UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549








FORM
10-Q








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








For the
quarterly period ended: November 30, 2008








[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934





For the
transition period from ___________ to ___________





Commission
file number: 000-32475





ASTRATA
GROUP INCORPORATED


(Exact
name of registrant as specified in its charter)











NEVADA
            
            
            84-1408762(State
      or other jurisdiction of incorporation or organization)
            
            
            (I.R.S.
      Employer Identification No.)940
      South Coast Dr., Suite 215, Costa Mesa, California
            
            
            92626(Address
      of principal executive offices)
            
            
            (Zip
      Code)








Issuer’s
telephone number, including area code:  (714) 641-1512





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirement for
the past 90 days.  Yes [X]  No
[   ]





Indicate
by check mark whether the registrant is a large accelerated filer, and
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large accelerated filer
[  ]                                                                                             Accelerated
filer [  ]


Non-accelerated filer [  ]
(Do not check if a smaller reporting
company)             Smaller
reporting company [X]





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 January 8, 2009: 31,113,819 shares of common stock.


















TABLE
OF CONTENTS




Page


Part
      I - Financial InformationItem
      1     Financial Statements
      (Unaudited)Condensed
      Consolidated Balance Sheets as of November 30, 2008 and February 29,
      2008
            F-1Condensed
      Consolidated Statements of Operations and Comprehensive Loss for the three
      and nine months ended November 30, 2008 and 2007
            F-2Condensed
      Consolidated Statements of Cash Flows for the nine months ended November
      30, 2008 and 2007
            F-3Notes to Condensed Consolidated Financial Statements
            F-4Item
      2      Management’s Discussion and Analysis or
      Plan of Operation
            1Item
      3     Quantitative and Qualitative Disclosures
      About Market Risk
            12Item
      4      Controls and
    Procedures
            13Part
      II - Other InformationItem
      1      Legal Proceedings
            15Item
      1A   Risk Factors
            15Item
      2     Unregistered Sales of Equity Securities and
      Use of Proceeds
            15Item
      3     Defaults Upon Senior
    Securities
            15Item
      4     Submission of Matters to a Vote of Security
      Holders
            15Item
      5     Other Information
            16Item
      6      Exhibits
            16





i


PART
I – FINANCIAL INFORMATION







Item
1:  Condensed Consolidated Financial Statements
(Unaudited)





The
following unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with U.S. generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information not misleading.  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
November 30, 2008 are not necessarily indicative of the results anticipated for
the entire fiscal year ending February 28, 2009.  This report should
be read in conjunction with the Company’s February 29, 2008 annual report on
Form 10-KSB filed with the SEC on June 11, 2008.












ii





ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIESCONDENSED
      CONSOLIDATED BALANCE SHEETSNOVEMBER
      30, 2008 AND FEBRUARY 29, 2008November
      30,
            
            
            February
      29,2008
            
            
            2008ASSETS
            
            (Unaudited)
            
            
            (Audited)Current
      assets:Cash
      and cash equivalents
            
            
            483,455
            
            
            $
            1,032,051Trade
      receivables, net
            
            
            893,419
            
            
            
            1,047,990Inventories
            
            
            210,556
            
            
            
            285,584Cost
      in excess of billings and estimated earnings on uncompleted
      contract
            
            
            6,874,460
            
            
            
            3,289,258Other
      assets
            
            
            328,162
            
            
            
            460,808Total
      current assets
            
            
            8,790,052
            
            
            
            6,115,691Property
      and equipment, net
            
            
            594,046
            
            
            
            617,727Certificate
      of deposit - restricted
            
            
            412,987
            
            
            
            420,998Goodwill
            
            
            300,000
            
            
            
            300,000Notes
      receivable - unconsolidated affiliate
            
            
            50,661
            
            
            
            75,259Other
      assets
            
            
            283,216
            
            
            
            -Total
      assets
            
            $
            10,430,962
            
            
            $
            7,529,675LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Accounts
      payable and accrued liabilities
            
            $
            3,283,677
            
            
            $
            4,267,174Salaries
      and benefits payable to officers and directors
            
            
            6,868,301
            
            
            
            5,586,795Registration
      rights penalties
            
            
            280,000
            
            
            
            599,241Interest
      payable
            
            
            2,189,873
            
            
            
            1,788,203Line
      of credit
            
            
            600,000
            
            
            
            -Deferred
      income
            
            
            482,546
            
            
            
            723,339Income
      taxes and related penalties payable
            
            
            35,799
            
            
            
            517,592Convertible
      notes payable to stockholder
            
            
            1,884,000
            
            
            
            1,884,000Advances
      from stockholders
            
            
            150,638
            
            
            
            142,493Current
      portion of long-term liabilities
            
            
            234,764
            
            
            
            191,161Other
      current liabilities
            
            
            218,184
            
            
            
            393,479Discontinued
      operations - current liabilities
            
            
            -
            
            
            
            8,011Total
      current liabilities
            
            
            16,227,782
            
            
            
            16,101,488Long-term
      liabilities
            
            
            17,967
            
            
            
            9,835Total
      liabilities
            
            
            16,245,749
            
            
            
            16,111,323Commitments
      and contingencies (Note 9)Stockholders'
      deficit:Preferred
      stock, Series A, A2, B and C convertible, $0.0001 par value, 75,000,000
      and10,000,000
      shares authorized as of November 30, 2008 and February 29, 2008,
      respectively;50,000
      and 4,550,000 shares of Series A issued and outstanding with a liquidation
      preferenceof
      $1.00 per share as of November 30, 2008 and February 29, 2008,
      respectively;1,500,000
      shares of Series A2 issued and outstanding with a liquidation
      preferenceof
      $5.00 per share as of November 30, 2008;2,142,857
      shares of Series B issued and outstanding with a liquidation
      preferenceof
      $1.40 per share as of February 29, 2008;1,492,863
      shares of Series C issued and outstanding with a liquidation
      preferenceof
      $7.80 per share as of November 30, 2008;
            
            
            304
            
            
            
            670Common
      stock, $0.0001 par value, 300,000,000 shares authorized,31,113,819
      and 28,480,910 shares issued and outstandingas
      of November 30, 2008 and February 29, 2008, respectively
            
            
            3,111
            
            
            
            2,848Additional
      paid-in capital
            
            
            43,441,989
            
            
            
            38,278,333Accumulated
      deficit
            
            
            (49,039,289
            )
            
            
            (46,471,478
            )Accumulated
      other comprehensive loss
            
            
            (220,902
            )
            
            
            (392,021
            )Total
      stockholders' deficit
            
            
            (5,814,787
            )
            
            
            (8,581,648
            )Total
      liabilities and stockholders' deficit
            
            $
            10,430,962
            
            
            $
            7,529,675See
      accompanying notes to these condensed consolidated financial
      statements.




F-1




ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
    LOSSFOR
      THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2008 AND 2007(UNAUDITED)THREE
      MONTHS
            
            
            NINE
      MONTHS2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      sales
            
            $
            2,857,397
            
            
            $
            4,718,503
            
            
            $
            8,602,701
            
            
            $
            10,350,895Cost
      of goods sold
            
            
            1,736,523
            
            
            
            3,502,922
            
            
            
            5,273,236
            
            
            
            7,446,564Gross
      profit
            
            
            1,120,874
            
            
            
            1,215,581
            
            
            
            3,329,465
            
            
            
            2,904,331Selling,
      general and administrative expenses
            
            
            1,376,930
            
            
            
            1,529,072
            
            
            
            5,278,139
            
            
            
            7,776,890Research
      and development
            
            
            93,957
            
            
            
            -
            
            
            
            451,848
            
            
            
            -Operating
      loss
            
            
            (350,013
            )
            
            
            (313,491
            )
            
            
            (2,400,522
            )
            
            
            (4,872,559
            )Other
      income (expense):Interest
      expense
            
            
            (203,685
            )
            
            
            (749,330
            )
            
            
            (558,919
            )
            
            
            (964,137
            )Other
      income
            
            
            4,222
            
            
            
            81,376
            
            
            
            14,019
            
            
            
            83,013Total
      other income (expense)
            
            
            (199,463
            )
            
            
            (667,954
            )
            
            
            (544,900
            )
            
            
            (881,124
            )Loss
      before tax (benefit)/provision and equity in net (loss) income of
      affiliate
            
            
            (549,476
            )
            
            
            (981,445
            )
            
            
            (2,945,422
            )
            
            
            (5,753,683
            )Income
      tax (benefit)/provision
            
            
            23,408
            
            
            
            677
            
            
            
            (455,490
            )
            
            
            500,677Loss
      before equity in net (loss) income of affiliate
            
            
            (572,884
            )
            
            
            (982,122
            )
            
            
            (2,489,932
            )
            
            
            (6,254,360
            )Equity
      in net (loss) income of affiliate
            
            
            1,814
            
            
            
            -
            
            
            
            (77,878
            )
            
            
            -Loss
      from continuing operations
            
            
            (571,070
            )
            
            
            (982,122
            )
            
            
            (2,567,810
            )
            
            
            (6,254,360
            )Loss
      on discontinued operations, net of tax
            
            
            -
            
            
            
            (106,964
            )
            
            
            -
            
            
            
            (288,284
            )Net
      loss
            
            $
            (571,070
            )
            
            $
            (1,089,086
            )
            
            $
            (2,567,810
            )
            
            $
            (6,542,644
            )Net
      loss from continuing operations applicableto
      common stockholders consists of the following:Loss
      from continuing operations
            
            $
            (571,070
            )
            
            $
            (982,122
            )
            
            $
            (2,567,810
            )
            
            $
            (6,254,360
            )Cumulative
      undeclared dividends on preferred stock (Note 8)
            
            
            -
            
            
            
            (56,000
            )
            
            
            (11,757,951
            )
            
            
            (168,000
            )Net
      loss applicable to common stockholders
            
            $
            (571,070
            )
            
            $
            (1,038,122
            )
            
            $
            (14,325,761
            )
            
            $
            (6,422,360
            )Comprehensive
      loss and its components consist of the following:Net
      loss
            
            $
            (571,070
            )
            
            $
            (1,089,086
            )
            
            $
            (2,567,810
            )
            
            $
            (6,542,644
            )Foreign
      currency translation adjustment, net of tax
            
            
            (315,652
            )
            
            
            (478,349
            )
            
            
            171,119
            
            
            
            (978,376
            )Comprehensive
      loss
            
            $
            (886,722
            )
            
            $
            (1,567,435
            )
            
            $
            (2,396,691
            )
            
            $
            (7,521,020
            )Basic
      and diluted (loss) per common share:Continuing
      operations applicable to common stockholders
            
            $
            (0.02
            )
            
            $
            (0.04
            )
            
            $
            (0.48
            )
            
            $
            (0.27
            )Discontinued
      operations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (0.01
            )$
            (0.02
            )
            
            $
            (0.04
            )
            
            $
            (0.48
            )
            
            $
            (0.28
            )Weighted
      average common shares outstanding:Basic
      and diluted
            
            
            30,014,670
            
            
            
            24,002,951
            
            
            
            29,980,848
            
            
            
            23,989,717See
      accompanying notes to these condensed consolidated financial
      statements.




F-2




ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSFOR
      THE NINE MONTHS ENDED NOVEMBER 30, 2008 AND 2007(UNAUDITED)2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
            
            $
            (2,567,810
            )
            
            $
            (6,542,644
            )Adjustments
      to reconcile net loss to netcash
      provided by (used in) operating activities:Depreciation
      and amortization
            
            
            252,652
            
            
            
            289,145Gain
      on disposal transactions relating to discontinued
    operations
            
            
            -
            
            
            
            (58,304
            )Stock-based
      compensation
            
            
            609,427
            
            
            
            2,350,009Equity
      instruments issued for financing
            
            
            -
            
            
            
            66,000Equity
      loss from  affiliate
            
            
            77,878
            
            
            
            -Realized
      foreign currency exchange gain
            
            
            51,145
            
            
            
            -Changes
      in operating assets and liabilities:Trade
      and other receivables
            
            
            134,033
            
            
            
            (349,302
            )Inventories
            
            
            68,191
            
            
            
            (166,790
            )Billings
      in excess of costs and estimated earnings on uncompleted
      contract
            
            
            -
            
            
            
            611,972Costs
      in excess of billings and estimated earnings on uncompleted
      contract
            
            
            (3,871,486
            )
            
            
            -Other
      assets
            
            
            (243,620
            )
            
            
            406,252Accounts
      payable, accrued liabilities and other current liabilities
            
            
            898,144
            
            
            
            3,131,185Income
      taxes and related penalties payable
            
            
            (481,793
            )
            
            
            493,879Net
      cash provided by (used in) operating activities
            
            
            (5,073,239
            )
            
            
            231,402CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property and equipment
            
            
            (228,971
            )
            
            
            (394,315
            )Investment
      in affiliates
            
            
            -
            
            
            
            11,741Certificate
      of deposit-restricted
            
            
            -
            
            
            
            (412,987
            )Net
      cash used in investing activities
            
            
            (228,971
            )
            
            
            (795,561
            )CASH
      FLOWS FROM FINANCING ACTIVITIESRepayment
      of long-term liabilities
            
            
            (8,483
            )
            
            
            (5,225
            )Repayment
      on long-term debt
            
            
            -
            
            
            
            (600,000
            )Proceeds
      from long-term liabilities
            
            
            16,518
            
            
            
            -Proceeds
      from line of credit
            
            
            645,688
            
            
            
            -Proceeds
      from advances from stockholders
            
            
            -
            
            
            
            228,154Proceeds
      from issuance of common stock
            
            
            122,019
            
            
            
            -Proceeds
      from warrants exercised for common stock
            
            
            -
            
            
            
            2,750,000Proceeds
      from warrants exercised for preferred stock
            
            
            3,950,235
            
            
            
            -Net
      cash provided by financing activities
            
            
            4,725,977
            
            
            
            2,372,929Effect
      of foreign currency exchange rate changeson
      cash and cash equivalents
            
            
            27,637
            
            
            
            (826,260
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            (548,596
            )
            
            
            982,510Cash
      and cash equivalents at beginning of period
            
            
            1,032,051
            
            
            
            179,371Cash
      and cash equivalents at end of period
            
            $
            483,455
            
            
            $
            1,161,881Cash
      paid during the period for:Interest
            
            $
            -
            
            
            $
            -Income
      taxes
            
            $
            -
            
            
            $
            -See
      accompanying notes to these condensed consolidated financial
      statements.




F-3
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


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





Organization
and Nature of Operations





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





Our
expertise is focused on advanced location-based IT products and services that
combine positioning, wireless communications, and information technologies,
which add measurable value to location–based information. We provide advanced
positioning products, as well as monitoring and airtime services to commercial
and governmental entities in a number of markets including homeland security,
public safety, transportation, surveying, utility, construction, mining, and
agriculture.





Telematics
products often focus on people and assets in hostile and demanding environments
such as monitoring the movement of hazardous materials for homeland security
purposes. This business also addresses the market for fleet management,
workforce management, remote asset management and tracking, and emergency
services by providing hardware for GPS information and data collection, as well
as the software needed to access and analyze the data through the Internet. We
offer airtime to communicate data from the vehicle or field locations to the
customer’s data 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.





Examples
of our products and services include surveying instrumentation using GPS and
other augmenting technologies, such as wireless communication and lasers; fleet
management for specialized machines, such as guidance for earth-moving
equipment; positioning and IT technology for remote asset management and
associated Telematics products, field data collection equipment, and products
and airtime communications services for high volume track and trace
applications. Positioning technologies employed by us include GPS and inertial
navigation systems. Communication techniques employed by us include GSM (“Global
Systems for Mobile Telecommunications”), cellular and satellite
communications.





Liquidity
and Going Concern Considerations





For the
nine months ended November 30, 2008, we had a net loss of approximately $2.6
million.  We had negative cash flow from operating activities of
approximately $5.1 million.  In addition, we had a working capital
deficit of approximately $7.4 million, an accumulated deficit of approximately
$49 million and a stockholders’ deficit of approximately $5.8 million as of
November 30, 2008.





Our
February 29, 2008 audited consolidated financial statements included a report of
our independent registered public accounting firm that contained a going concern
paragraph. The going concern paragraph stated that there is substantial doubt
about the Company’s ability to continue as a going concern. These 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
condensed consolidated financial statements do not include any adjustments
related to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result, should the
Company be unable to continue as a going concern.





