UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549








**FORM
      10-QSB**








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








For
      the
      quarterly period ended: **November
      30, 2006**








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





For
      the
      transition period from __________ to ___________





Commission
      file number: 000-32475





**ASTRATA
      GROUP INCORPORATED**


(Name
      of
      small business issuer in its charter)




NEVADA
              
              84-1408762(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)950
                  South Coast Dr., Suite 265, Costa Mesa, California
              
              92626(Address
                  of principal executive offices)
              
              (Zip
                  Code)


Issuer’s
      telephone number (714) 641-1512





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





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





Common
      Stock, par value $0.0001


(Title
      of
      class)





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





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





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of January 8, 2007: 14,323,010





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












**TABLE
      OF CONTENTS**




PagePart
                  I - Financial Information
              
              
              iiItem
                  1 Financial Statements (Unaudited)
              
              
              iiCondensed
                  Consolidated Balance Sheet as of November 30, 2006
              
              
              F-1Condensed
                  Consolidated Statements of Operations and ComprehensiveLoss
                  for the three and nine months ended November 30, 2006 and
                  2005
              
              
              F-2Condensed
                  Consolidated Statements of Cash Flows for thenine
                  months ended November 30, 2006 and 2005
              
              
              F-3Notes
                  to Condensed Consolidated Financial Statements
              
              
              F-4Item
                  2 Management’s Discussion and Analysis or Plan of
                  Operation
              
              
              1Item
                  3 Controls and Procedures
              
              
              18Part
                  II - Other InformationItem
                  1 Legal Proceedings
              
              
              19Item
                  1A Risk Factors
              
              
              19Item
                  2 Unregistered Sales of Equity Securities and Use of
                  Proceeds
              
              
              22Item
                  3 Defaults upon Senior Securities
              
              
              25Item
                  4 Submission of Matters to a Vote of Security Holders
              
              
              25Item
                  5 Other Information
              
              
              25Item
                  6 Exhibits
              
              
              25




i




**PART
      I - FINANCIAL INFORMATION**







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





These
      unaudited condensed consolidated financial statements have been prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America for interim financial information and the Securities and Exchange
      Commission (the “SEC”) instructions to Form 10-QSB. In the opinion of
      management, all adjustments considered necessary for a fair presentation, which
      (except as
      stated
      in Notes 10 and 11, and the “Settlement
      of Disputed Liability” and“Registration
      Rights Penalties” sections of Note 7 to theaforementioned
      financial statements) consisted only of normal recurring adjustments,
      have been included. Operating results for the interim period ended November
      30,
      2006 are not necessarily indicative of the results anticipated for the entire
      fiscal year ending February 28, 2007. This report should be read in conjunction
      with the Company’s February 28, 2006 annual report on Form 10-KSB filed with the
      SEC on July 18, 2006.





ii


**ASTRATA
                GROUP INCORPORATED AND SUBSIDIARIES****CONDENSED
                CONSOLIDATED BALANCE SHEET****UNAUDITED****November
                30, 2006*****ASSETS*****Current
                Assets:**Cash
                and cash equivalents
            
            $
            390,100Trade
                and other receivables, net
            
            
            1,002,490Inventories
            
            
            269,819Other
                assets
            
            
            194,164Current
                assets held for sale
            
            
            258,985Total
                current assets
            
            
            2,115,558Property
                and equipment, net
            
            
            641,900Goodwill
            
            
            300,000Investment
                in and advances to affiliate
            
            
            112,110Other
                assets held for sale
            
            
            11,488**Total
                assets**
            
            $
            3,181,056***LIABILITIES
                AND STOCKHOLDERS' DEFICIT*****Current
                liabilities**Accounts
                payable
            
            $
            4,627,066Salaries
                and benefits payable to officers and directors
            
            
            1,911,682Registration
                rights penalties
            
            
            924,400Derivative
                warrant liability
            
            
            9,470,000Interest
                payable
            
            
            671,211Income
                taxes payable
            
            
            6,509Notes
                payable to stockholders
            
            
            1,884,000Advances
                from stockholders
            
            
            384,540Liabilities
                related to assets held for sale
            
            
            458,676Current
                portion of long-term liabilities
            
            
            1,207,082Other
                current liabilities
            
            
            277,747Total
                current liabilities
            
            
            21,822,913Deferred
                tax liability
            
            
            (8,018
            )Long-term
                liabilities
            
            
            17,673**Total
                liabilities**
            
            
            21,832,568Minority
                interest
            
            
            40,114Commitments
                and contingencies**Stockholders'
                deficit**Preferred
                stock, Series A convertible, $0.0001 par value, 10,000,000
                sharesauthorized,
                4,250,000 shares issued and outstanding with a liquidationpreference
                of $4,250,000
            
