and travel expenses).

      As  explained in Note 2 to the  financial  statements  included  elsewhere
herein,  the adoption of SFAS 123-R  "Share-Based  Payments"  from March 1, 2006
resulted  in  recording  a non-cash  expense of  approximately  $464,000  in the
quarter ending May 31, 2006.

Interest expense

      Interest expense for the three months ended May 31, 2006 was approximately
$229,000 as compared to $495,000 for the quarter ended May 31, 2005. The quarter
ended May 31, 2005 included approximately $425,000 directly associated with debt
financing.

Net Results of Operations


      Our  operating  loss was  approximately  $1.9 million for the three months
ended May 31, 2006 and approximately $1.8 million for the three months ended May
31, 2005. The increase of $100,000 was principally due to the impact of SFAS No.
123-R for  approximately  $464,000  less the change in fair value of  derivative
warrant liability of approximately $285,000.


Net Results


      We are  reporting a net loss of  approximately  $2.8  million or $0.22 per
common share for the three  months ended May 31, 2006  compared to a net loss of
approximately  $2.8 million or $0.24 per common share for the three months ended
May 31, 2005. Our continuing  operations resulted in a net loss of approximately
$1.8  million or $0.14 per common  share for the three months ended May 31, 2006
and  approximately  $2.3  million or $0.19 per common share for the three months
ended  May 31,  2005.  Our  discontinued  operations  resulted  in a net loss of
approximately  $0.9 million or $0.07 per common share for the three months ended
May 31, 2006 and  approximately  $0.5  million or $0.05 per common share for the
three months ended May 31, 2005.



                                       3
<PAGE>

Liquidity and Capital Resources


Balance Sheet Comparison of May 31, 2006 to February 28, 2006

      During the three  months  ended May 31, 2006,  the Company  determined  it
would withdraw from Geomatics and focus exclusively on Telematics. The Geomatics
business  represents  the vast  majority of the revenue of Astrata  South Africa
(Pty) Ltd. ("ASA"). On May 31, 2006, the Company closed its subsidiary,  Astrata
Systems (Pty) Ltd., ("Systems") and also elected to sell the remaining assets of
ASA as  discussed  in Notes 10 and 11 of the  condensed  consolidated  financial
statements  included  herein.  As of May 31, 2006,  we have  approximately  $4.7
million  in assets  being  held for sale,  and  approximately  $5.2  million  of
liabilities being held for sale, which should be completing in the near future.

      For purposes of the matters  discussed in the  following  two  paragraphs,
management has recast the Company's February 28, 2006 consolidated balance sheet
(included  in the  February  28, 2006 Form 10-KSB filed with the SEC on July 18,
2006) to  retroactively  reflect the  estimated  effect of assets  classified as
"held for sale" at May 31,  2006 and the  related  liabilities.  These pro forma
adjustments,  which are for  discussion  purposes  only,  have been developed by
management  based on the  transactions  and  events  relating  to the  Company's
discontinued   operations  reported  in  the  condensed  consolidated  financial
statements (and discussed in the related notes) included elsewhere herein.

      Total assets  increased by  approximately  $447,000 from  $6,944,837 as of
February 28, 2006 to  $7,392,083  as of May 31, 2006.  The increase is primarily
due to an increase in accounts receivable of approximately $414,000, an increase
in assets  held for sale of  approximately  $328,000;  offset by a  decrease  in
property  and  equipment  of  approximately  $135,000  and a decrease in cash of
approximately $185,000 .

      Total   liabilities   increased   by   approximately   $2.4  million  from
approximately  $16.5  million as of  February  28, 2006 to  approximately  $18.9
million as of May 31,  2006.  The  increase is  primarily  due to an increase in
trade accounts payable and accrued liabilities of approximately $1.1 million; an
increase  in  liabilities  related  to  assets  held for  sale of  approximately
$758,000;  and an increase in notes  payable to  shareholders  of  approximately
$351,000.

Balance Sheet Comparison of May 31, 2006 to May 31, 2005


      Total assets decreased by $6,144,093 from $13,536,176 as of May 31 2005 to
$7,392,083  as of May 31,  2006.  The decrease is due to the decrease in cash of
$161,137;  a increase  in  accounts  receivable  of  $199,786;  an  increase  in
inventory of $12,271;  deferred finance charges of $88,829; an increase in other
assets of $99,869;  an decrease in property and  equipment,  net of $104,478;  a
decrease in advances to an affiliate of $270,637;  and a decrease in assets held
for sale of $6,008,598 relating to the exit from South Africa.