The
Company’s capital requirements depend on numerous factors, including the
Company’s ability to fill its current backlog, rate of market acceptance of the
Company’s products and services, the Company’s ability to service its customers,
the ability to maintain and expand our customer base, the level of resources
required to expand the Company’s marketing and sales organization, research and
development activities and other factors.  Management presently
believes execution of the Contract (see Note 2 and 4) combined with the
Company’s debt and/or equity financing recently completed and proposals now
under consideration, will be sufficient to meet the Company’s anticipated
liquidity requirements through February 2009. In order for us to fund our
operations and continue this growth plan, substantial additional funding will be
required from external sources.  Management currently intends to fund
operations through a combination of borrowings, letters of credit, debt, and if
necessary, equity-based transactions.


F-4
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


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





Liquidity and
Going Concern Considerations (continued)





The
Company entered into a fixed-price Contract with a Singapore entity on April 10,
2007 to design, develop and manufacture approximately $93.5 million of its
Telematics products. The Company has completed the design phase and is currently
working within the development phase where we have designed the functionality of
the system to meet the customer needs and then developed the functionalities
into a working environment.  Upon completion of the development phase,
all customer testing provisions will be completed and
documented;  thereby removing the only right of cancellation and we
will move into the production phase in early 2009 for delivery over
approximately fifteen months to the customer. With each shipment the customer
will have forty-five days from receipt for normal processing of payment. From
inception of the Contact, we have accomplished all requirements under the
Contract with no liquidated damages incurred. We expect to progress through the
production phase with minimal to no liquidated damages through the completion of
this Contract.





The
Company entered into a $4 million Warrant Exchange Agreement, a Warrant
Amendment Agreement, and a Preferred Stock Exchange Agreement (collectively, the
“Amended and Restated Rights Agreements”), dated as of May 29, 2008, between the
Company and each of the holders of certain warrants, and holders of certain
series of preferred shares issued by the Company (individually, a “Holder” and
collectively, the “Holders”) relating to the Company’s Series A and Series B
Preferred shares. The Amended and Restated Rights Agreements eliminate the
anti-dilution and cashless exercise provisions of the Series A and Series B
warrants (see Note 8).


During December 2008, Astrata entered
into negotiations with an existing shareholder and officer to issue $1 million
of convertible preferred stock at $0.25 per share in addition to a long-term
loan of $2 million; for a total proposed financing of $3
million.  These funds are intended to be used  for working
capital purposes, however there can be no assurance of the outcome of these
events.





2.  CERTAIN
SIGNIFICANT ACCOUNTING POLICIES





The
accompanying unaudited interim condensed consolidated financial statements
reflect adjustments (consisting of normal recurring adjustments) necessary to
present fairly the consolidated financial position of the Company at November
30, 2008, the consolidated results of its operations and its consolidated cash
flows for the three and nine month periods ended November 30, 2008 and
2007.  Certain information and footnote disclosures normally included
in the consolidated financial statements have been condensed or omitted pursuant
to rules and regulations of the Securities and Exchange Commission (“SEC”),
although the Company believes that the disclosures in the unaudited condensed
consolidated financial statements are adequate to ensure the information
presented is not misleading. These unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company’s Annual Report on Form
10-KSB for the fiscal year ended February 29, 2008. The results of operations of
interim periods are not necessarily indicative of future operating
results.  All intercompany amounts have been eliminated in
consolidation.





Use
of Estimates





The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles (“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 condensed
consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Significant estimates and assumptions
made by management include the deferred tax asset valuation allowance, allowance
for doubtful accounts receivable, realization of inventories, goodwill and
long-lived assets, stock-based compensation, certain other equity transactions,
income taxes and related penalties payable and revenue recognition under the
percentage of completion method of accounting.  Actual results could
differ from these estimates.





F-5
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


2.  CERTAIN SIGNIFICANT
ACCOUNTING POLICIES(continued)





Risks and
Uncertainties Related to International Operations


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


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





Cash
and Cash Equivalents





The Company considers all highly liquid
short-term investments with original maturities of three months or less when
purchased to be cash equivalents.





Other
Concentrations





The
financial instruments that potentially expose the Company to a concentration of
credit risk principally consist of cash, cash equivalents and accounts
receivable. The Company deposits its cash with high credit financial
institutions, principally in the United States, Europe and Asia. Certain
countries do not have any institutional depository insurance comparable to the
United States, which insures bank balances up to $250,000 per
bank.  At November 30, 2008, the Company’s cash balances in U.S. bank
accounts totaled approximately $2,000 which is less than the Federal Deposit
Insurance Corporation limit of $250,000.





The
certificate of deposit described below (approximately $413,000 at November 30,
2008) is with a Singapore bank. Because the funds deposited were in U.S.
dollars, such account is not eligible for coverage under Singapore’s Deposit
Insurance Act.





Trade
Accounts Receivable





The
Company records trade accounts receivable when its customers are invoiced for
products delivered and/or services provided, or when contractual billing
milestones have been reached.  As explained under “Revenue
Recognition”, the recording of certain accounts receivable does not necessarily
result in immediate recognition of revenue.





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.





Certificate
of Deposit - Restricted





Under the
terms of the Contract described in Note 4, the Company was required to provide a
performance bond for the benefit of the customer.  In lieu of such
bond, a certificate of deposit was initiated.  The certificate of
deposit (the “CD”) in the amount of approximately $413,000 bears interest at
5.1% per annum and matures in December 2011. Under the terms of the Company’s
arrangement with the bank that issued the CD, the funds will not be available
for withdrawal until December 2011. Thus, the CD is a restricted account which
has been reported as a non-current asset in the accompanying condensed
consolidated balance sheets.


F-6
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


2.  CERTAIN SIGNIFICANT
ACCOUNTING POLICIES (continued)


Derivative
Instruments and Hedging Activities
 
 The
Company records all derivative financial instruments in its condensed
consolidated financial statements at estimated fair value, regardless of the
purpose or intent of holding the instrument.  Changes in the fair
value of derivative financial instruments are either recognized periodically in
the results of operations or in stockholders’ deficit as a component of
accumulated other comprehensive loss, depending on whether the derivative
instrument qualifies for hedge accounting as defined in Statement of Financial
Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative
Instruments and Hedging Activities” and related
interpretations.  Changes in the estimated fair value of derivatives
not qualifying for hedge accounting are included in the results of operations as
they occur.


Fair
Value of Other Financial Instruments





SFAS No.
107, “Disclosures about Fair
Value of Financial Instruments,”requires disclosure of the estimated
fair value (if reasonably obtainable) of the Company’s financial
instruments.  The carrying amount of the Company’s trade accounts
receivable, trade accounts payable, accrued expenses and credit facilities
approximates their estimated fair value due to either the short-term maturities
of those financial instruments and/or the fact that the credit facilities bear
market interest rates.





In the
opinion of management, the fair value of payables to related parties cannot be
estimated without incurring excessive costs; for that reason, the Company has
not provided such disclosure.  Other information about related-party
liabilities (such as the carrying amount, the interest rate, and the maturity
date) is provided, where applicable, elsewhere in these notes to the condensed
consolidated financial statements.





Translation
of Foreign Currencies





The
operations 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 financial position and results of
operations.





The
Company uses the U.S. dollar as its functional currency.  We translate
all assets and liabilities at period-end exchange rates and income and expenses
accounts at average rates during the period.  During the three and
nine months ended November 30, 2008, we had transactions denominated in the
Euro, the British Pound, the Singapore Dollar, the Malaysian Ringgit, and the
Brunei Dollar.  In accordance with SFAS No. 52, “Foreign Currency Translation”
such adjustments are reported as a component of accumulated other comprehensive
loss within stockholders’ deficit.





Inventories





Inventories
are stated at the lower of cost (first-in, first-out) or market, and consist of
finished goods at November 30, 2008 and February 29, 2008. 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, products mix, or other factors that may impact
the estimated net realizable value. Should the demand for the Company’s products
and/or services prove to be significantly less than anticipated, the ultimate
realizable value of the Company’s inventories could be substantially less than
the amount reflected in the accompanying  condensed consolidated
balance sheets.





Property
and Equipment





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


F-7
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


2.  CERTAIN SIGNIFICANT
ACCOUNTING POLICIES (continued)


Other
Assets
 
 Included
in other assets are prepaid expenses and deposits required in the normal course
of operation and approximated $611,000 as of November 30, 2008.  Each
amount is recorded as current and noncurrent assets based on its estimated usage
and/or related terms.


Goodwill
and Other 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 condensed
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, and expands the disclosure
requirements about intangible assets in the years subsequent to their
acquisition.




Long-Lived
Assets





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





As of
November 30, 2008, management has determined that no 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.





Registration
Rights Penalties





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





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





Registration
rights penalties have been accounted for as described above in accordance with
FSP EITF 00-19-2.  When the potential registration rights penalties
became probable, the Company accrued for the full potential contingent penalties
creating the liability and recording the expense in the condensed consolidated
statement of operations.


F-8
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


2.  CERTAIN SIGNIFICANT
ACCOUNTING POLICIES (continued)




Convertible
Preferred Stock
 
 If the
conversion feature of cumulative preferred stock is beneficial (i.e., the market
price of the Company’s common stock exceeds the per-share conversion price when
the preferred stock is issued), management accounts for the beneficial
conversion feature (“BCF”) based on SFAS No. 133 “Accounting for Derivative
Instruments and Certain Hedging Activities” (as amended) and an analysis
of the rights of the preferred stock owners.  When management
concludes that the economic risks and characteristics of the BCF are clearly and
closely related to those of the “host contract “ (the preferred stock), the BCF
(1) is not separated from the host contract or accounted for as a derivative
financial instrument and (2) is measured using intrinsic value
accounting.  The Company has evaluated the conversion features and
determined that the economic characteristics and risks are clearly and closely
related to the host primarily because the host contract is a perpetual interest
and there are no collateral requirements or creditor rights in the instruments.
(see Note 8)


Revenue
Recognition





General





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





Contract
Accounting





The
Company is accounting for the Contract described in Note 4 under the
percentage-of completion method under the AICPA Statement of Position (“SOP”)
81-1, “Accounting for
Performance of Construction-Type and Certain Production –Type Contracts”.
Under the percentage-of-completion method, revenues, expenses and profits are
recognized as performance progresses on long-term contracts. Progress toward
completion is measured using the cost-to-cost method.  The Company
uses the estimated cost of goods (“COGS”) for the project to determine the
associated recognized revenues in the periods in which they are
earned.  This is calculated by taking the actual COGS against the
total projected COGS to determine a percentage of completion; then applying the
percentage against the Contract project total revenues to determine the revenues
for the reporting period.





We follow
the provisions of SOP 81-1, paragraph 78 when updating our Contract
costs.  We employ systematic and consistent procedures for
periodically comparing actual and estimated costs.  Our CTO and
Project Manager, based in Singapore, monitor our project costs on a regular
basis, and are apprised of progress regularly by the customer.





According
to SOP 81-1, paragraph 82 states “adjustments to the original estimates of the
total contract revenue, total contract cost, or extent of progress toward
completion are often required as work progresses under the contract as
experience is gained, even though the scope of the work required under the
contract may not change”.  The nature of accounting for contracts is
such that refinements of the estimating process for changing conditions and new
developments are continuous and characteristic to the process.  We
review our total projected Contract costs on a quarterly basis and make the
appropriate revisions, as deemed necessary.





Should
this quarterly update indicate a contract loss, a provision for the entire loss
on the Contract will be made pursuant to SOP 81-1, paragraph 85.





Other
Matters





Our
Telematics equipment may be sold or provided as part of a monthly package which
includes telecommunications, data warehousing and mapping.  These
revenues are recognized over the life of such contracts as revenues are
earned.





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.


F-9
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


2.  CERTAIN SIGNIFICANT
ACCOUNTING POLICIES (continued)




Other
Matters (continued)


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 recorded
as deferred income and recognized as income on a systematic basis over the life
of the arrangement.
 
 Research
and Development Costs
 
 Research
and development costs relating to GPS positioning hardware and software systems
to be sold or otherwise marketed that are incurred before technological
feasibility of the products has been established and after general release of
the product to customers are expensed as incurred. Management believes that
technological feasibility is not established until a beta version of the
software product exists. Historically, costs incurred during the period from
when a beta version is available until general release to the public have not
been material. Accordingly, the Company has not capitalized any software
development costs.




Stock-Based
Compensation





Effective
March 1, 2006, the Company adopted the provisions of SFAS No. 123-R, “Share-Based Payment” (“SFAS
No. 123-R”). SFAS No. 123-R requires employee stock options and rights to
purchase shares under stock participation plans to be accounted for under the
fair value method and requires the use of an option pricing model for estimating
fair value. Accordingly, share-based compensation is measured at the grant date,
based on the fair value of the award.





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 or modified subsequent to February 28, 2006, based on
the grant-date fair value estimated in accordance with the provisions of SFAS
No. 123-R.





Options granted by the Company
generally expire five years from the grant date. Options granted to existing and
newly hired employees generally vest over a three-year period from the date of
grant. The effects of share-based compensation resulting from the initial
adoption of SFAS No. 123-R to options granted under the Company’s equity
incentive plan resulted in an expense of approximately $31,000 for the three
months ended November 30, 2007 and $450,000 for the nine months ended November
30, 2007.   During the three and nine months ended November 30,
2008 there was no effect of SFAS No. 123-R and no options were
granted.





The
following weighted average assumptions were used in estimating the fair value of
certain share-based payment arrangements:





Three
      and Nine Months EndedNovember
      30, 2007Annual
      dividends
            
            ZeroExpected
      volatility
            
            133%Risk
      free interest rate
            
            3.7%Expected
      life
            
            3.5
      years








The
expected volatility is based on the historical volatility. The expected life of
options previously granted were based on the “simplified method” described in
the SEC’s Staff Accounting Bulletin No. 107 due to changes in the vesting terms
and the contractual life of current option grants compared to the Company’s
historical grants.  The historical forfeiture rate was then calculated
as 6.5%. Management considers this to be a realistic average forfeiture rate
excluding any one time events.





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:


F-10
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


2.  CERTAIN SIGNIFICANT
ACCOUNTING POLICIES (continued)





Stock-Based
Compensation(continued)





Outstanding
      OptionsWeightedWeighted
                
                
                
                
                
                AverageShares
                
                
                
                
                
                Average
                
                
                Aggregate
                
                
                RemainingAvailable
      for
                
                
                Number
      of
                
                
                Exercise
                
                
                Intrinsic
                
                
                ContractualGrant
                
                
                Shares
                
                
                Price
                
                
                Value
      (a)
                
                
                Term
      (in Years)February
      29, 2008
                
                
                2,291,500
                
                
                
                108,500
                
                
                $
                5.00
                
                
                $
                -Grants
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Exercises
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Cancellations
                
                
                4,875
                
                
                
                (4,875
                )
                
                
                -
                
                
                
                -November
      30, 2008
                
                
                2,296,375
                
                
                
                103,625
                
                
                $
                5.00
                
                
                $
                -
                
                
                1.2Options
      vested at:February
      29, 2008
                
                
                
                
                
                
                108,500
                
                
                $
                5.00November
      30, 2008
                
                
                
                
                
                
                103,625
                
                
                $
                5.00








(a)
            These
      amounts represent the difference between the exercise price and $0.09, the
      closing market price of the Company’s common stock on November 30, 2008 as
      quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol
      “ATTG” for all in-the-money options
outstanding.








Basic
and Diluted Loss per Share





In
accordance with SFAS No. 128, “Earnings per Share”, the
Company calculates basic and diluted net loss per share using the weighted
average number of common shares outstanding during the periods presented and
adjusts the amount of net loss, used in this calculation, for preferred stock
dividends during the period.





We
incurred a net loss in each period presented, and as such, did not include the
effect of potentially dilutive common stock equivalents in the diluted net loss
per share calculation, as their effect would be anti-dilutive for all
periods.  Potentially dilutive common stock equivalents would include
the common stock issuable upon the conversion of preferred stock, the exercise
of warrants, stock options and convertible debt.  As of November 30,
2008 and 2007, all potentially dilutive common stock equivalents amount to
66,674,882 and 39,078,585, respectively.