            
            425Common
                stock, $0.0001 par value, 40,000,000 sharesauthorized,
                14,323,010 shares, issued and outstanding
            
            
            1,432Additional
                paid-in-capital, net
            
            
            13,195,283Deferred
                compensation cost
            
            
            (52,500
            )Accumulated
                deficit
            
            
            (31,793,160
            )Accumulated
                other comprehensive loss
            
            
            (43,106
            )Total
                stockholders' deficit
            
            
            (18,691,626
            )Total
                liabilities and stockholders' deficit
            
            $
            3,181,056




See
                accompanying notes to these condensed consolidated financial
                statements.





F-1




**ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)**


**FOR
      THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005**


**(UNAUDITED)**


THREE
                  MONTHS
              
              NINE
                  MONTHS2006
              
              2005
              
              2006
              
              2005Net
                  sales
              
              $
              758,035
              
              $
              1,076,755
              
              $
              2,097,241
              
              $
              2,486,625Cost
                  of goods sold
              
              
              423,667
              
              
              667,692
              
              
              1,399,243
              
              
              1,715,571Gross
                  profit
              
              
              334,368
              
              
              409,063
              
              
              697,998
              
              
              771,054Other
                  selling, general and administrative expenses
              
              
              1,857,796
              
              
              2,312,285
              
              
              5,095,685
              
              
              6,091,590Research
                  and development
              
              
              119,331
              
              
              (222,529
              )
              
              119,331
              
              
              50,000Stock-based
                  compensation
              
              
              249,032
              
              
              -
              
              
              977,978
              
              
              -Operating
                  (loss)
              
              
              (1,891,791
              )
              
              (1,680,693
              )
              
              (5,494,996
              )
              
              (5,370,536
              )Other
                  income (expense):Interest
                  expense
              
              
              (1,529,043
              )
              
              (839,867
              )
              
              (1,964,632
              )
              
              (1,435,374
              )Change
                  in fair value of derivative warrant liability
              
              
              1,501,800
              
              
              
              
              
              1,808,796
              
              
              -Loss
                  on debt extinguishment
              
              
              (4,419,250
              )
              
              -
              
              
              (4,419,250
              )
              
              -Other
                  income (expense)
              
              
              (30,048
              )
              
              453
              
              
              710
              
              
              (20,842
              )Total
                  other (expense)
              
              
              (4,476,541
              )
              
              (839,414
              )
              
              (4,574,376
              )
              
              (1,456,216
              )(Loss)
                  before minority interest and provision for income taxes
              
              
              (6,368,332
              )
              
              (2,520,107
              )
              
              (10,069,372
              )
              
              (6,826,752
              )Income
                  tax provision
              
              
              -
              
              
              (22,786
              )
              
              -
              
              
              (22,786
              )(Loss)
                  before minority interest
              
              
              (6,368,332
              )
              
              (2,497,321
              )
              
              (10,069,372
              )
              
              (6,803,966
              )Minority
                  interest
              
              
              
              
              
              (3,816
              )
              
              -
              
              
              2,958Equity
                  in net earnings (loss) of affiliate
              
              
              9,025
              
              
              -
              
              
              (9,803
              )
              
              -Net
                  (loss) from continuing operations
              
              
              (6,359,307
              )
              
              (2,501,137
              )
              
              (10,079,175
              )
              
              (6,801,008
              )Income
                  (loss) from discontinued operations, net of tax
              
              
              72,803
              
              
              (885,342
              )
              
              561,999
              
              
              (1,924,603
              )Net
                  (loss)
              
              $
              (6,286,504
              )
              $
              (3,386,479
              )
              $
              (9,517,176
              )
              $
              (8,725,611
              )Net
                  (loss) from continuing operations applicable to
                  common stockholders consists of the following:Net
                  (loss) from continuing operations
              
              $
              (6,359,307
              )
              $
              (2,501,137
              )
              $
              (10,079,175
              )
              $
              (6,801,008
              )Deemed
                  dividend and cumulative undeclared dividends on preferred
                  stock
              
              
              (2,005,000
              )
              
              -
              
              
              (2,005,000
              )
              