      Total  liabilities  increased by $6,953,290 from $11,905,515 as of May 31,
2005 to  $18,858,805as  of May 31,  2006.  The increase is due to an increase in
trade and accrued payables of $2,653.310;  salaries and benefits due to officers
and directors of $1,548,629;  registration rights penalties of $994,655; warrant
liability of $445,600;  interest payable of $578,593, line of credit of $107,238
(secured by trade  receivables);  an increase  in taxes  payable of $15,903;  an
increase in notes payable and advances from stockholders of $870,656; a decrease
in liabilities  held for sale of $47,442;  an increase in the current portion of
long-term  liabilities  of  $31,493;  an  increase  in the  current  portion  of
preference shares redeemable of $69,162;  an increase in debentures payable (net
of debt issue discount) of $287,957;  a decrease in long term preference  shares
redeemable of $628,715;  a decrease in deferred tax liability of $9,789;  and an
increase in long-term liabilities of $36,042.

      Minority interest decreased by $159,874 from $200,323 as of May 31 2005 to
$40,449 as of May 31, 2006.  This  reflects the  termination  of the  Barloworld
Optron Technologies (Pty) Ltd relationship in September 2005.


Statement of Cashflow Changes


      Our operating  activities used  approximately  $1.1 million in cash in the
quarter ending May 31, 2006. Our net loss of approximately  $2.8 million was the
primary component of our negative  operating cash flow. This net loss was offset
by a number of non cash items totaling approximately $0.8 million. These include
depreciation, amortization, and issuance of stock for services and compensation.
Growth in payables and inventories of  approximately  $2.6 million was offset by
growth in receivables and other assets of approximately  $1.7 million to yield a
net increase in working capital of approximately $0.9 million.


      Cash flows provided by financing  activities for the quarter ended May 31,
2006 were  increases  in lines of  credit  and  advances  from  stockholders  of
approximately $900,000.

      In order for us to fund our  operations  and  continue  this growth  plan,
substantial   additional   funding  will  be  required  from  external  sources.
Management  currently intends to fund operations through a combination of equity
financing  and  lines  of  credit.  Management  is in  discussion  with  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.


Liquidity and Going Concern Considerations


      The condensed  consolidated financial statements included elsewhere herein
have  been  prepared  assuming  we will  continue  in our  present  form,  which
contemplates,  among other things, the realization of assets and satisfaction of
liabilities  in the ordinary  course of business.  For the quarter ended May 31,
2006,  we had a net loss of  approximately  $2.8 million and negative  cash flow
from operating  activities of approximately $1.1 million. In addition,  we had a
working capital deficit of approximately $13.0 million as of May 31, 2006.

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


                                       4

<PAGE>


      In the first quarter of fiscal 2007,  management revised our business plan
to focus on the more  developed  markets  in  Europe,  South East Asia and North
America.  As our core  strategic  direction  is now to  focus on the  telematics
market rather than the geomatics  market,  the Company entered into  discussions
regarding the sale of the geomatics business.  The sale of this business,  which
was  disclosed as a subsequent  event in the February 28, 2006 Form 10-KSB filed
July 18, 2006,  and the winding down of our remaining  South African  operations
will yield annual savings of approximately $5.8 million, or 41% of the Company's
annual selling, general and administrative expenses with an associated headcount
reduction of over 120 members of staff, a  Company-wide  reduction of about 60%.
The Company is now in separate discussions for an equity raise;  however,  until
these  discussions  have  further  matured,  their  success  (if any)  cannot be
reliably determined.


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

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

Subsequent Events

Common Stock Issuances

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


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


Related Party Loans

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

Sale of Geomatics Business in South Africa

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

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

                                       5
<PAGE>

Closure of South African Operations and Related Events

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

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

Major Sales Order

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

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

Off Balance Sheet Arrangements


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


Inflation

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

Foreign Currency Exchange Rate Risk


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


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

Interest Rate Risk

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

                                       6
<PAGE>

Critical Accounting Policies

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

Inventories

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

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

Long-Lived Assets

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

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

Intangible Assets

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

Revenue Recognition

General

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

                                       7
<PAGE>

Sales as a Distributor

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

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

Contract Accounting

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

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

Services Revenue

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

Other Matters

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

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

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.