Reclassification





Certain amounts in the prior period
financial statements have been reclassified to conform to the current period
presentation.





Income
Taxes




The
Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes”.
SFAS No. 109 requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included in
the condensed consolidated financial statements or income tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates for the year in which the differences are
expected to reverse.


F-11
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


2.  CERTAIN SIGNIFICANT
ACCOUNTING POLICIES (continued)





Uncertain
Income Tax Positions





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





Segment
Reporting





The
Company discloses information regarding segments in accordance with SFAS No.
131, “Disclosure about
Segments of an Enterprise and Related Information”. SFAS No. 131
establishes standards for reporting of financial information about operating
segments in annual financial statements, and requires reporting selected
information about operating segments in interim financial reports (see Note
10).





Recently
Issued Accounting Pronouncements





On
December 4, 2007, the FASB, issued SFAS No. 141 (Revised 2007), “Business Combinations”. Statement
141R will significantly change the accounting for business combinations. Under
Statement 141R, an acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the acquisition-date fair
value with limited exceptions. Statement 141R will change the accounting
treatment for certain specific items, as follows:





·
            Acquisition
      costs will be generally expensed as
incurred;


·
            Non-controlling
      interests (formerly known as "minority interests" -- see Statement 160
      discussion below) will be valued at fair value at the acquisition
      date;


·
            Acquired
      contingent liabilities will be recorded at fair value at the acquisition
      date and subsequently measured at either the higher of such amount or the
      amount determined under existing guidance for non-acquired
      contingencies;


·
            In-process
      research and development will be recorded at fair value as an
      indefinite-lived intangible asset at the acquisition
  date;


·
            Restructuring
      costs associated with a business combination will be generally expensed
      subsequent to the acquisition date;
and


·
            Changes
      in deferred tax asset valuation allowances and income tax uncertainties
      after the acquisition date generally will affect income tax
      expense.





Statement
141R also includes a substantial number of new disclosure requirements.
Statement 141R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Earlier adoption is prohibited.
Accordingly, a calendar year-end company is required to record and disclose
business combinations following existing GAAP until January 1,
2009.  The Company does not believe the application of this standard
will materially impact its consolidated financial statements.





SFAS No.
157, “Fair Value
Measurements”, provides guidance for using
fair value to measure assets and liabilities. The FASB believes the standard
also responds to investors’ requests for expanded information about the extent
to which companies measure assets and liabilities at fair value, the information
used to measure fair value, and the effect of fair value measurements on
earnings. Statement 157 applies whenever other standards require (or permit)
assets or liabilities to be measured at fair value but does not expand the use
of fair value in any new circumstances. Currently, over 40
accounting standards within GAAP require (or permit) entities to measure assets
and liabilities at fair value. Prior to Statement 157, the methods for measuring
fair value were diverse and inconsistent, especially for items that are not
actively traded. The standard clarifies that for items that are not actively
traded, such as certain kinds of derivatives, fair value should reflect the
price in a transaction with a market participant, including an adjustment for
risk, not just the company’s mark-to-model value. Statement 157 also requires
expanded disclosure of the effect on earnings for items measured using
unobservable data.


F-12
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


2.  CERTAIN SIGNIFICANT
ACCOUNTING POLICIES (continued)





Recently Issued
Accounting Pronouncements (continued)





Under
Statement 157, fair value refers to the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity transacts. In this
standard, the FASB clarifies the principle that fair value should be based on
the assumptions market participants would use when pricing the asset or
liability. In support of this principle, Statement 157 establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions.
The fair value hierarchy gives the highest priority to quoted prices in active
markets and the lowest priority to unobservable data, for example, the reporting
entity’s own data. Under the standard, fair value measurements would be
separately disclosed by level within the fair value hierarchy.





The
provisions of Statement 157 are effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years. Earlier application is encouraged, provided that the reporting
entity has not yet issued financial statements for that fiscal year, including
any financial statements for an interim period within that fiscal
year.  The Company adopted SFAS No. 157 as of March 1, 2008 which had
no material impact its consolidated financial statements.





SFAS  No.
159, “The Fair Value Option
for Financial Assets and Financial Liabilities - Including an
Amendment of FASB Statement No. 115” permits an entity to choose
to measure many financial instruments and certain other items at fair value.
This option is available to all entities, including not-for-profit
organizations. Most of the provisions in Statement 159 are elective; however,
the amendment to SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities”, applies to all entities
with available-for-sale and trading securities. Some requirements apply
differently to entities that do not report net income. The FASB's stated
objective in issuing this standard is as follows: "to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions."





The fair
value option established by Statement 159 permits all entities to choose to
measure eligible items at fair value at specified election dates. A business
entity will report unrealized gains and losses on items for which the fair value
option has been elected in earnings (or another performance indicator if the
business entity does not report earnings) at each subsequent reporting date. A
not-for-profit organization will report unrealized gains and losses in its
statement of activities or similar statement. The fair value option: (a) may be applied instrument
by instrument, with a few exceptions, such as investments otherwise accounted
for by the equity method; (b) is irrevocable (unless a
new election date occurs); and (c) is applied only to entire
instruments and not to portions of instruments.





Statement
159 is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007.  Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes that choice
in the first 120 days of that fiscal year and also elects to apply the
provisions of SFAS No. 157, “Fair ValueMeasurements”.The Company
adopted SFAS No. 159 as of March 1, 2008 which had no material impact its
consolidated financial statements.





SFAS No.
160,“Non-controlling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51” establishes new accounting
and reporting standards for the non-controlling interest in a subsidiary and for
the deconsolidation of a subsidiary. Specifically, this statement requires the
recognition of a non-controlling interest (minority interest) as equity in the
consolidated financial statements and separate from the parent's equity. The
amount of net income attributable to the non-controlling interest will be
included in consolidated net income on the face of the income statement.
Statement 160 clarifies that changes in a parent's ownership interest in a
subsidiary that do not result in deconsolidation are equity transactions if the
parent retains its controlling financial interest. In addition, this statement
requires that a parent recognize a gain or loss in net income when a
subsidiary is deconsolidated. Such gain or loss will be measured using the fair
value of the non-controlling equity investment on the deconsolidation date.
 Statement 160 also includes expanded disclosure requirements regarding the
interests of the parent and its non-controlling interest.  Statement 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Like Statement 141R discussed above,
earlier adoption is prohibited. The Company does not believe the
application of this standard will materially impact its consolidated financial
statements.


F-13
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


2.  CERTAIN SIGNIFICANT
ACCOUNTING POLICIES (continued)





Recently Issued
Accounting Pronouncements (continued)





SFAS No.
161, “Disclosures about Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement
133” enhances
required disclosures regarding derivatives and hedging activities, including
enhanced disclosures regarding how: (a) an entity uses derivative
instruments; (b)
derivative instruments and related hedged items are accounted for under SFAS No.
133, “Accounting for
Derivative Instruments and Hedging Activities”; and (c) derivative instruments and
related hedged items affect an entity's financial position, financial
performance, and cash flows. Specifically, Statement 161 requires:





·
            Disclosure of the objectives for
      using derivative instruments be disclosed in terms of underlying risk and
      accounting designation;


·
            Disclosure of the fair values of
      derivative instruments and their gains and
      losses in a tabular format;


·
            Disclosure of information about
      credit-risk-related contingent features;
  and


·
            Cross-reference
      from the derivative footnote to other footnotes in which
      derivative-related information is
disclosed.





Statement
161 is effective for fiscal years and interim periods beginning after November
15, 2008. Early application is encouraged.  The Company does not
believe the application of this standard will materially impact its consolidated
financial statements.





SFAS No.
162, “The Hierarchy of
Generally Accepted Accounting Principles” identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP in the United States (the GAAP
hierarchy).  Specifically, the sources of accounting principles that
are generally accepted are categorized in descending order of authority as
follows:





a.
            FASB
      Statements of Financial Accounting Standards and Interpretations, FASB
      Statement 133 Implementation Issues, FASB Staff Positions, and American
      Institute of Certified Public Accountants (AICPA) Accounting Research
      Bulletins and Accounting Principles Board Opinions that are not superseded
      by actions of the FASB;


b.
            FASB
      Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and
      Accounting Guides and Statements of
Position;


c.
            AICPA
      Accounting Standards Executive Committee Practice Bulletins that have been
      cleared by the FASB, consensus positions of the FASB Emerging Issues Task
      Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts (EITF
      D-Topics); and


d.
            Implementation
      guides (Q&As) published by the FASB staff, AICPA Accounting
      Interpretations, AICPA Industry Audit and Accounting Guides and Statements
      of Position not cleared by the FASB, and practices that are widely
      recognized and prevalent either generally or in the
    industry.





This
Statement is effective November 15, 2008 and the Company intends to adhere to
this statement.





SFAS No.
163, “Accounting for Guarantee
Insurance Contracts” requires that an insurance enterprise recognize
a claim liability prior to an event of default (insured event) when there
is evidence that credit deterioration has occurred in an insured financial
obligation. This Statement requires expanded disclosures about financial
guarantee insurance contracts. The accounting and disclosure requirements
of the Statement will improve the quality of information provided to users
of financial statements.





Statement
163 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and all interim periods within those
fiscal years, except for some disclosures about the insurance enterprise’s
risk-management activities. This Statement requires that disclosures about
the risk-management activities of the insurance enterprise be effective for
the first period (including interim periods) beginning after issuance of
this Statement. Except for those disclosures, earlier application is not
permitted.  The Company does not believe the application of this
standard will impact its consolidated financial statements.


F-14
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


3.
INVENTORY





Inventories
consisted of the following:





November
      30, 2008Europe
            
            
            Asia
            
            
            TotalsFinished
      goods
            
            $
            17,418
            
            
            $
            193,138
            
            
            $
            210,556$
            17,418
            
            
            $
            193,138
            
            
            $
            210,556February
      29, 2008Europe
            
            
            Asia
            
            
            TotalsFinished
      goods
            
            $
            29,681
            
            
            $
            255,903
            
            
            $
            285,584$
            29,681
            
            
            $
            255,903
            
            
            $
            285,584




4.
CONTRACT IN PROGRESS





The
Company’s Singapore subsidiary entered into the Contract with a Singapore entity
on April 10, 2007 to design, develop and manufacture approximately $93.5 million
of its Telematics products. Deliveries began in January 2008 and we anticipated
beginning major shipments in the early part of 2009 over fifteen months. The
Contract includes a provision for substantial liquidated damages for unexcused
delays in product deliveries and/or failure to satisfy certain
customer-specified acceptance criteria. In addition, in the event of
non-performance by the Company that remains uncorrected after notice from the
customer and the expiration of a contractual grace period, the customer has the
right to cancel the Contract. The Company’s proprietary Telematics system is
undergoing significant customization/modification in order to achieve the
functionality required by the customer.





Under the
terms of the Contract, the schedule of values is used to determine performance
and testing criteria and includes the design, development and manufacturing
phases.  We are to receive payments that become payable upon the
completion of each milestone as agreed upon in the Contract.  The
milestones include delivery of designs and plans, prototype units, harnesses and
memory, main infrastructure components, PDA’s, testing procedures, prototype
units and software.   The Company has billed and collected, in
full, the design phase representing $3.8 million.  We have begun
progress billings under the development phase representing approximately $1.7
million.  The amounts due and payable are determined by delivery of
milestones to the customer.  The Company has completed the design
phase and is currently working within the development phase where we have
designed the functionality of the system to meet the customer needs and then
developed the functionalities into a working environment.  Upon
completion of the development phase, all customer testing provisions will be
completed and documented;  thereby removing all rights of cancellation
and we will move into the production phase for delivery over approximately
fifteen months to the customer. With each shipment the customer will have
forty-five days from receipt for normal processing of payment. From inception of
the Contract, we have accomplished all requirements under the Contract with no
liquidated damages incurred. We expect to progress to move through the
production phase with minimal to no liquidated damages through the completion of
this Contract.





As the
Company is recognizing revenue under the percentage-of completion method under
SOP 81-1, the amounts billed to the customer and received by the Company do not
impact the revenues recognized.





The
Company is accounting for the Contract described above under the percentage-of
completion method under SOP 81-1, “Accounting for Performance of
Construction-Type and Certain Production –Type Contracts”. Under the
percentage-of-completion method, revenues, expenses and profits are recognized
as performance progresses on long-term contracts.  Progress towards
completion is measured using the cost-to-cost method.  The Company
uses the estimated COGS for the project to determine the associated recognized
revenues in the periods in which they are earned under the
percentage-of-completion method of accounting.  This is calculated by
taking the actual COGS against the total projected COGS to determine a
percentage of completion; then applying the percentage against the Contract
project total revenues to determine the revenues for the reporting
period.





F-15
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


4. CONTRACT IN PROGRESS(continued)





During
the three and nine months ended November 30, 2008, the Company recognized
approximately $1 million and $3.5 million, respectively in revenue on the
Contract.  During the three and nine months ended November 30, 2007,
the Company recognized approximately $3.2 million and $6.2 million, respectively
in revenue on the Contract.





As of
November 30, 2008, the Company has unbilled revenues reflected in the condensed
consolidated balance sheet of approximately $6.9 million towards costs and
estimated earnings on the uncompleted Contract.  The Company has
recognized costs and estimated earnings on the uncompleted Contract to date of
approximately $12.4 million; offset by actual billings to the customer of
approximately $5.5 million.





5.  INCOME
TAXES





The
Company adopted FIN 48 effective March 1, 2007.  Management had
determined that the failure to file certain information returns (for the period
from inception to and including the year ended February 28, 2007) may result in
the assessment of income tax penalties.  As a result, management had
accrued an estimate of such penalties at March 1, 2007 in the amount of $0.5
million.





As of
November 30, 2008, the information returns discussed above have been prepared
and filed with no income tax penalties. Accordingly, the Company has removed the
estimated liability of approximately $0.5 million relating to potential income
tax penalties.





All open
tax years of the Company remain subject to examination by tax authorities and,
as applicable, certain foreign tax authorities.





6.  NOTES
PAYABLE





In April
2007, the Company received an unsecured note payable which was due on August 4,
2008 and carries an annual interest rate of 16.5%.  During August
2008, the maturity date was extended to December 4, 2008. The balance of the
note is approximately $64,000 at November 30, 2008 and is included in current
portion of long-term liabilities in the accompanying condensed consolidated
balance sheet.  As of December 31, 2008, this note was purchased by an
officer and shareholder of the Company which included extending the due date to
January 16, 2009.





In August
2007, the Company received an unsecured non-interest bearing note payable which
was due on August 11, 2008. The amount of the imputed interest is
insignificant.  This note payable replaced approximately $130,000 of
accrued expenses.  During August 2008, the maturity date was extended
to December 11, 2008. The balance of the note payable is approximately $164,000
at November 30, 2008 and is included in current portion of long- term
liabilities in the accompanying condensed consolidated balance
sheet.  As of December 31, 2008, this note was purchased by an officer
and shareholder of the Company which included extending the due date to January
16, 2009.





During
the fiscal year ended February 28, 2007, certain stockholders advanced funds to
the Company for working capital purposes at an annual interest rate of 15%
payable upon demand with a remaining balance of approximately $81,000 as of
November 30, 2008.   During the fiscal year ended February 29,
2008, certain stockholders advanced additional funds to the Company in the
amount of approximately $70,000 for working capital purposes at an annual
interest rate of 15% payable upon demand.  The aggregate balance of
stockholders advances is approximately $151,000 at November 30, 2008 and is
included in advances from stockholders in the accompanying condensed
consolidated balance sheet.





In
September 2008, the Company received a $1.2 million line of credit which
carries an annual interest rate based on the Prime Rate plus 3% (7% as of
November 30, 2008).  Principal and interest is due within six months
and upon payment in full the $1.2 million line of credit will be re-established
with the same terms.  The balance of the line of credit is $600,000 at
November 30, 2008.


F-16
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


7.  OTHER
MATTERS RELATING TO CERTAIN DEBT AND EQUITY INSTRUMENTS





In
previous years, the Company entered into certain convertible debt
financings.  A $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 are
outstanding at November 30, 2008 and are included in the convertible notes
payable to stockholders on the accompanying condensed consolidated balance
sheet.