              -Net
                    (loss) from continuing operations applicable to
                    common stockholders
              
              $
              (8,364,307
              )
              $
              (2,501,137
              )
              $
              (12,084,175
              )
              $
              (6,801,008
              )Comprehensive
                  (loss) and its
                  components consist of the following:Net
                  (loss)
              
              $
              (6,286,504
              )
              $
              (3,386,479
              )
              $
              (9,517,176
              )
              $
              (8,725,611
              )Foreign
                    currency translationadjustment, net of tax
              
              
              (10,429
              )
              
              35,197
              
              
              (113,612
              )
              
              (227,504
              )Comprehensive
                  (loss)
              
              $
              (6,296,933
              )
              $
              (3,351,282
              )
              $
              (9,630,788
              )
              $
              (8,953,115
              )Basic
                  and diluted income (loss) per common share:Continuing
                  operations applicable to common stockholders
              
              $
              (0.60
              )
              $
              (0.20
              )
              $
              (0.89
              )
              $
              (0.56
              )Discontinued
                  operations
              
              
              0.01
              
              
              (0.07
              )
              
              0.04
              
              
              (0.16
              )$
              (0.59
              )
              $
              (0.27
              )
              $
              (0.85
              )
              $
              (0.72
              )Weighted
                  average common shares outstanding:Basic
                  and diluted
              
              
              13,877,950
              
              
              12,399,885
              
              
              13,563,893
              
              
              12,131,689


See
                accompanying notes to these condensed consolidated financial
                statements.




F-2




**ASTRATA
      GROUP INCORPORATED AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005**


**(UNAUDITED)**




2006
            
            2005**CASH
              FLOWS FROM OPERATING
              ACTIVITIES:**Net
                loss
            
            $
            (9,517,176
            )
            $
            (8,725,611
            )Adjustments
                to reconcile net loss to netcash
                used in operating activitiesGain
                on sale of property and equipment
            
            
            (7,274
            )
            
            (4,721
            )Gain
                on forgiveness of debt
            
            
            (332,691
            )
            
            -Depreciation
                and amortization
            
            
            309,686
            
            
            713,611Gain
                on disposal transactions relating to discontinued
                operations
            
            
            (1,608,254
            )
            
            -Loss
                on early termination of lease
            
            
            101,886
            
            
            -Amortization
                of deferred compensation cost
            
            
            300,375
            
            
            281,250Change
                in fair value of derivative warrant liability
            
            
            (1,808,796
            )
            
            -Deferred
                financing costs and debt discount
            
            
            1,606,171
            
            
            474,025Loss
                on debt extinguishment
            
            
            4,419,250
            
            
            -Issuance
                of stock for services
            
            
            -
            
            
            177,125Issuance
                of stock options for compensation
            
            
            1,345,886
            
            
            -Equity
                in net loss (earnings) of affiliate
            
            
            9,803
            
            
            (43,687
            )Minority
                interest
            
            
            -
            
            
            2,958Deferred
                income taxes
            
            
            -
            
            
            (57,932
            )Unrealized
                foreign currency exchange gain
            
            
            (9,206
            )
            
            (73,985
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            2,545,583
            
            
            (1,192,356
            )Inventories
            
            
            2,261,136
            
            
            256,904Other
                assets
            
            
            143,790
            
            
            17,739Accounts
                payable and accrued liabilities
            
            
            (1,352,045
            )
            
            4,497,048Taxes
                payable
            
            
            6,509
            
            
            -Deferred
                tax liability
            
            
            (22,911
            )
            
            -Net
                cash used in operating activities
            
            
            (1,608,278
            )
            
            (3,677,632
            )**CASH
                FLOW FROM INVESTING ACTIVITIES:**Purchase
                of property and equipment
            
            
            (198,831
            )
            
            (629,907
            )Proceeds
                from sale of assets
            
            
            135,246
            
            
            14,899Investment
                in affiliates
            
            
            (73,267
            )
            
            175,131Restricted
                cash
            
            
            (120,618
            )
            
            -Net
                cash used in investing activities
            
            
            (257,470
            )
            
            (439,877
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Repayment
                of bridge loan
            
            
            -
            
            
            (1,500,000
            )Repayment
                of long term liabilities
            
            
            (259,817
            )
            
            (70,419
            )Repayment
                of advance from stockholders
            
            
            -
            
            
            (116,289
            )Repayment
                on debentures
            
            
            (550,000
            )
            