                                       8
<PAGE>

Recently Issued Accounting Pronouncements

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

Item 3:  Controls and Procedures


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


      Disclosure  controls and procedures are controls and other procedures that
are designed to ensure that information  required to be disclosed in our reports
filed or submitted under the Exchange Act are recorded,  processed,  summarized,
and  reported,  within the time periods  specified in the SEC's rules and forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed to ensure that information  required to be disclosed in our
reports  filed  under  the  Exchange  Act is  accumulated  and  communicated  to
management,  including our Chief Executive Officer and Chief Financial  Officer,
to allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Internal Controls

      Our management does not expect that our disclosure controls and procedures
or our internal control over financial  reporting will  necessarily  prevent all
fraud and  material  error.  An  internal  control  system,  no matter  how well
conceived and operated,  can provide only  reasonable,  not absolute,  assurance
that the  objectives  of the control  system are met.  Further,  the design of a
control  system must reflect the fact that there are resource  constraints,  and
the benefits of controls must be considered relative to their costs.  Because of
the inherent  limitations in all control systems,  no evaluation of controls can
provide  absolute  assurance that all control issues and instances of fraud,  if
any, within the Company have been detected.  These inherent  limitations include
the  realities  that  judgments  in  decision-making  can be  faulty,  and  that
breakdowns can occur because of simple error or mistake. Additionally,  controls
can be circumvented by the individual acts of some persons,  by collusion of two
or more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain  assumptions about the
likelihood of future  events,  and there can e no assurance that any design will
succeed in achieving  its stated goals under all  potential  future  conditions.
Over time,  control may become inadequate  because of changes in conditions,  or
the degree of compliance with the policies or procedures may deteriorate.

                                       9
<PAGE>

                           PART II - OTHER INFORMATION

Item 1:  Legal Proceedings



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


Item 1A:  Risk Factors

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

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

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

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

      o     loss of key employees of acquired operations;

      o     the potential disruption of our ongoing business;

      o     unanticipated expenses related to such integration;

      o     unanticipated expenses related to discontinuance of operations;

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

      o     the potential unknown liabilities associated with acquired business;

      o     inability to recover  strategic  investments  in  development  stage
            entities;

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

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

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

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

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


                                       10

<PAGE>

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

      o     changes in foreign currency exchange rates;

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

      o     trade   protection   measures   and   import  or  export   licensing
            requirements;

      o     potentially negative consequences from changes in tax laws;

      o     difficulty   in   managing   widespread   sales  and   manufacturing
            operations;

      o     less effective protection of intellectual property;

      o     longer sales cycles in international markets;

      o     tariffs, export controls and other trade barriers;

      o     difficulties in collecting accounts receivable in foreign countries;

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

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

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

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


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

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

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

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

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



                                       11

<PAGE>

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

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

We are subject to foreign currency exchange rate fluctuations

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

We operate in a single market segment

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

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

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


                                       12

<PAGE>

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

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

      During the quarter  ended May 31,  2006,  the Company  also issued  25,000
shares of its common  stock in exchange for  services  provided by  consultants.
Such shares were valued at approximately $38,000 (estimated to be the fair value
based on the trading  price on the issuance  date,  with a 15% discount from the
market price). The transactions  described in this paragraph  constituted exempt
offerings under Section 4(2) of the Securities Act.

Item 3:  Defaults upon Senior Securities

         None

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

         None

Item 5:  Other Information

         None


                                       13
<PAGE>

Item 6:  Exhibits

Exhibit No.       Description
------------        ----------------
Exhibit 31.1*     Certification of Chief Executive Officer pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

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

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

-------------------
*    Filed herewith


                                       14
<PAGE>

                                   SIGNATURES

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

           ASTRATA GROUP INCORPORATED

By:        /S/ MARTIN EULER                              Date: August 3, 2006
           ------------------------------------------
           Martin Euler
           Chief Executive Officer,
           Chief Financial Officer,
           Principal Accounting Officer and Secretary

<PAGE>

                                  EXHIBIT INDEX



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

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

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