8.  EQUITY
TRANSACTIONS





Issuances
of Preferred Stock





May
29, 2008 Series C Preferred Stock Transaction





Background





Following
approval of its Board of Directors and a majority of its Shareholders, the
Company entered into a Warrant Exchange Agreement, a Warrant Amendment
Agreement, and a Preferred Stock Exchange Agreement (collectively, the “Amended
and Restated Rights Agreements”), dated as of May 29, 2008, between Company and
each of the holders of certain warrants, and holders of certain series of
Preferred shares issued by the Company (individually, a “Holder” and
collectively, the “Holders”) relating to the Company’s Series A and Series B
Preferred shares and related warrants. The Company accepted an exchange of
warrants with modified terms for cash and Series C Preferred stock; and the
exchange of Series A and Series B Preferred stock for Series A-2 Preferred stock
sequentially with all transactions closing concurrently on the same
day.  The Company offered the same terms to all participants of Series
A and Series B Preferred stock and related warrant holders for a limited 20 day
period of exchange. The specific changes contained in the Amended and Restated
Rights Agreements are as follows:





·
            Decrease
      the exercise price of 5,963,571 Series A Preferred stock warrants, 805,260
      Series B Preferred stock warrants, 4,384,027 Series C Preferred stock
      warrants, 3,657,142 Series J Preferred stock warrants and 1,200,000 Other
      Preferred stock warrants from exercise prices ranging between $1.00
      through $1.50 per share to $0.25 per share.  The warrant terms
      were also modified to eliminate the anti-dilution and cashless exercise
      provisions of each of the warrant series and so that the holders of the
      warrants received 800,000 shares of Series C Preferred stock upon exercise
      of the warrants instead of shares of the Company’s common
      stock.  These warrants were then exercised for cash proceeds of
      $4,000,000.


·
            Simultaneously,
      modify 314,286 Series A Preferred stock warrants, 5,462,597 Series B
      Preferred stock warrants, 1,883,830 Series C Preferred stock warrants,
      6,267,857 Series D Preferred stock warrants and 628,572 Series J Preferred
      stock warrants so that the holders exchanged such warrants for 1,285,238
      shares of Series C Preferred stock.


·
            Simultaneously,
      modify 4,500,000 shares of Series A Preferred stock and 2,142,857 shares
      of Series B Preferred stock so that the holders exchanged such shares for
      1,500,000 shares of Series A-2 Preferred
stock.





The
Certificates of Designation for the Series A-2 Preferred shares and the Series C
Preferred shares contain the same terms except that the Series A-2 Preferred
shares maintain privileges from the Series A Preferred stock in the event of
certain transactions; and the Series C Preferred shares do not have these
privileges.





Overall
Consideration





The
substance of this transactions is to convert the Series A and Series B Preferred
stock and related warrants exercisable for shares into Series A-2 and Series C
Preferred stock.  Based on an assessment of the overall effect of the
components of the transaction, there is an increase of 11,861,904 potential
shares to be issued between the number of shares to be issued upon conversion of
the Series A-2 and Series C Preferred Stock versus the number of shares that
would have been issued upon the conversion of the Series A and Series B
Preferred stock and the exercise of the Series A, B, C, D, J and Other warrants.
This is accomplished through the reduction of the conversion and exercise prices
from between $0.50 to $1.75 to $0.25 and $0.39.


F-17
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


8.  EQUITY
TRANSACTIONS (continued)





Issuances of
Preferred Stock(continued)





Accounting for
Transactions





Change in Exercise
Price





The
change in the exercise prices of the Series A, B, C, J and other warrants as
well as the change such that the warrants are exercisable in exchange for Series
C Preferred Stock instead of common stock is considered to be a modification and
must be accounted for in accordance with paragraph 51 of SFAS No. 123(R), “Share-Based Payment,” (“SFAS
123(R)”) as follows:





“A
modification of the terms or conditions of an equity award shall be treated as
an exchange of the original award for a new award. In substance, the entity
repurchases the original instrument by issuing a new instrument of equal or
greater value, incurring additional compensation cost for any incremental value.
The effects of a modification shall be measured as follows:





Incremental
compensation cost shall be measured as the excess, if any, of the fair value of
the modified award determined in accordance with the provisions of this
Statement over the fair value of the original award immediately before its terms
are modified, measured based on the share price and other pertinent factors at
that date.”





The
warrants were exercisable into 16,000,000 shares of common stock. The fair value
of the warrants on the transaction date before the modifications was determined
to be $4,110,225 using the Black-Scholes option pricing model in accordance with
SFAS 123(R). The fair value of the warrants on the transaction date after the
modifications was determined to be $5,696,144 using the Black-Scholes option
pricing model in accordance with SFAS 123(R). In addition, the warrants were
originally issued as part of an equity transaction and the fair value of those
warrants was recorded as paid-in capital; therefore, a modification resulting in
a change in the fair value of those warrants would also be recorded as paid-in
capital rather than as a compensation charge.  As a result, the
difference in the fair value of the warrants before and after the modification
of $1,585,919 was be recorded as a deemed dividend – since these warrant holders
are also holders of the Company’s Series A and Series B Preferred stock and are
the beneficiaries of the increase in incremental value – and was be recognized
over the period until the Series C Preferred Stock becomes convertible, which
was upon issuance since the Series C Preferred stock are convertible upon
issuance. However, since the Company did not have retained earnings on the
transaction date, the deemed dividend was accounted for by reducing additional
paid-in capital. The accounting for these dividends also requires that they be
credited to additional paid-in capital; as a result, there was no net effect of
the transaction on the Company’s stockholders’ deficit on the transaction
date.





The
reporting of the basic and diluted loss per common share was accounted for in
accordance with paragraphs 8 and 9 of SFAS No. 128, “Earnings per
Share.”  Paragraph 8 states “the objective of basic earnings
per share (“EPS”) is to measure the performance of an entity over the reporting
period. Basic EPS shall be computed by dividing income available to common
stockholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) during the period. Shares issued during the period
and shares reacquired during the period shall be weighted for the portion of the
period that they were outstanding.” Paragraph 9 states “income available to
common stockholders shall be computed by deducting both the dividends declared
in the period on preferred stock (whether or not paid) and the dividends
accumulated for the period on cumulative preferred stock (whether or not
earned)from income
from continuing operations (if that amount appears in the income statement) and
also from net income. If there is a loss from continuing operations or a net
loss, the amount of the loss shall be increased by those preferred
dividends.”  Therefore, the deemed dividend to Preferred stockholders
was added to the net loss in determining the net loss available to common
shareholders in the condensed consolidated statement of
operations.





Exchange of Warrants for
shares of Series C Preferred Stock





Based on
the facts of the transaction, this is considered to be a non-monetary exchange
and was accounted for at fair value in accordance with APB No. 29, “Accounting for Non-Monetary
Transactions” (as amended by SFAS 153). The transaction does not qualify
for the exception for transactions that lack “commercial substance’ since the
future cash flows of the Company are expected to change significantly as a
result of the transaction (the Company would have received cash proceeds from
the exercise of the warrants but will receive no cash proceeds upon the
conversion of the Series C Preferred stock).


F-18
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


8.  EQUITY
TRANSACTIONS (continued)





Issuances of
Preferred Stock(continued)





The
warrants were exercisable into 14,557,142 shares of common stock. The fair value
of the warrants on the transaction date was determined to be $4,331,396 using
the Black-Scholes option pricing model in accordance with SFAS
123(R).  The Series C Preferred stock has a liquidation preference of
$7.80 per share with a 20:1 conversion to the Company’s common shares issuable
upon conversion; therefore, the liquidation preference on a per-share of common
stock basis of $0.39 (fair value) is equal to the closing price of the Company’s
common stock on May 29, 2008, which was determined to be $3,784,856. The
difference in fair value between the warrants and the Preferred stock exchanged
of $546,540 is considered to be a deemed dividend to the Preferred stockholders,
with the entire amount charged to equity on the transaction date. However, since
the Company did not have retained earnings on the transaction date, the deemed
dividend was accounted for by reducing additional paid-in capital. The
accounting for these dividends also requires that they be credited to additional
paid-in capital; as a result, there was no net effect of the transaction on the
Company’s stockholders’ deficit on the transaction date.





The
Company reported the basic and diluted loss per common share pursuant to
paragraphs 8 and 9 of SFAS No. 128, “Earnings per Share.”  As a
result, the deemed dividend to Preferred stockholders was added to the net loss
in determining the net loss available to common shareholders in the condensed
consolidated statement of operations.





Accounting for Series C
Preferred Stock





SFAS
No. 150, “Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity,” (“SFAS 150”) requires an issuer to classify the following
instruments as liabilities (or assets in some circumstances):  a
financial instrument issued in the form of shares that is mandatorily
redeemable—that embodies an unconditional obligation requiring the issuer to
redeem it by transferring its assets at a specified or determinable date (or
dates) or upon an event that is certain to occur.  However, SFAS 150
provisions do not apply if redemption is required to occur only upon the
liquidation or termination of the reporting entity. The Series C Preferred Stock
contains no unconditional obligation requiring redemption.  SFAS 150
also requires unconditional obligations in the form of shares that the issuer
must or may settle by issuing a variable number of shares to be classified as a
liability.  The Series C Preferred Stock contains no unconditional
obligations that may be settled in a variable number of shares.  The
Series C Preferred Stock contains redemption features if a Major Transaction or
Triggering Event were to occur, that may be settled in cash or shares, at the
Company’s option or solely within the Company’s control.  These
transactions are not certain to occur and are not
unconditional.  Accordingly, the Series C Preferred Stock is
considered not to be within the scope of SFAS 150.





The
conversion feature in the Series C Preferred Stock was also evaluated as a
potential embedded derivative in accordance with SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities.”(“SFAS 133”)  SFAS 133
provides guidance on derivative instruments and contracts that do not in their
entirety meet the definition of a derivative instrument but may contain
“embedded” derivative instruments.  SFAS 133 requires that an embedded
derivative instrument be separated from the host contract and accounted for as a
derivative instrument if specified criteria are met.  It also
indicates the necessary criteria for bifurcation including (i) that the economic
characteristics and risks of the embedded derivative instrument are not clearly
and closely related to the economic characteristics and risks of the host
contract, as well as (ii) that a separate instrument with the same terms as the
embedded derivative instrument would be a derivative instrument subject to the
requirements of the Statement.





SFAS 133
paragraph 61 (l) provides guidance on evaluating convertible Preferred stock and
requires that the terms of the Preferred stock (other than the conversion
option) be analyzed to determine whether the economic characteristics and risks
are more akin to a debt or an equity instrument. Based on an evaluation of the
conversion features, the economic characteristics and risks are considered to be
more akin to equity since they are clearly and closely related to the host
primarily because the host contract is a perpetual interest and there are no
collateral requirements or creditor rights in the
instruments.  Therefore, the conversion feature does not need to be
bifurcated from the host instrument.


F-19
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


8.  EQUITY
TRANSACTIONS (continued)





Issuances of
Preferred Stock(continued)





The
Series C Preferred Stock was also analyzed in comparison to the requirements of
EITF Abstracts, Topic D-98, “Classification and Measurement of
Redeemable Securities” (“Topic D-98”) and the SEC’s Regulation S-X,
Article 5-02.28 (“Reg S-X”).  Reg S-X requires securities that are
redeemable for cash or other assets to be classified outside of permanent equity
if they are redeemable upon the occurrence of an event that is not solely within
the control of the issuer.  Topic D-98 excludes cash redemption upon
final liquidation as an event requiring classification outside of permanent
equity.  In addition, Topic D-98 states that if a company issues
preferred shares that are conditionally redeemable, for example, at the holder's
option or upon the occurrence of an uncertain event not solely within the
company's control, the shares are not within the scope of SFAS 150 because there
is no unconditional obligation to redeem the shares by transferring assets at a
specified or determinable date or upon an event certain to occur. If the
uncertain event occurs, the condition is resolved, or the event becomes certain
to occur, then the shares become mandatorily redeemable under SFAS 150 and would
require reclassification to a liability. Certain events require cash redemption
of the Series C Preferred Stock; however, the Company is either in sole control
of these events or upon the occurrence of an uncertain event not solely within
the Company’s control. Upon any required conversion the Company has the ability
to deliver unregistered common shares. However, the shares become redeemable in
the event that the Company does not timely file all reports required by Section
13(a) of 15(d) of the Exchange Act of ’34. Based on the terms of the agreement,
the Company has the ability (at its option) to settle this via the delivery of
unregistered common shares.  Accordingly, this is deemed to be within
the control of the Company. Therefore, the Series C Preferred Stock is
considered to be permanent equity in accordance with Topic D-98 and Reg
S-X.





Finally,
the existence of a BCF must be determined in accordance with EITF 98-5, “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios,” and EITF 00-27, “Application of Issue No. 98-5 to
Certain Convertible Instruments,” and the amount of the BCF calculated in
accordance with these accounting standards, if any, must be recorded. The Series
C Preferred Stock conversion price of $0.39 per share was equal to the Company’s
closing stock price on the transaction date and therefore no BCF existed at the
time of issuance of the Series C Preferred Stock.





Exchange of Series A and
Series B Preferred Stock for Series A-2 Preferred Stock





Based on
the facts of the transaction, this is considered to be a non-monetary exchange
and was accounted at fair value for in accordance with APB 29, “Accounting for Non-Monetary
Transactions (as amended by SFAS 153).” The transaction did not qualify
for the exception for transactions that lack “commercial substance.’ Although
the future cash flows of the Company are not expected to change significantly as
a result of the transaction (the Company will not receive proceeds from the
conversion of either the Series A, the Series B or the Series A-2 Preferred
stock), using the number of shares to be issued upon conversion of the Series A
and Series B Preferred stock compared to the number to be issued upon the
conversion of the Series A-2 as a measure of entity-specific value as discussed
in paragraph 21.b of SFAS 153 shows that there would be an effect on the Company
(13,285,714 total shares versus 30,000,000 shares). Because the transaction has
entity specific value, it therefore has commercial substance and therefore must
be measured at fair value.





The
Series A and Series B Preferred stock were convertible into 9,000,000 and
4,285,714 shares of Company common stock, respectively. The fair value of the
Series A and Series B Preferred stock was based on the closing price of the
Company’s common stock on the transaction date and the number of common shares
issuable upon conversion and was determined to be $5,181,428. The Series A-2
Preferred stock is convertible into 30,000,000 shares of common stock. The
Series A-2 Preferred stock has a liquidation preference of $7.80 per share with
a 20:1 conversion to the Company’s common shares issuable upon conversion;
therefore, the liquidation preference on a per-share of common stock basis of
$0.39 (fair value) was equal to the closing price of the Company’s common stock
on May 29, 2008, which was determined to be $11,700,000.  The
difference in fair value of the Preferred stock exchanged, $6,518,572, was
considered to be a deemed dividend to the Preferred stockholders, with the
entire amount charged to equity on the transaction date. However, since the
Company did not have retained earnings on the transaction date, the deemed
dividend was accounted for by reducing additional paid-in capital. The
accounting for these dividends also requires that they be credited to additional
paid-in capital; as a result, there was no net effect of the transaction on the
Company’s stockholders’ deficit on the transaction date.





The
Company reported the basic and diluted loss per common share pursuant to
paragraphs 8 and 9 of SFAS No. 128, “Earnings per Share.”  As a
result, the deemed dividend to Preferred stockholders was added to the net loss
in determining the net loss available to common shareholders in the condensed
consolidated statement of operations.


F-20
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


8.  EQUITY
TRANSACTIONS (continued)





Issuances of
Preferred Stock(continued)





Accounting for Series A-2
Preferred Stock





SFAS 150
requires an issuer to classify the following instruments as liabilities (or
assets in some circumstances):  a financial instrument issued in the
form of shares that is mandatorily redeemable—that embodies an unconditional
obligation requiring the issuer to redeem it by transferring its assets at a
specified or determinable date (or dates) or upon an event that is certain to
occur.  However, SFAS 150 provisions do not apply if redemption is
required to occur only upon the liquidation or termination of the reporting
entity. The Series A-2 Preferred Stock contains no unconditional obligation
requiring redemption.  SFAS 150 also requires unconditional
obligations in the form of shares that the issuer must or may settle by issuing
a variable number of shares to be classified as a liability.  The
Series A-2 Preferred Stock contains no unconditional obligations that may be
settled in a variable number of shares.  The Series A-2 Preferred
Stock contains redemption features if a Major Transaction or Triggering Event
were to occur, that may be settled in cash or shares, at the Company’s option or
solely within the Company’s control.  These transactions are not
certain to occur and are not unconditional.  Accordingly, the Series
A-2 Preferred Stock was considered to not be within the scope of SFAS
150.