            -Proceeds
                from long term liabilities
            
            
            -
            
            
            113,336Lines
                of credit, net
            
            
            (1,038,550
            )
            
            614,724Proceeds
                from note payable to stockholders
            
            
            1,216,741
            
            
            563,103Proceeds
                from debenture
            
            
            -
            
            
            1,200,000Proceeds
                from issuance of preferred stock
            
            
            2,365,500
            
            
            -Proceeds
                from issuance of common stock
            
            
            -
            
            
            3,073,234Net
                cash provided by financing activities
            
            
            1,733,874
            
            
            3,877,689**Effect
                of foreign currency exchange rate changes****on
                cash and cash equivalents**
            
            
            85,442
            
            
            (190,407
            )**Net
                (decrease) in cash and cash equivalents**
            
            
            (46,432
            )
            
            (430,227
            )**Cash
                and cash equivalents at beginning of period**
            
            
            436,532
            
            
            1,281,064**Cash
                and cash equivalents at end of period**
            
            $
            390,100
            
            $
            850,837Cash
                paid during the period for:Interest
            
            $
            -
            
            $
            244,378Income
                taxes
            
            $
            -
            
            $
            -




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




F-3


ASTRATA
      GROUP INCORPORTED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005


(UNAUDITED)


**1.
      ORGANIZATION AND NATURE OF OPERATIONS**





***Organization***





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





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





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




***Liquidity
      and Going Concern Considerations***




For
      the
      nine months ended November 30, 2006 we had a net loss of approximately $9.5
      million and negative cash flow from operating activities of approximately $1.6
      million. In addition, we had an accumulated deficit and negative working capital
      of approximately $31.8 million and $19.7 million, respectively, as of November
      30, 2006. Because of the Company’s financial condition, our independent public
      accountants included a going concern paragraph in their audit report on our
      February 28, 2006 consolidated financial statements. The going concern paragraph
      states that there is substantial doubt about the Company’s ability to continue
      as a going concern. Such financial statements and the accompanying condensed
      consolidated financial statements have been prepared assuming that the Company
      will continue as a going concern (based upon management’s plans discussed
      herein) which contemplates, among other things, the realization of assets and
      satisfaction of liabilities in the ordinary course of business. Accordingly,
      the
      aforementioned financial statements do not include any adjustments related
      to
      the recoverability and classification of asset carrying amounts or the amount
      and classification of liabilities that might result, should the Company be
      unable to continue as a going concern.





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





F-4


ASTRATA
      GROUP INCORPORTED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005


(UNAUDITED)


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





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





Management
      is projecting growth in telematics sales during fiscal 2007, and has announced
      a
      single sales order in this sector valued at approximately $17 million.
      Additional major contracts are under negotiation (see Note 7), but at this
      time
      there can be no assurances regarding the ultimate success of these negotiations.
      In order for us to fund our operations and continue this growth plan,
      substantial additional funding will be required from external
      sources.





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





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





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








**2.
      CERTAIN SIGNIFICANT ACCOUNTING POLICIES**





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





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




***Principles
      of Consolidation***





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




F-5




ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)
  **2.
        CERTAIN SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Use
      of Estimates***





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





***Concentrations***





The
      financial instrument that potentially exposes the Company to a concentration
      of
      credit risk principally consists of cash. The Company deposits its cash with
      high credit financial institutions, principally in Europe and Asia. The
      countries do not have any institutional depository insurance comparable to
      the
      United States, which insures bank balances up to $100,000 per bank. At November
      30, 2006, the Company’s balances approximated $390,000. The Company had
      approximately $296,000 in bank accounts in the U.S., which is covered by the
      Federal Deposit Insurance Corporation limit of $100,000.





The
      Company does not require collateral from its customers, but performs ongoing
      credit evaluations of its customers’ financial condition. Credit risk with
      respect to the accounts receivable is limited because of the large number of
      customers included in the Company’s customer base and the geographic dispersion
      of those customers. The Company also performs periodic reviews of collectability
      and provides an allowance for doubtful accounts receivable. Management considers
      the allowance for doubtful accounts receivable at November 30, 2006 of
      approximately $54,000 to be adequate.