The
conversion features in the Series A-2 Preferred Stock were evaluated as a
potential embedded derivative in accordance with SFAS
No. 133.   SFAS 133 provides guidance on derivative
instruments and contracts that do not in their entirety meet the definition of a
derivative instrument but may contain “embedded” derivative
instruments.  SFAS 133 requires that an embedded derivative instrument
be separated from the host contract and accounted for as a derivative instrument
if specified criteria are met.  It also indicates the necessary
criteria for bifurcation including (i) that the economic characteristics and
risks of the embedded derivative instrument are not clearly and closely related
to the economic characteristics and risks of the host contract, as well as (ii)
that a separate instrument with the same terms as the embedded derivative
instrument would be a derivative instrument subject to the requirements of the
Statement.





SFAS 133
paragraph 61 (l) provides guidance on evaluating the convertible Preferred stock
and requires that the terms of the Preferred stock (other than the conversion
option) be analyzed to determine whether the economic characteristics and risks
are more akin to a debt or an equity instrument. Based on an evaluation of the
conversion features, the economic characteristics and risks are considered to be
more akin to equity since they are clearly and closely related to the host
primarily because the host contract is a perpetual interest and there are no
collateral requirements or creditor rights in the
instruments.  Therefore, the conversion feature does not need to be
bifurcated from the host instrument.





The
Series A-2 Preferred Stock was also analyzed in comparison to the requirements
of EITF Abstracts, Topic D-98 and the SEC’s Reg S-X.  Reg S-X requires
securities that are redeemable for cash or other assets to be classified outside
of permanent equity if they are redeemable upon the occurrence of an event that
is not solely within the control of the issuer.  Topic D-98 excludes
cash redemption upon final liquidation as an event requiring classification
outside of permanent equity.  In addition, Topic D-98 states that if a
company issues Preferred shares that are conditionally redeemable, for example,
at the holder's option or upon the occurrence of an uncertain event not solely
within the company's control, the shares are not within the scope of SFAS 150
because there is no unconditional obligation to redeem the shares by
transferring assets at a specified or determinable date or upon an event certain
to occur. If the uncertain event occurs, the condition is resolved, or the event
becomes certain to occur, then the shares become mandatorily redeemable under
SFAS 150 and would require reclassification to a liability. Certain events
require cash redemption of the Series A-2 Preferred Stock; however, the Company
is either in sole control of these events or upon the occurrence of an uncertain
event not solely within the Company’s control. Upon any required conversion the
Company has the ability to deliver unregistered common shares. However, the
shares become redeemable in the event that the Company does not timely file all
reports required by Section 13(a) of 15(d) of the Exchange Act of
’34.  Based on the terms of the agreement, the Company has the ability
(at its option) to settle this via the delivery of unregistered common
shares.  Accordingly, this is deemed to be within the control of the
Company.  Therefore, the Series A-2 Preferred Stock is considered to
be permanent equity in accordance with Topic D-98 and Reg
S-X.


F-21
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


8.  EQUITY
TRANSACTIONS (continued)





Issuances of
Preferred Stock(continued)





Finally,
the existence of a BCF must be determined in accordance with EITF 98-5, “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios,” and EITF 00-27, “Application of Issue No. 98-5 to
Certain Convertible Instruments,” and the amount of the BCF calculated in
accordance with these accounting standards, if any, must be recorded. The Series
A-2 Preferred Stock conversion price of $0.25 per share was in-the-money when
issued, since the Company’s closing stock price on May 29, 2008 was $0.39, and
therefore a BCF existed at the time of issuance of the Series A-2 Preferred
Stock. The BCF, $6,518,572, is considered to be a deemed dividend to the
preferred stockholders, with the entire amount charged to equity on the
transaction date. However, since the Company did not have retained earnings on
the transaction date, the deemed dividend was accounted for by reducing
additional paid-in capital. The accounting for these dividends also requires
that they be credited to additional paid-in capital; as a result, there was no
net effect of the transaction on the Company’s stockholders’ deficit on the
transaction date.





The
Company reported the basic and diluted loss per common share pursuant to
paragraphs 8 and 9 of SFAS No. 128, “Earnings per Share.”  As a
result, the deemed dividend to Preferred stockholders was added to the net loss
in determining the net loss available to common shareholders in the condensed
consolidated statement of operations.





Accounting Treatment of the
Company’s Derivatives





Paragraph
10 of EITF 00-19, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock,” requires that contracts be reassessed at each
balance sheet date or as result of transactions during a period.  One
of the criteria to be satisfied so that a potential derivative can be accounted
for as equity is that the Company have sufficient authorized and unissued shares
available to settle a contract after all other commitments that may require the
issuance of stock.





As part
of the transactions discussed above, on May 27, 2008 the Company’s Board
approved modification of the Astrata Articles of Incorporation to increase
authorized Preferred stock to 75,000,000 shares; also authorizing Common Stock
to 300,000,000 shares.  On May 28, 2008, the Company received 52% of
the common stockholder’s approval for the modification of the Astrata Articles
of Incorporation.





As a
result of the approval discussed above, the number of authorized and unissued
shares of the Company is sufficient to settle all the current potential common
stock commitments that may require the issuance of common stock, which as of May
29, 2008 was 101,102,341 shares of common stock fully diluted. Therefore, no
further assessment is required.





As of
June 18, 2008, holders of approximately 8.2 million warrants, with a
twenty (20) day offer elected to participate in the exchange and
exercised approximately 2.1 million warrants for approximately 2.1 million
shares of Common stock with cash and non-cash proceeds
of approximately $37,000 and $482,000, respectively .  Then
the participants forfeited approximately 2.1 million in warrants and exchanged
approximately 4.2 million warrants for approximately 208,000 shares of Series C
Preferred stock.  The remaining approximately 3.5 million Preferred
stock warrant holders which did not elect to participate in the exchange will
continue to hold their original warrants with terms modified
eliminating the anti-dilution and cashless exercise provision.  In
addition, in accordance with the anti-dilution terms of the warrant agreement,
the exercise price of these approximately 3.5 million warrants was reduced to
$0.61.





Issuance
of Common Stock and Other Equity Instruments





During
the quarter ended May 31, 2008, the Company issued approximately 43,000 shares
of its restricted common stock in exchange for services provided by consultants.
Such shares were valued at approximately $22,000 (estimated to be the closing
value based on the trading price on the issuance date).  This
transaction constituted an exempt offering under Section 4(2) of the Securities
Act.





The June
18, 2008 Series C Preferred stock transaction reflected above included the
exchange of approximately 1.9 million warrants for approximately 1.9 million
shares of common stock for approximately $482,000 of debt.  This
transaction constituted an exempt offering under Section 4(2) of the Securities
Act.





F-22
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


8.  EQUITY
TRANSACTIONS (continued)





Issuance of
Common Stock and Other Equity Instruments (continued)





The June
18, 2008 Series C Preferred stock transaction reflected above included the
exchange of approximately .2 million warrants for approximately .2 million
shares of common stock for cash proceeds of approximately
$37,000.  This transaction constituted an exempt offering under
Section 4(2) of the Securities Act.





During
the quarter ended August 31, 2008, the Company issued approximately 174,000
shares of its restricted common stock in exchange for services provided by
employees and consultants. Such shares were valued at approximately $76,000
(estimated to be the closing value based on the trading price on the issuance
date).  This transaction constituted an exempt offering under Section
4(2) of the Securities Act.





During
the quarter ended August 31, 2008, the Company issued approximately 239,000
shares of its restricted common stock in exchange for cash of approximately
$60,000 (estimated to be the closing value based on the trading price on the
issuance date).  This transaction constituted an exempt offering under
Section 4(2) of the Securities Act.





During
the quarter ended November 30, 2008, the Company issued approximately 100,000
shares of its restricted common stock in exchange for services provided by
employees.  Such shares were valued at approximately $25,000
(estimated to be the closing value based on the trading price on the issuance
date).  This transaction constituted an exempt offering under Section
4(2) of the Securities Act.





Common
shares issued which vest over a three-year period from the date of grant, are
amortized over the vesting period resulting in an expense of approximately
$184,000 for the three months ended November 30, 2008 and $511,000 for the nine
months ended November 30, 2008.








9.  COMMITMENTS
AND CONTINGENCIES





Legal
Matters





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





Registration
Rights Penalties





The
Company is contractually liable for certain penalties because its registration
statement relating to the preferred stock and the April/May 2005 sale of equity
units was not filed (or expected to be declared effective by the SEC) by the
deadline dates.  During June 2008, the Company issued restricted
common stock in settlement of approximately $0.3 million registration rights
penalties which is included in the issuance of approximately 2.1 million shares
of common stock issued June 18, 2008 as reflected above.   Based
on the current estimate of the filing and effective dates of such registration
statement and the contractual deadlines, as of November 30, 2008, the Company
has accrued estimated penalties and related interest of approximately $0.3
million.





Accrued
Interest Expense





A number
of directors, officers, employees and consultants have deferred salaries, fees
and/or expenses for significant periods of time to support the
Company.  These loans accrue 1% per month simple interest on balances
that remained outstanding for over six months.  During the three and
nine months ended November 30, 2008, we accrued interest payable and expensed
approximately $69,000 and $179,000 respectively.  During the three and
nine months ended November 30, 2007, we accrued interest payable and expensed
approximately $278,000.  Accrued interest is included within interest
expense in the accompanying condensed consolidated statement of
operations.
 F-23
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


10.
SEGMENT REPORTING AND GEOGRAPHIC INFORMATION





Revenues
(from continuing operations) reported in the accompanying condensed consolidated
statements of operations relate exclusively to the Company’s Telematics
operations. Thus, management has not reported the segment information otherwise
required by SFAS No. 131, “Disclosure about Segments of an
Enterprise and Related Information.”





Telematic
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.





Certain
condensed geographic information is presented below including property and
equipment, revenues:





Property
      and
            
            
            Property
      andEquipment,
      net
            
            
            Equipment,
      netNovember
      30, 2008
            
            
            February
      29, 2008Asia
            
            $
            562,225
            
            
            $
            528,740United
      States
            
            
            11,593
            
            
            
            -Western
      Europe
            
            
            20,228
            
            
            
            88,987Total
            
            $
            594,046
            
            
            $
            617,727Three
      Months Ended
            
            
            Nine
      Months EndedNovember
      30, 2008
            
            
            November
      30, 2007
            
            
            November
      30, 2008
            
            
            November
      30, 2007Revenue
            
            
            Revenue
            
            
            Revenue
            
            
            RevenueAsia
            
            $
            2,625,797
            
            
            $
            4,552,639
            
            
            $
            7,828,835
            
            
            $
            9,897,819United
      States
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Western
      Europe
            
            
            231,600
            
            
            
            165,864
            
            
            
            773,866
            
            
            
            453,076Total
            
            $
            2,857,397
            
            
            $
            4,718,503
            
            
            $
            8,602,701
            
            
            $
            10,350,895




F-24
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


11.  LOSS
PER COMMON SHARE





The
following is a reconciliation of the numerators and denominators of the basic
and diluted loss per common share from continuing operations computations for
the three and nine months ended November 30, 2008 and 2007:





Three
      Months
            
            
            Three
      Months
            
            
            Nine
      Months
            
            
            Nine
      MonthsNovember
      30,
            
            
            November
      30,
            
            
            November
      30,
            
            
            November
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Numerator
      for basic and diluted loss per common share:Net
      loss from continuing operations
            
            $
            (571,070
            )
            
            $
            (982,122
            )
            
            $
            (2,567,810
            )
            
            $
            (6,254,360
            )Cumulative
      undeclared dividends on preferred stock
            
            
            -
            
            
            
            (56,000
            )
            
            
            (11,757,951
            )
            
            
            (168,000
            )Net
      loss from continuing operations applicableto
      common shareholders
            
            $
            (571,070
            )
            
            $
            (1,038,122
            )
            
            $
            (14,325,761
            )
            
            $
            (6,422,360
            )Loss
      from continuing operations
            
            $
            (571,070
            )
            
            $
            (982,122
            )
            
            $
            (2,567,810
            )
            
            $
            (6,254,360
            )Loss
      from discontinued operations, net of tax
            
            
            -
            
            
            
            (106,964
            )
            
            
            -
            
            
            
            (288,284
            )Net
      loss
            
            $
            (571,070
            )
            
            $
            (1,089,086
            )
            
            $
            (2,567,810
            )
            
            $
            (6,542,644
            )Denominator
      for basic and diluted loss per common share:Weighted
      average number of common share outstanding
            
            
            30,014,670
            
            
            
            24,002,951
            
            
            
            29,980,848
            
            
            
            23,989,717Basic
      and diluted (loss) per common share:Continuing
      operations applicable to common stockholders
            
            $
            (0.02
            )
            
            $
            (0.04
            )
            
            $
            (0.48
            )
            
            $
            (0.27
            )Discontinued
      operations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (0.01
            )$
            (0.02
            )
            
            $
            (0.04
            )
            
            $
            (0.48
            )
            
            $
            (0.28
            )








12.  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. The Company consummated certain disposal transactions in the second
quarter of fiscal 2007. In addition, management placed Astrata Systems (a
wholly-owned) subsidiary in South Africa) in liquidation during fiscal
2007.





Management
believes that the Company has not incurred any material contingent liabilities
in connection with the transactions and events described in the preceding
paragraph. The Company did not recognize any losses for write-downs (to fair
value, less cost to sell) of any assets related to discontinued operations
during the three and nine months ended November 30, 2008. Operations reported as
discontinued in the accompanying condensed consolidated statements of operations
are not generating any significant cash flows.  Management has
concluded that the Company does not have any active continuing involvement
with the components that have been classified as discontinued operations in the
accompanying condensed consolidated financial statements.





The loss
from discontinued operations (net of tax) reported by the Company for the three
and nine months ended November 30, 2007 was approximately $107,000 and $288,000
respectively.


F-25
 ASTRATA
GROUP INCORPORATED AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 UNAUDITED


13.  SUBSEQUENT
EVENTS





Entry
into a Material Definitive Agreement





On
December 3, 2008, Astrata entered into a joint venture agreement with PassTimeTM,
a Colorado based company that provides code-based, wireless and GSM technologies
used in high technology payment solutions for the finance industry (specifically
with automotive sales and leasing) throughout North America.  PassTime
has over 400,000 telematics devices installed in the United States.  These
products range from basic ignition control systems for sub-prime auto payment
assurance to advanced personal vehicle management units.  PassTime is
deeply involved with all of the value chain partners that are integral to the
deployment of wireless telematics systems including the sales channels, network
operators and financing companies.





The new company will be 51% owned by
Astrata and known as PassTime Telematics Inc., an Astrata Group Company
(“PTT”).  The purpose of PTT is to facilitate and optimize Astrata’s
entry into the North American telematics market.  PTT will distribute
a combination of Astrata’s and PassTime’s technology through PassTime’s well
established distribution network and offer substantially competitive solutions
to North American customers.  The initial target markets for PTT are
the quickly expanding U.S. vehicle fleet and asset tracking industry and
homeland security.





Appointment
of Principal Officers





On
December 3, 2008, Astrata announced the following organizational changes which
management deemed necessary to appropriately manage Astrata’s newly announced
entry into the North American markets and to maintain its growing customer base
abroad:   Executive Chairman, Anthony Harrison will assume the
role of Chairman and Chief Executive Officer.  Martin Euler will
assume the position of President and Chief Operating Officer.  Henry
Negron is appointed Chief Technology Officer.




F-26


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





Overview





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





Nature
of Operations





Our
expertise is focused on advanced location-based IT products and services that
combine positioning, wireless communications, and information
technologies.  We provide advanced positioning products, as well as
monitoring and airtime services to commercial and governmental entities in a
number of markets including homeland security, public safety, transportation,
surveying, utility, construction, mining, and agriculture.





Examples
of our products and services include surveying instrumentation using GPS and
other augmenting technologies, such as wireless communication and lasers; fleet
management for specialized machines, such as guidance for earth-moving
equipment; positioning and IT technology for remote asset management and
associated Telematics products, field data collection equipment, and products
and airtime communications services for high volume track and trace
applications.





Positioning
technologies employed by us include GPS, laser, optical and inertial navigation
systems.  Communication techniques employed by us include GSM cellular
and satellite communications.





Our
Product





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.  We also address the market for fleet management, workforce
management, remote asset management and tracking, and emergency services by
providing hardware for GPS information and data collection, as well as the
software needed to access and analyze the data through the
Internet.  Our products combine positioning, wireless, and information
technology and add measurable value to location-based information.  We
offer airtime to communicate data from the vehicle or field location to the
customer’s data center or provide access over the Internet to the data and
application software.  This allows critical real-time performance and
monitoring data to be accessed and analyzed by supervisory, maintenance, or
financial users and make real-time decisions for productivity improvement, cost
reductions, safety improvement, or other critical decisions to be fed to the
field.





Recent
Trends





Our
business strategy is to focus on the homeland security, hazardous materials,
civil defense and business-to-business markets by providing our customers with
comprehensive solutions to meet their needs. Frequently this involves additional
integration such as sensors ranging from Radio Frequency Identification to
biometrics, remote displays or augmenting technologies to allow tracking in
tunnels.  Our business strategy anticipates we will be doing business
internationally which carries risks which the Company must consider in
conducting business with each international customer.





Our
anticipated sales cycle in our target markets is subject to long cycles which
include potential buyers requiring an evaluation process. As a result, we may be
required to subsidize our operations during the period of obtaining sales
contracts and the subsequent payment of invoices.  Since our
technology is new, prospective customers may require a longer evaluation process
prior to purchasing or making a decision to include our product in their
vehicles or containers.  Some prospective customers may require a test
installation of a customized system before making a purchase decision, which
could be costly and time consuming for us.  Each industry that we
serve may have entirely different requirements, which can diminish our ability
to fine tune a marketing approach.





Page
1




The
Company entered into a fixed-price Contract with a Singapore entity on April 10,
2007 to design, develop and manufacture approximately $93.5 million of its
Telematics products. The Company has completed the design phase and is currently
working within the development phase where we have designed the functionality of
the system to meet the customer needs and then developed the functionalities
into a working environment.  Upon completion of the development phase,
all customer testing provisions will be completed and
documented;  thereby removing all rights of cancellation and we will
move into the production phase for delivery over approximately fifteen months to
the customer. With each shipment the customer will have forty-five days from
receipt for normal processing of payment. From inception of the Contact, we have
accomplished all requirements under the Contract with no liquidated damages
incurred. We expect to progress to move through the production phase with
minimal to no liquidated damages through the completion of this
Contract.  We anticipate entering into the manufacturing phase in
early 2009, at which time we anticipate an increase in our revenues and gross
margins.




In May
2008, Geneva-based Cotecna Group SA, one of the world’s leading trade
inspection, security and certification companies, has awarded Astrata a contract
to produce a transit monitoring system for the government of Senegal’s customs
operations.  The contract, the first for Astrata in the West African
country, is to provide RDU’s and fixed tracking units as part of Cotecna’s
Transit Monitoring & Traceability solution, which is designed to remotely
monitor the movement of vehicles transporting goods.
 
 On
December 3, 2008, Astrata entered into a joint venture agreement with PassTimeTM,
a Colorado based company that provides code-based, wireless and GSM technologies
used in high technology payment solutions for the finance industry (specifically
with automotive sales and leasing) throughout North America.  PassTime has over 400,000
telematics devices installed in the United States.  These products range
from basic ignition control systems for sub-prime auto payment assurance to
advanced personal vehicle management units.  PassTime is deeply involved
with all of the value chain partners that are integral to the deployment of
wireless telematics systems including the sales channels, network operators and
financing companies.The new company will be 51% owned by
Astrata and known as PassTime Telematics Inc., an Astrata Group Company
(“PTT”).  The purpose of PTT is to facilitate and optimize Astrata’s
entry into the North American telematics market.  PTT will distribute
a combination of Astrata’s and PassTime’s technology through PassTime’s well
established distribution network and offer substantially competitive solutions
to North American customers.  The initial target markets for PTT are
the quickly expanding U.S. vehicle fleet and asset tracking industry and
homeland security.
 
 Management
is projecting growth in Telematics sales during fiscal 2009 and 2010, and has
announced sales orders in this sector valued at a total of approximately $99
million (which includes the Contract) for the next two years. Other sales
contracts are under negotiation, but at this time there can be no assurance
regarding the ultimate success of these negotiations.
 
 Results
of Operations for the Three Months Ended November 30, 2008 Compared to November
30, 2007





Revenues





Net sales
from continuing operations were approximately $2.9 million for the three months
ended November 30, 2008; a decrease of approximately $1.8 million compared to
the three months ended November 30, 2007 of approximately $4.7
million.  This decrease is directly attributable to our long sales
cycle in orders to provide customer specific requirements and the reduced
recognition on the fixed-price Contract with a Singapore entity. During the
three months ended November 30, 2008, we continued with the development phase of
our Contract which covers a larger period of time for completion; recognizing
approximately $1 million in revenue.  During the three months ended
November 30, 2007, we recognized approximately $2.3 million in revenue on the
Contract. We are currently in the later stage of the development phase,
completing recent customer change orders and recognize revenue using the
percentage of completion method of accounting.  The design and
development phase is where we have designed the functionality of the system to
meet the customer’s needs and then developed the functionalities into a working
environment for testing and acceptance to move into
production.  Throughout the last nineteen months, we have accomplished
all requirements under the Contract with no liquidation damages incurred. Upon
completion of the development phase, we will move into the production phase
which includes the units for delivery over approximately fifteen months to the
customer.   We expect to progress through the production phase
with minimal to no liquidation damages through the completion of this
Contract.





Our
business strategy is to focus on the homeland security, hazardous materials,
civil defense and business-to-business markets by providing our customers with
comprehensive solutions to their needs. Frequently this involves additional
integration such as sensors ranging from Radio Frequency Identification to
biometrics, remote displays or augmenting technologies to allow tracking in
tunnels.  Management is projecting growth in Telematics sales during
fiscal 2009 and 2010. Other sales contracts are under negotiation, but at this
time there can be no assurance regarding the ultimate success of these
negotiations.  Based on our current estimates, we project recording
revenue under the Contract of approximately $4.5 million and $62.6 million in
fiscal 2009 and 2010, respectively.


Page
2


Margins





Gross
profit from continuing operations was approximately $1.1 million for the three
months ended November 30, 2008 and approximately $1.2 million for the three
months ended November 30, 2007.  Total gross profit as a percentage of
revenue increased to 39% for the three months ended November 30, 2008 compared
to approximately 26% for the three months ended November 30,
2007.  This is attributable to an increase in orders with higher
margins in addition to our fixed-price Contract.





Operating
Expenses





Selling
general and administrative expenses from continuing operations for the three
months ended November 30, 2008 were approximately $1.4 million, a decrease of
approximately $0.1 million compared to the three months ended November 30, 2007
of approximately $1.5 million.  For the three months ended November
30, 2008, we experienced approximately $0.3 million increase related to Europe;
and approximately $0.1 million related to the United States; offset by a
decrease of approximately $0.5 million in our South East Asia
operations.  The majority of the administrative expenses primarily
include marketing, salaries, facilities and travel
expenses.  Corporate overhead of approximately $0.9 million includes
public company expenses of approximately $0.3 million, investor relations and
investment banker service expenses of approximately $0.1 million and
administrative expenses of approximately $0.5 million.  Public company
expenses include audit expenses, legal fees, and director’s fees.  We
expect our expenses to remain consistent or decrease as we progress through the
manufacturing phase on the Contract.  A non-cash expense was recorded
for stock based compensation amounting to approximately $0.2 million for the
three month period ending November 30, 2008.





Research
and Development





Research
and development expenses not directly related to the Contract were approximately
$0.1 million for the three months ended November 30, 2008.  During the
prior year period, our research and development team devoted the majority of
their time on the Contract in which their costs became direct charges to cost of
goods sold during the development phase.  We expect to incur
approximately $0.7 million during fiscal 2009 for the addition of enhanced
features to become available with our current products.





Operating
Loss





Our
operating loss for the three months ended November 30, 2008 and 2007 was
approximately $0.4 million.  This primarily reflects expenses incurred
related to supporting current orders in process during the three months ended
November 30, 2008 for future shipments.





Certain
Non-Operating Items





Interest
expense decreased by approximately $0.5 million to $0.2 million for three months
ended November 30, 2008 compared to approximately $0.7 million for three months
ended November 30, 2007.  This was directly related to interest on the
loans provided by officers and shareholders for working capital.





Net
Results of Operations





We
reported a net loss of approximately $0.6 million or $0.02 per common share for
the three months ended November 30, 2008 compared to a net loss of approximately
$1.1 million or $0.04 per common share for the three months ended November 30,
2007.  Our discontinued operations had no effect on net results from
operations for the three months ended November 30, 2008 and 2007.





Results
of Operations for the Nine Months Ended November 30, 2008 Compared to November
30, 2007





Revenues





Net sales
from continuing operations were approximately $8.6 million for the nine months
ended November 30, 2008; a decrease of approximately $1.8 million compared to
the nine months ended November 30, 2007 of approximately $10.4
million.  This was attributable to decreased related revenues on the
fixed-price Contract with a Singapore entity. During the nine months ended
November 30, 2008, we recognized approximately $5.1 million related to
Telematics capabilities and approximately $3.5 million related to the
development phase of the fixed-price Contract.  During the nine months
ended November 30, 2007 we recognized approximately $3.7 million related to
Telematics capabilities and approximately $6.7 million related to the
fixed-price Contract. We are currently in the later stage of the development
phase on the Contract, completing customer change orders and recognize revenue
using the percentage of completion method of accounting.  The design
and development phase is where we have designed the functionality of the system
to meet the customer’s needs and then developed the functionalities into a
working environment for testing and acceptance to move into
production.  Throughout the last nineteen months, we have accomplished
all requirements under the Contract with no liquidation damages incurred. Upon
completion of the development phase, we will move into the production phase
which includes the units for delivery over approximately fifteen months to the
customer.   We expect to progress through the production phase
with minimal to no liquidation damages through the completion of this
Contract.


Page
3


Our
business strategy is to focus on the homeland security, hazardous materials,
civil defense and business-to-business markets by providing our customers with
comprehensive solutions to their needs. Frequently this involves additional
integration such as sensors ranging from Radio Frequency Identification to
biometrics, remote displays or augmenting technologies to allow tracking in
tunnels.  Management is projecting growth in Telematics sales during
fiscal 2009 and 2010. Other sales contracts are under negotiation, but at this
time there can be no assurance regarding the ultimate success of these
negotiations.  Based on our current estimates, we project recording
revenue under the Contract of approximately $4.5 million and $62.6 million in
fiscal 2009 and 2010, respectively.





Margins





Gross
profit from continuing operations increased approximately $0.4 million to
approximately $3.3 million for the nine months ended November 30, 2008 compared
to the nine months ended November 30, 2007 of approximately $2.9
million.  Total gross profit as a percentage of revenue increased to
39% for the nine months ended November 30, 2008 compared to approximately 28%
for the nine months ended November 30, 2007.  This is attributable to
an increase in orders with higher margins in addition to our fixed-price
Contract.





Operating
Expenses





Selling
general and administrative expenses from continuing operations for the nine
months ended November 30, 2008 were approximately $5.3 million, a decrease of
approximately $2.5 million compared to the nine months ended November 30, 2007
of approximately $7.8 million.  The $2.5 million decrease was
primarily due to compensation awards that related to obtaining the Contract that
was issued during April 2007.   For the nine months ended
November 30, 2008, we experienced a decrease of approximately $3.1 million
related to our South East Asia operations offset by an increase of approximately
$0.5 million relating to the United States and approximately $0.1 million
relating to Europe.  The majority of these expenses are specifically
related to staffing, facilities and travel. Administrative expenses primarily
include marketing, salaries, facilities and travel
expenses.  Corporate overhead of approximately $2.9 million includes
public company expenses of approximately $0.5 million, investor relations and
investment banker service expenses of approximately $0.3 million and
administrative expenses of approximately $2.1 million.  Public company
expenses include audit expenses, legal fees, and director’s fees.  We
expect our expenses to remain consistent or decrease as we progress through the
manufacturing phase on the Contract.  A non-cash expense was recorded
for stock based compensation amounting to approximately $0.6 million for the
nine month periods ended November 30, 2008.





Research
and Development





Research
and development expenses not directly related to the Contract were approximately
$0.5 million for the nine months ended November 30, 2008.  During the
prior year period, our research and development team devoted the majority of
their time on the Contract in which their costs became direct charges to cost of
goods sold during the design and development phase.  We expect to
incur approximately $0.7 million during fiscal 2009 for the addition of enhanced
features to become available with our current products.





Operating
Loss





Our
operating loss for the nine months ended November 30, 2008 was approximately
$2.4 million, a decrease of approximately $2.5 million from approximately $4.9
million for the nine months ended November 30, 2007.  This primarily
reflects a decrease in expenses incurred related to the award of the Contract
during the nine months ended November 30, 2007.





Page
4


Certain
Non-Operating Items





Interest
expense decreased by approximately $0.4 million to $0.6 million for nine months
ended November 30, 2008 compared to approximately $1 million for nine months
ended November 30, 2007.  This was directly related to interest on the
loans provided by officers and shareholders for working capital.





Net
Results of Operations





We
reported a net loss of approximately $2.6 million (and a net loss applicable to
common stockholders of approximately $14.3 million) or $0.48 per common share
for the nine months ended November 30, 2008 compared to a net loss of
approximately $6.5 million or $0.28 per common share for the nine months ended
November 30, 2007.  The fiscal 2008 amount includes an undeclared
non-cash dividend on preferred stock of approximately $11.8 million related to
the fair value of the exchange of warrants for Series C Preferred Stock during
the nine months ended November 30, 2008. Our discontinued operations had no
effect on net results from operations for the nine months ended November 30,
2008.  Our discontinued operations resulted in a loss of approximately
$0.3 million or $0.01 per common share for the nine months ended November 30,
2007.





Liquidity
and Capital Resources





Total
assets increased by approximately $2.9 million from approximately $7.5 million
as of February 29, 2008 to approximately $10.4 million as of November 30, 2008.
The increase is primarily due to the increase of approximately $3.6 million in
costs in excess of billings and estimated earnings related to the Contract
offset by a decrease in cash of approximately $0.5 million and a decrease in
accounts receivable of approximately $0.2 million.





Total
liabilities increased by approximately $0.1 million from approximately $16.1
million as of February 29, 2008 to approximately $16.2 million as of November
30, 2008.  The increase is primarily due to a net increase in salaries
and benefits payable to officers and directors of approximately $1.3 million, an
increase in accrued interest of approximately $0.4 million and an increase in
credit line of approximately $0.6 million; offset by a decrease in accounts
payable and accrued liabilities of approximately $1 million, a decrease in
registration rights penalties of approximately $0.3 million,  a
decrease in income tax and related penalties payable of approximately $0.5
million and a decrease in deferred income of approximately $0.3
million.





At
November 30, 2008, the Company had negative working capital of approximately
$7.4 million and negative working capital of approximately $10 million at
February 29, 2008; a decrease of approximately $2.6 million.  The
primary reason for the decrease in the working capital deficit is an increase in
the cost in excess of billings and estimated earnings on uncompleted contract of
approximately $3.6 million, a net decrease in accounts payable and accrued
liability and salaries of approximately $1 million; a decrease in registration
rights penalties of approximately $0.3 million, a decrease in income tax and
related penalties payable of approximately $0.5 million;  offset by an
increase in salaries and benefits payable to officers and directors of
approximately $1.3 million, an increase in accrued interest of approximately
$0.4 million, a increase in line of credit of approximately $0.6 million
and a decrease in cash of approximately $0.5 million.





Our
operating activities used approximately $5.1 million in cash for the nine months
ended November 30, 2008.  Our net loss of approximately $2.6 million,
an increase in cost in excess of billings and estimated earnings on uncompleted
contract of approximately $3.9 million and decrease in income tax and related
penalties payable of approximately $0.5 million; offset by stock-based
compensation of approximately $0.6 million,  depreciation and
amortization of approximately $0.3 million and a decrease in accounts payable
and accrued liabilities of approximately $1 million was the primary components
of the net cash used in operating activities.