***Inventories***





Inventories
      are stated at the lower of cost (first-in, first-out) or estimated market,
      and
      consist of only finished goods at November 30, 2006. Market is determined by
      comparison with recent sales or estimated net realizable value. Net realizable
      value is based on management’s forecasts for sales of the Company’s products and
      services in the ensuring years and/or consideration and analysis of any change
      in the customer base, products mix, or other factors that may impact the
      estimated net realizable value. Should the demand for the Company’s products
      and/or services prove to be significantly less than anticipated, the ultimate
      realizable value of the Company’s inventories could be substantially less than
      reflected in the accompanying condensed consolidated balance sheet.





***Property
      and Equipment***





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





***Deferred
      Financing Costs***


Direct
        costs of securing debt financing are capitalized and amortized over the term
        of
        the related debt using the straight-line method. When a loan is paid in full
        or
        restructured with substantially different terms, any unamortized financing
        costs
        are removed from the related accounts and charged to operations.




F-6




ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)
  **2.
        CERTAIN SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Goodwill
      and Other Intangibles Assets***





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





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





***Long-Lived
      Assets***





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





As
      of
      November 30, 2006, management has determined that no new impairment indicators
      exist and therefore, no adjustments have been made to the carrying values of
      long-lived assets held for sale or held and used. There can be no assurance,
      however, that market conditions will not change or demand for the Company’s
      services and products will continue which could result in impairment of
      long-lived assets in the future.





Long-lived
      assets (including goodwill) that have not been reported as “held for sale” at
      November 30, 2006 are being held and used as of that date.





***Discontinued
      Operations***





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





The
      accompanying condensed consolidated statements of operations for the quarter
      and
      nine months ended November 30, 2006 have been reclassified to separately report
      the discontinued operations discussed above.





***Revenue
      Recognition***





*General*





Except
      as
      described in “Contract Accounting” below, the Company’s revenues are recorded in
      accordance with the SEC’s Staff Accounting Bulletin No. 104, “Revenue
      Recognition.” The Company recognizes revenue when persuasive evidence of an
      arrangement 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.




F-7


ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


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





***Revenue
      Recognition*** (continued)





*Sales
      as a Distributor*





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





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





*Contract
      Accounting*





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





*Services
      Revenue*





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





*Other
      Matters*





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





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





***Research
      and Development Costs***





Research
      and development costs relating to GPS positioning hardware and software systems
      (including the Astrata “Geo-Location Platform”) to be sold or otherwise marketed
      that are incurred before technological feasibility of the 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.




F-8


ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)
  **2** . **CERTAIN
        SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Stock-Based
      Compensation***





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





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





Options
      granted by the Company generally expire five years from the grant date. Options
      granted to existing and newly hired employees generally vest over a three-year
      period from the date of grant. The effects of share-based compensation resulting
      from the application of SFAS No. 123-R to options granted under the Company’s
      equity incentive plan resulted in an expense of approximately $249,000 for
      the
      quarter ended November 30, 2006 and $978,000 for the nine months ended November
      30, 2006. This expense was recorded as stock compensation in the accompanying
      November 30, 2006 condensed consolidated statements of operations.





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





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


Three
                  Months Ended
                November
                  30, 2006
              
              Nine
                  Months Ended
                November
                  30, 2006General
                  and administrative
              
              $
              249,032
              
              $
              977,978Net
                  share-based compensation effect on net loss fromcontinuing
                  operations
              
              $
              249,032
              
              $
              977,978Basic
                  and diluted loss per common share
              
              $
              0.02
              
              $
              0.07





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





F-9




ASTRATA
      GROUP INCORPORTED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005


(UNAUDITED)


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





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





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


Three
                    Months Ended
                  November
                    30, 2005
              
              Nine
                  Months EndedNovember
                  30, 2005Net
                  loss as reported
              
              $
              (3,386,481
              )
              $
              (8,725,611
              )Stock
                  - based employee compensation expense determinedunder
                  the Black-Scholes option pricing model, net of tax*
              
              
              (428,592
              )
              
              (1,258,766
              )Pro
                  forma net loss
              
              $
              (3,815,073
              )
              $
              (9,984,377
              )Basic
                  and diluted loss per common share:As
                  reported
              
              $
              (0.27
              )
              $
              (0.72
              )Pro
                  forma *
              
              $
              (0.31
              )
              $
              (0.82
              )


*
        These
        amounts have been revised to correct the information reported in the Company’s
        November 30,2005 Form 10-QSB filed with the SEC on January 23,
        2006.


The
      above
      tables include compensation expense related to stock options granted to
      employees during the indicated periods in fiscal 2007 and 2006. Pro forma
      compensation expense reported in the above table is generally based on the
      vesting provisions in the related stock option grants.