Our
operating activities provided approximately $0.2 million in cash for the nine
months ended November 30, 2007.  Our net loss of approximately $6.5
million and an increase in accounts receivable and inventories of approximately
$0.5 million; was offset by certain non-cash expenses such as stock-based
compensation and depreciation and amortization in the total amount of
approximately $2.6 million.  Increases in accounts payables, accrued
liabilities, other assets, income taxes and penalties payable of approximately
$4 million and an increase in billings in excess of costs and estimated earnings
on uncompleted contract of approximately $0.6 million was the primary components
of the net cash used in operating activities.





Under the
terms of the Contract, the Company was required to provide a performance bond
for the benefit of the customer.  In lieu of such bond, a certificate
of deposit was initiated to guarantee this bond.  The CD in the amount
of $413,000 bears interest at 5.1% per annum and matures in December 2011. Under
the terms of the Company’s arrangement with the bank that issued the CD, the
funds will not be available for withdrawal until December 2011. Thus, the CD is
a restricted account which has been reported as a non-current asset in the
Company’s condensed consolidated balance sheets.


Page
5


On December 19, 2007, Astrata Group
Incorporated entered into a Series B Convertible Preferred Stock Purchase
Agreement with Investors.  Under the terms of the Stock Purchase
Agreement, the Investors purchased an aggregate of (i) $3,000,000 of Series B
Convertible Preferred Stock and (ii) warrants to purchase a total of
approximately 8.6 million shares of our common stock and warrants to purchase a
total of approximately 2.1 million shares of our preferred stock.  The
Company used the proceeds for working capital and general corporate
purposes.





Following
approval of the Board of Directors and a majority of its shareholders, the
Company entered into a $4 million Warrant Exchange Agreement, a Warrant
Amendment Agreement, and a Preferred Stock Exchange Agreement (collectively, the
“Amended and Restated Rights Agreements”), dated as of May 29, 2008, between
Company and each of the holders of certain warrants, and holders of certain
series of preferred shares issued by the Company (individually, a “Holder” and
collectively, the “Holders”) relating to the Company’s Series A and Series B
Preferred shares. The Amended and Restated Rights Agreements eliminated the
anti-dilution and cashless exercise provisions of the Series A and Series B
warrants.  The Company received net cash proceeds of approximately $4
million which it has used the proceeds for working capital
purposes.  For additional information on this transaction, see Note 8
in the accompanying footnotes to these condensed consolidated financial
statements.


During December 2008, Astrata entered
into negotiations with an existing shareholder and officer to issue $1 million
of convertible preferred stock at $0.25 per share in addition to a long-term
loan of $2 million; for a total proposed financing of $3
million.  These funds are intended to be used  for working
capital purposes, however there can be no assurance of the outcome of these
events.





Liquidity
and Going Concern Considerations





The
accompanying consolidated financial statements have been prepared assuming we
will continue in our present form, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the ordinary course of
business.  For the nine months ended November 30, 2008, we had a net
loss of approximately $2.6 million and negative cash flows from operating
activities of approximately $5.1 million.  In addition, we had a
working capital deficit of approximately $7.4 million and an accumulated deficit
of approximately $49 million and stockholders’ deficit of approximately $5.8
million as of November 30, 2008.





Because
of the matters discussed in the immediately preceding paragraph, the Company’s
independent registered public accounting firm added a going concern paragraph to
their audit report on our February 29, 2008 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 consolidated financial statements have been prepared
assuming that the Company will continue as a going concern (based upon
management’s plans discussed in our February 29, 2008 consolidated financial
statements) which contemplates, among other things, the realization of assets
and satisfaction of liabilities in the ordinary course of
business.  Accordingly, the aforementioned consolidated financial
statements do not include any adjustments related to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result, should the Company be unable to continue as a
going concern.





The
Company’s capital requirements depend on numerous factors, including the rate of
market acceptance of the Company’s products and services, the Company’s ability
to service its customers, the ability to maintain and expand our customer base,
the level of resources required to expand the Company’s marketing and sales
organization, research and development activities and other
factors.  Management presently believes execution of the Contract
combined with the Company’s debt and/or equity financing recently completed and
proposals now under consideration, will be sufficient to meet the Company’s
anticipated liquidity requirements through February 2010. In order for us to
fund our operations and continue this growth plan, substantial additional
funding will be required from external sources.  Management currently
intends to fund operations through a combination of borrowings, letters of
credit, debt, and if necessary, equity-based transactions.  Management
is in discussion with lending facilities and certain investors, who have
expressed an interest in providing the Company with such
investments.  These discussions are ongoing; however, there can be no
assurance of the outcome of these negotiations.





Astrata’s
Telematics operations were strengthened during fiscal 2007 by our increased
presence in South East Asia based primarily on the successful execution of the
fixed-price Contract.  Deliveries began in January 2008 and we
anticipated beginning major shipments in the early part of 2009 over fifteen
months. The Contract includes a provision for substantial liquidated damages for
unexcused delays in product deliveries and/or failure to satisfy certain
customer-specified criteria. The Company’s proprietary Telematics system is
undergoing significant customization/modification in order to achieve the
functionality required by the customer.  The design and development
phase is where we have designed the functionality of the system to meet the
customer’s needs and then developed the functionalities into a working
environment for testing and acceptance to move into
production.  Throughout the last nineteen months, we have accomplished
all requirements with no liquidation damages incurred. Upon completion of the
development phase, we will move into the production phase which includes the
units for delivery over approximately fifteen months to the
customer.   We expect to progress through the production phase
with minimal to no liquidation damages through the completion of this
Contract.  Funding for the manufacturing phase is covered by the
customer providing a letter of credit for each shipment.  Profits from
these shipments will partially fund our operations and begin to result in a
strengthening of our balance sheet, cash flow and equity position; however,
there can be no assurance of the outcome of these events.


Page
6


In May
2008, Geneva-based Cotecna Group SA, one of the world’s leading trade
inspection, security and certification companies, has awarded Astrata a contract
to produce a transit monitoring system for the government of Senegal’s customs
operations.  The contract, the first for Astrata in the West African
country, is to provide RDU’s and fixed tracking units as part of Cotecna’s
Transit Monitoring & Traceability solution, which is designed to remotely
monitor the movement of vehicles transporting goods.  We are currently
reviewing the design of this customer’s requirements under the sales
agreement.





In
September 2008, the Company received a $1.2 million line of credit which carries
an annual interest rate based on the Prime Rate plus 3% (7% as of November 30,
2008).  Principal and interest is due within six months and upon
payment in full the $1.2 million line of credit will be re-established with the
same terms.  The balance of the line of credit is $600,000 at November
30, 2008.
 
 On
December 3, 2008, Astrata entered into a joint venture agreement with PassTimeTM,
a Colorado based company that provides code-based, wireless and GSM technologies
used in high technology payment solutions for the finance industry (specifically
with automotive sales and leasing) throughout North America.  PassTime has over 400,000
telematics devices installed in the United States.  These products range
from basic ignition control systems for sub-prime auto payment assurance to
advanced personal vehicle management units.  PassTime is deeply involved
with all of the value chain partners that are integral to the deployment of
wireless telematics systems including the sales channels, network operators and
financing companies.The new company will be 51% owned by
Astrata and known as PassTime Telematics Inc., an Astrata Group Company
(“PTT”).  The purpose of PTT is to facilitate and optimize Astrata’s
entry into the North American telematics market.  PTT will distribute
a combination of Astrata’s and PassTime’s technology through PassTime’s well
established distribution network and offer substantially competitive solutions
to North American customers.  The initial target markets for PTT are
the quickly expanding U.S. vehicle fleet and asset tracking industry and
homeland security.


Off
Balance Sheet Arrangements





As of
November 30, 2008, there were no off balance sheet
arrangements.  Please refer to the Commitment and Contingencies
footnote (Note 9 to our 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.





The
Company uses the U.S. dollar as its functional currency.  We translate
all assets and liabilities at period-end exchange rates and income and expenses
accounts at average rates during the period.  In fiscal 2008, we had
transactions denominated in the Euro, the British Pound, the Singapore Dollar,
the Malaysian Ringgit, and the Brunei Dollar.  In accordance with SFAS
No. 52, “Foreign Currency
Translation” such adjustments are reported as a component of accumulated
other comprehensive loss within stockholders’ deficit.





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.


Page
7


Critical
Accounting Policies





In
December 2001, the SEC requested that all registrants list their most “critical
accounting policies” in the Management Discussion and Analysis or Plan of
Operations.  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 as they relate to our consolidated
financial statements.


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.
 
 Under the
modified prospective method of adoption for SFAS No.123-R, the compensation cost
recognized by the Company beginning March 1, 2006 includes (a) compensation cost
for all equity incentive awards granted prior to, but not yet vested as of March
1, 2006, based on the grant-date fair value estimated in accordance with the
original provisions of SFAS No. 123, and (b) compensation cost for all equity
incentive awards granted subsequent to February 28, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS No.
123-R.  For additional information see Note 2 in the Company’s
condensed consolidated financial statements included elsewhere
herein.





Registration
Rights Penalties





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





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





Registration
rights penalties have been accounted for as described above in accordance with
FSP EITF 00-19-2.  When the potential registration rights penalties
became probable, the Company accrued for the full potential contingent penalties
creating the liability and recording the expense in the statement of
operations.





Revenue
Recognition





General





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





Contract
Accounting





The
Company is accounting for the Contract under the percentage-of completion method
under the AICPA Statement of Position (“SOP”) 81-1, “Accounting for Performance of
Construction-Type and Certain Production –Type Contracts”. Under the
percentage-of-completion method, revenues, expenses and profits are recognized
as performance progresses on long-term contracts. Progress toward completion is
measured using the cost-to-cost method.  The Company uses the
estimated cost of goods (“COGS”) for the project to determine the associated
recognized revenues in the periods in which they are earned.  This is
calculated by taking the actual COGS against the total projected COGS to
determine a percentage of completion; then applying the percentage against the
Contract project total revenues to determine the revenues for the reporting
period.





We follow
the provisions of SOP 81-1, paragraph 78 when updating our Contract
costs.  We employ systematic and consistent procedures for
periodically comparing actual and estimated costs.  Our CTO and
Project Manager, based in Singapore, monitor our project costs on a regular
basis, and are apprised of progress regularly by the customer.





Page
8


According
to SOP 81-1, paragraph 82 states “adjustments to the original estimates of the
total contract revenue, total contract cost, or extent of progress toward
completion are often required as work progresses under the contract as
experience is gained, even though the scope of the work required under the
contract may not change”.  The nature of accounting for contracts is
such that refinements of the estimating process for changing conditions and new
developments are continuous and characteristic to the process.  We
review our total projected Contract costs on a quarterly basis and make the
appropriate revisions, as deemed necessary.
 
 Should
this quarterly update indicate a contract loss, a provision for the entire loss
on the Contract will be made pursuant to SOP 81-1, paragraph 85.
 
 Other
Matters
 
 Our
Telematics equipment may be sold or provided as part of a monthly package which
includes telecommunications, data warehousing and mapping.  These
revenues are recognized over the life of such contracts as revenues are
earned.





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 recorded
as deferred income and recognized as income on a systematic basis over the life
of the arrangement.





Recently
Issued Accounting Pronouncements





On
December 4, 2007, the FASB, issued SFAS No. 141 (Revised 2007), “Business Combinations”.
Statement 141R will significantly change the accounting for business
combinations. Under Statement 141R, an acquiring entity will be required to
recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. Statement 141R will
change the accounting treatment for certain specific items, as
follows:





·
            Acquisition
      costs will be generally expensed as
incurred;


·
            Non-controlling
      interests (formerly known as "minority interests" -- see Statement 160
      discussion below) will be valued at fair value at the acquisition
      date;


·
            Acquired
      contingent liabilities will be recorded at fair value at the acquisition
      date and subsequently measured at either the higher of such amount or the
      amount determined under existing guidance for non-acquired
      contingencies;


·
            In-process
      research and development will be recorded at fair value as an
      indefinite-lived intangible asset at the acquisition
  date;


·
            Restructuring
      costs associated with a business combination will be generally expensed
      subsequent to the acquisition date;
and


·
            Changes
      in deferred tax asset valuation allowances and income tax uncertainties
      after the acquisition date generally will affect income tax
      expense.





Statement
141R also includes a substantial number of new disclosure requirements.
Statement 141R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. Earlier adoption is prohibited.
Accordingly, a calendar year-end company is required to record and disclose
business combinations following existing GAAP until January 1,
2009.  The Company does not believe the application of this standard
will materially impact its consolidated financial statements.





SFAS No.
157, “Fair Value Measurements”,
provides guidance for using fair value to measure assets and liabilities. The
FASB believes the standard also responds to investors’ requests for expanded
information about the extent to which companies measure assets and liabilities
at fair value, the information used to measure fair value, and the effect of
fair value measurements on earnings. Statement 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair value
but does not expand the use of fair value in any new
circumstances.   Currently, over 40 accounting standards within
GAAP require (or permit) entities to measure assets and liabilities at fair
value. Prior to Statement 157, the methods for measuring fair value were diverse
and inconsistent, especially for items that are not actively traded. The
standard clarifies that for items that are not actively traded, such as certain
kinds of derivatives, fair value should reflect the price in a transaction with
a market participant, including an adjustment for risk, not just the company’s
mark-to-model value. Statement 157 also requires expanded disclosure of the
effect on earnings for items measured using unobservable data.


Page
9
  Under
Statement 157, fair value refers to the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants in the market in which the reporting entity transacts. In this
standard, the FASB clarifies the principle that fair value should be based on
the assumptions market participants would use when pricing the asset or
liability. In support of this principle, Statement 157 establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions.
The fair value hierarchy gives the highest priority to quoted prices in active
markets and the lowest priority to unobservable data, for example, the reporting
entity’s own data. Under the standard, fair value measurements would be
separately disclosed by level within the fair value hierarchy.
 
 The
provisions of Statement 157 are effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
fiscal years. Earlier application is encouraged, provided that the reporting
entity has not yet issued financial statements for that fiscal year, including
any financial statements for an interim period within that fiscal
year.  The Company adopted SFAS No. 157 as of March 1, 2008 which had
no material impact its consolidated financial statements.


SFAS  No.
159, “The Fair Value Option
for Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115” permits an entity to choose to measure many financial
instruments and certain other items at fair value. This option is available to
all entities, including not-for-profit organizations. Most of the provisions in
Statement 159 are elective; however, the amendment to SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities”, applies to all entities
with available-for-sale and trading securities. Some requirements apply
differently to entities that do not report net income. The FASB's stated
objective in issuing this standard is as follows: "to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions."





The fair
value option established by Statement 159 permits all entities to choose to
measure eligible items at fair value at specified election dates. A business
entity will report unrealized gains and losses on items for which the fair value
option has been elected in earnings (or another performance indicator
if the business entity does not report earnings) at each subsequent
reporting date. A not-for-profit organization will report unrealized gains and
losses in its statement of activities or similar statement. The fair value
option: (a) may be
applied instrument by instrument, with a few exceptions, such as investments
otherwise accounted for by the equity method; (b) is irrevocable (unless a
new election date occurs); and (c) is applied only to entire
instruments and not to portions of instruments.





Statement
159 is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007.  Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity makes that choice
in the first 120 days of that fiscal year and also elects to apply the
provisions of SFAS No. 157, “Fair Value Measurements”.The Company
adopted SFAS No. 159 as of March 1, 2008 which had no material impact its
consolidated financial statements.





SFAS No.
160,“Non-controlling Interests in Consolidated Financial
Statements - An Amendment of ARB No. 51” establishes new accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement requires the
recognition of a non-controlling interest (minority interest) as equity in the
consolidated financial statements and separate from the parent's equity. The
amount of net income attributable to the non-controlling interest will be
included in consolidated net income on the face of the income statement.
Statement 160 clarifies that changes in a parent's ownership interest in a
subsidiary that do not result in deconsolidation are equity transactions if the
parent retains its controlling financial interest. In addition, this statement
requires that a parent recognize a gain or loss in net income when a subsidiary
is deconsolidated. Such gain or loss will be measured using the fair value of
the non-controlling equity investment on the deconsolidation
date.  Statement 160 also includes expanded disclosure requirements
regarding the interests of the parent and its non-controlling
interest.  Statement 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008. Like
Statement 141R discussed above, earlier adoption is prohibited.  The
Company does not believe the application of this standard will materially impact
its consolidated financial statements.


Page
10




SFAS No.
161, “Disclosures about
Derivative Instruments
and Hedging Activities - an Amendment of FASB Statement 133” enhances
required disclosures regarding derivatives and hedging activities, including
enhanced disclosures regarding how: (a) an entity uses derivative
instruments; (b)
derivative instruments and related hedged items are accounted for under SFAS No.
133, “Accounting for
Derivative Instruments and Hedging Activities”; and (c) derivative instruments and
related hedged items affect an entity's financial position, financial
performance, and cash flows. Specifically, Statement 161 requires:
 
 ·
              Disclosure
      of the objectives for using derivative instruments be disclosed in terms
      of underlying risk and accounting
designation;
 ·
              Disclosure
      of the fair values of derivative instruments and their gains and losses in
      a tabular format;
 ·
              Disclosure
      of information about credit-risk-related contingent features;
      and
 ·
              Cross-reference
      from the derivative footnote to other footnotes in which
      derivative-related information is
disclosed.
 
 Statement
161 is effective for fiscal years and interim periods beginning after November
15, 2008. Early application is encouraged.  The Company does not
believe the application of this standard will materially impact its consolidated
financial statements.




SFAS No.
162, “The Hierarchyof Generally Accepted
Accounting Principles” identifies the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with GAAP in the United States (the GAAP
hierarchy).  Specifically, the sources of accounting principles that
are generally accepted are categorized in descending order of authority as
follows:





e.
            FASB
      Statements of Financial Accounting Standards and Interpretations, FASB
      Statement 133 Implementation Issues, FASB Staff Positions, and American
      Institute of Certified Public Accountants (AICPA) Accounting Research
      Bulletins and Accounting Principles Board Opinions that are not superseded
      by actions of the FASB;


f.
            FASB
      Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and
      Accounting Guides and Statements of
Position;


g.
            AICPA
      Accounting Standards Executive Committee Practice Bulletins that have been
      cleared by the FASB, consensus positions of the FASB Emerging Issues Task
      Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts (EITF
      D-Topics); and


h.
            Implementation
      guides (Q&As) published by the FASB staff, AICPA Accounting
      Interpretations, AICPA Industry Audit and Accounting Guides and Statements
      of Position not cleared by the FASB, and practices that are widely
      recognized and prevalent either generally or in the
    industry.





This
Statement is effective November 15, 2008 and the Company intends to adhere to
this statement.





SFAS No.
163, “Accounting for Guarantee Insurance
Contracts” requires that an insurance enterprise recognize a claim
liability prior to an event of default (insured event) when there is
evidence that credit deterioration has occurred in an insured financial
obligation. This Statement requires expanded disclosures about financial
guarantee insurance contracts. The accounting and disclosure requirements
of the Statement will improve the quality of information provided to users
of financial statements.





Statement
163 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and all interim periods within those
fiscal years, except for some disclosures about the insurance enterprise’s
risk-management activities. This Statement requires that disclosures about
the risk-management activities of the insurance enterprise be effective for
the first period (including interim periods) beginning after issuance of
this Statement. Except for those disclosures, earlier application is not
permitted.  The Company does not believe the application of this
standard will impact its consolidated financial statements.





Page
11





Item
3: Quantitative and Qualitative Disclosures About Market Risk.





Market
Information





Our
common stock has been quoted on the OTC Bulletin Board since December 2004, and
is currently quoted under the symbol “ATTG”.  The following table sets
forth the high and low bid prices for our common stock for the periods
indicated, as reported by Yahoo!® Finance.  Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions, and may
not necessarily represent actual transactions.




High
            
            
            LowFor
      the nine months ended November 30, 2008:First
      Quarter
            
            $
            0.60
            
            
            $
            0.35Second
      Quarter
            
            
            0.49
            
            
            
            0.21Third
      Quarter
            
            
            0.37
            
            
            
            0.09For
      the fiscal year ended February 29, 2008:First
      Quarter
            
            $
            1.52
            
            
            $
            0.93Second
      Quarter
            
            
            1.23
            
            
            
            0.50Third
      Quarter
            
            
            0.99
            
            
            
            0.54Fourth
      Quarter
            
            
            0.80
            
            
            
            0.40




On
January 8, 2009 the last sales price of our common stock was
$0.14.


Penny
Stock Rules





The
Securities and Exchange Commission (the “SEC”) has adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. Penny
stocks are generally equity securities with a market price of less than $5.00,
other than securities registered on certain national securities exchanges or
traded on the NASDAQ system, provided that current price and volume information
with respect to transactions in such securities is provided by the exchange or
system. The penny stock rules require a broker-dealer, prior to a transaction
(by a person other than an established customer or an “accredited investor”) in
a penny stock, among certain other restrictions, to deliver a
standardized risk disclosure document prepared by the SEC, that: (a)
contains a description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading; (b) contains a
description of the broker's or dealer's duties to the customer and of the rights
and remedies available to the customer with respect to a violation of such
duties or other requirements of the securities laws; (c) contains a brief,
clear, narrative description of a dealer market, including bid and ask prices
for penny stocks and the significance of the spread between the bid and ask
price; (d) contains a toll-free telephone number for inquiries on disciplinary
actions; (e) defines significant terms in the disclosure document or in the
conduct of trading in penny stocks; and (f) contains such other information and
is in such form, including language, type, size and format, as the SEC shall
require by rule or regulation.  In addition, the penny stock rules
require a uniform two day waiting period following delivery of the standardized
risk disclosure document and receipt of a signed and dated acknowledgement of
receipt of such disclosure document before the penny stock transaction may be
completed.





The
broker-dealer also must provide, prior to effecting any transaction (by a person
other than an established customer or an “accredited investor”) in a penny
stock, the customer with (a) bid and offer quotations for the penny stock; (b)
the compensation of the broker-dealer and its salesperson in the transaction;
(c) the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the market for
such stock; and (d) a monthly account statement showing the market value of each
penny stock held in the customer's account.





In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules; the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement as to transactions involving
penny stocks, and a signed and dated copy of a written suitability
statement.





These
disclosure requirements may have the effect of reducing the trading activity for
our common stock. Therefore, stockholders may have difficulty selling our
securities.





Holders
of Our Common Stock





As of
January 8, 2009, there were approximately 533 holders of record of our common
stock.





Dividends





We have
never declared or paid any cash dividends on our common stock. We cannot declare
dividends payable to common shareholders unless all outstanding dividends for
preferred shareholders are paid at the time of declaration.  We
anticipate that any earnings will be retained for development and expansion of
our business and do not anticipate paying any cash dividends in the near future.
Our Board of Directors has sole discretion to pay cash dividends based on our
financial condition, results of operations, capital requirements, contractual
obligations, and other relevant factors.


Page
12


Item
4:  Controls and Procedures





Evaluation
of Disclosure Controls and Procedures




As of
November 30, 2008, Company management, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the Company's disclosure controls and procedures as defined in Rules
13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).  Based on this evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that as of November 30, 2008, the
Company's disclosure controls and procedures are not effective for the purposes
of recording, processing, summarizing and timely reporting of material
information relating to the Company and required to be included in its periodic
reports.





For the
reasons discussed in “Management’s Report on Internal Control over Financial
Reporting” below, Company management, including the Chief Executive Officer and
Chief Financial Officer concluded that, as of November 30, 2008, the Company’s
internal control over financial reporting was not effective due to material
weaknesses in internal control over financial
reporting.  Notwithstanding the identified control deficiencies,
management has concluded that the condensed consolidated financial statements
included in this quarterly report present fairly, in all material respects, the
Company’s financial position, results of operations, and cash flows for the
periods presented in conformity with accounting principles generally accepted in
the United States.





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 be 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.





Management’s
Report on Internal Control over Financial Reporting





Management
used its knowledge and understanding of the Company’s organization, operations,
and processes to determine, in its judgment, the sources and potential
likelihood of misstatements in financial reporting.  Management also
considered in its assessment the Company’s size and complexity.





Specifically,
Company management identified certain matters involving internal control and the
Company’s operations that it considered to be material weaknesses under the
standards of the Public Company Accounting Oversight Board (“PCAOB”). These
material weaknesses involved:





·
            Ineffective
      controls over the period-end closing and financial reporting
      processes.  This is caused by the weakness of controls over the
      closing protocols for the Company and its subsidiaries as well as the
      consolidation of all subsidiaries.


·
            Lack
      of uniform internal controls and procedures designed to formalize
      documentation of its accounting and operational policies and
      procedures.


·
            Inadequate
      financial reporting systems without standardization of the processes for
      the Company and its subsidiaries.  This is caused by the lack of
      formal policies and procedures to address financial functions and
      disciplines.


·
            Ineffective
      controls to provide the necessary documentation and procedures to assure
      that employee information, benefits and policies are accurate and timely
      administered.




Page
13


Company
management is taking steps to remediate these weaknesses in the Company’s
internal control environment, including:





·
            Establishing
      effective controls over the period-end closing and financial reporting
      processes.  This will require enhancement of closing protocols
      for both the Company and its subsidiaries, as well as, the consolidation
      of all subsidiaries.


·
            Establishing
      formal policies and procedures to address all material financial functions
      and disciplines.  Management’s implementation of these policies
      and procedures will include appropriate staff enhancement and training to
      ensure financial reporting competencies are
  strengthened.


·
            Implementing
      a new accounting software package to standardize the financial reporting
      process for the Company and its subsidiaries as well as automating the
      consolidation of all subsidiaries.


·
            Enhancing
      Human Resource functions to provide the necessary documentation and
      procedures to assure that employee information, benefits and policies are
      accurate and timely administered.


·
            Retaining
      the services of a third-party consulting firm to assist Company management
      with on-going compliance with Section 404 of the Sarbanes-Oxley Act of
      2002 (SOX).


·
            Developing
      and implementing a formal, top-down, risk-based approach to the evaluation
      of the Company’s internal control over financial reporting, in accordance
      with recent interpretative guidance from the SEC.  Management is
      further utilizing a risk-based approach to remediate the control
      weaknesses identified as part of its assessment of the Company’s internal
      control environment.





Management
has evaluated the impact of these gaps on the Company’s internal control over
financial reporting, and is now utilizing its risk-based approach to designing
controls to remediate these gaps as part of its implementation of the Company’s
SOX Compliance Plan.





Company
management will continue to monitor and evaluate the effectiveness of our
disclosure controls and procedures and our internal control over financial
reporting on an ongoing basis and are committed to taking further action and
implementing additional improvements, as necessary and as funds
allow.








Page
14


PART
II – OTHER INFORMATION





Item
1: Legal Proceedings





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





Item
1A: Risk Factors





There
were no material changes from the risk factors disclosed in the Company’s
February 29, 2008 Form 10-KSB filed with the SEC on June 11, 2008.





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





Common
Stock





During
the quarter ended November 30, 2008, the Company issued approximately 100,000
shares of its restricted common stock in exchange for services provided by
employees.  Such shares were valued at approximately $25,000
(estimated to be the closing value based on the trading price on the issuance
date).  This transaction constituted an exempt offering 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.





Notification
to Stockholders





An
Information Statement has been furnished to the holders of shares of the common
stock of Astrata Group Incorporated, a Nevada corporation. The purpose of this
Information Statement was to notify the Company’s stockholders of actions
already approved by written consent of a majority of the voting stockholders and
directors. Pursuant to Rule 14c-2 of the Securities Exchange Act of 1934, the
following actions were effective twenty (20) days after the date the Information
Statement was mailed to the stockholders:





1.  To
authorize the Company's Board of Directors to amend our Articles of
Incorporation to increase the maximum number of shares of stock that the Company
shall be authorized to have outstanding at any time to Three Hundred Million
(300,000,000) shares of common stock at par value of $0.0001 with no preemptive
rights and Seventy Five Million (75,000,000) shares of preferred stock at par
value of $0.0001 with no preemptive rights. These additional shares will have
the same rights, privileges, preferences and restrictions as the Company’s
shares of common stock and preferred stock respectively, which are currently
authorized.





2.  To
authorize the Company’s Board of Directors to amend our Articles of
Incorporation to create out of the shares of the Company’s preferred stock, par
value $0.0001 per share, of the Company authorized in Article IV of the Articles
of Incorporation, two series of Preferred Stock of the Company, to be named
“Series C Convertible Preferred Stock” and “Series A-2 Convertible Preferred
Stock,” consisting of One Million Six Hundred Ninety Six Thousand One Hundred
Thirty One (1,696,131) shares and One Million Five Hundred Thousand (1,500,000)
shares, respectively.





3.  To advise
that at a meeting of the Company’s Board of Directors on May 27, 2008 the
appointment of John Clough to a vacancy on the Board was unanimously
approved.





The Information Statement was mailed on
or about June 16, 2008 to stockholders of record as of the close of business on
May 28, 2008.





Page
15


General
Information




An Information Statement was filed with
the Securities and Exchange Commission and was furnished, pursuant to Section
14C of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to
the holders (the "Stockholders") of the common stock, par value $.0001 per share
(the "Common Stock"), of Astrata Group Incorporated, a Nevada Corporation, to
notify such Stockholders of the following:





1.  On or
about May 28, 2008 the Company received written consents in lieu of a meeting of
Stockholders from holders of 14,140,023 shares representing approximately 51.67%
of the 27,367,327 vested shares of the total issued and outstanding shares of
voting  stock of the Company approving an amendment to the Articles of
Incorporation of the Company, to increase the maximum number of shares of stock
that the Company shall be authorized to have outstanding at any time to three
hundred million (300,000,000) shares of common stock at par value of $0.0001
with no preemptive rights and seventy-five million (75,000,000) shares of
preferred stock at par value of $0.0001 with no preemptive
rights.  These additional shares will have the same privileges,
preferences and restrictions as the Company’s shares of common stock and
preferred stock respectively, which are currently authorized.





2.  On or
about May 28, 2008 the Company received written consents in lieu of a meeting of
Stockholders from holders of 14,140,023 shares representing approximately 51.67%
of the 27,367,327 vested shares of the total issued and outstanding shares of
voting stock of the Company (the “Majority Stockholders”) approving an amendment
to the Articles of Incorporation of the Company (the “Amendment”), to create out
of the shares of the Company’s preferred stock, par value $0.0001 per share, of
the Company authorized in Article IV of the Articles of Incorporation, two
series of Preferred Stock of the Company, to be named “Series C Convertible
Preferred Stock” and “Series A-2 Convertible Preferred Stock,” consisting of One
Million Six Hundred Ninety Six Thousand One Hundred Thirty One (1,696,131)
shares and One Million Five Hundred Thousand (1,500,000) shares,
respectively.  Both Series of Preferred Stock shall have the powers,
preferences and relative rights as designated in the Series C and Series A-2
Certificates of Designation, as filed with the SEC on May 30, 2008.





3.  On or
about May 28, 2008, the Company received written consents in lieu of a meeting
of Stockholders from holders of 14,140,023 shares representing approximately
51.67% of the 27,367,327 shares of the total issued and outstanding shares of
voting stock of the Company authorizing the appointment of John Clough as a
member of the Company’s Board of Directors.





On May
28, 2008, pursuant to Nevada Revised Statutes (“NRS”) 78.315, the Board of
Directors of the Company approved the above-mentioned actions, subject to
Stockholder approval. According to NRS 78.390, a majority of the outstanding
shares of voting capital stock entitled to vote on the matter is required in
order to amend the Company’s Articles of Incorporation. The Majority
Stockholders approved the action by written consent in lieu of a meeting on May
28, 2008, in accordance with the NRS.





Item
5: Other Information.




None





Item
6: Exhibits





b)            Exhibits:





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


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


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


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




Page
16


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.


ASTRATA GROUP
      INCORPORATEDDated:  January
      14, 2009
                  By:
                  /s/MARTIN G.
      EULER
                    Martin
      G. Euler
                    Chief
      Executive Officer and
                    Chief Operations OfficerDated:  January
      14, 2009
                  By:
                  /s/THOMAS
      A. WAGNER
                    Thomas
      A. Wagner
                      Chief
      Financial Officer
     Page 17