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


**Nine
                  Months Ended November 30****2006**
              
              **2005**Annual
                  dividends
              
              
              Zero
              
              
              ZeroExpected
                  volatility
              
              
              133
              %
              
              133
              %Risk
                  free interest rate
              
              
              3.7
              %
              
              3.7
              %Expected
                  life
              
              
              3.2
                  years
              
              
              3.2
                  years




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





Options
      outstanding that have vested and are expected to vest as of November 30, 2006
      are as follows:





Number
                  of
                Shares
              
              Weighted
                Average
                Exercise
                Price
              
              Weighted
                Average
                Remaining
                Contractual
                Term
                  in
                Years
              
              Aggregate
                Intrinsic
                Value
                  (a)Vested
              
              
              363,806
              
              $
              3.42
              
              
              
              
              $
              -Expected
                  to vest
              
              
              660,944
              
              $
              3.56
              
              
              3.3
              
              
              -Total
              
              
              1,024,750
              
              
              
              
              
              
              
              $
              -





*(a)*
            *These
                amounts represent the difference between the exercise price and $0.90,
                the
                closing market price of the Company’s common stock on November 30, 2006 as
                quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol
                “ATTG” for all in-the-money options
                outstanding.*




F-10


ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


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





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





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







**Outstanding
                  Options****Shares**
                **Available
                  for**
                **Grant**
              
              **Number
                  of**
                **Shares**
              
              **Weighted**
                **Average
                  Exercise **Price****
              
              **Aggregate**
                **Intrinsic**
                **Value
                  (b)****February
                  28, 2006**
              
              602,850
              
              1,797,150
              
              $3.76
              
              $450,000GrantsExercises
              
              
              
              
              
              (83,325
              )Cancellations
              
              
              689,075
              
              
              (689,075
              )**November
                  30, 2006**
              
              
              1,291,925
              
              
              1,024,750
              
              $
              3.76
              
              $
              -Options
                  exercisable at :February
                  28, 2006
              
              
              
              
              
              482,383
              
              $
              3.76November
                  30, 2006
              
              
              
              
              
              363,806
              
              
              3.56





*(b)*
            *Represents
                the difference between the exercise price and the February 28, 2006
                or
                November 30, 2006 market price of the Company’s common
                stock.*





***Registration
      Payment Arrangements***


On
        December 21, 2006, the Financial Accounting Standards Board (the “FASB”)
        issued FASB
        Staff Position (FSP) EITF 00-19-2, "Accounting for Registration Payment
        Arrangements" (the "FSP"). Under this pronouncement, contingently
        payable registration payment arrangements are accounted for separately from
        and
        do not affect the classification of the underlying shares, warrants, or other
        financial instruments subject to the registration payment provisions. This
        was accomplished by amending SFAS No. 133 and No. 150 to include scope
        exceptions for registration payment arrangements. A liability for a registration
        payment arrangement should be recognized when payment is probable and the
        amount
        is reasonably estimable (whether at inception or during the life of the
        arrangement) in accordance with SFAS No. 5, "Accounting for
        Contingencies."
 
 The
        FSP
        is effective for registration payment arrangements and the financial instruments
        subject to such arrangements that are entered into or modified after
        December 21, 2006. For registration payment arrangements and financial
        instruments subject to those arrangements that were entered into before
        December 22, 2006, companies are required to account
        for transitioning to the FSP through a cumulative-effect adjustment to
        the opening balance of accumulated deficit or retained earnings in fiscal
        years
        beginning after December 15, 2006. However, early adoption of this
        pronouncement for interim or annual periods for which financial statements
        or interim reports have not been issued is permitted. Accordingly, the Company
        adopted the FSP effective with the quarter ended November 30, 2006;
        see Note 11 for additional information.





F-11




ASTRATA
      GROUP INCORPORTED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005


(UNAUDITED)




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


***Other
        Recently Issued Accounting Pronouncements***
 
 Except
        as
        described in “Registration Payment Arrangements” immediately above and the
        following two paragraphs, in the opinion of management neither the FASB
        (including its Emerging Issues Task Force), the American Institute of Certified
        Public Accountants nor the SEC have issued any accounting pronouncements
        since
        the Company filed its February 28, 2006 Form 10-KSB that are believed by
        management to have a material impact on the Company’s present or future
        consolidated financial statements.
 
 In
        June
        2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
        Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.” This
        interpretation clarifies the accounting for uncertainty in income taxes
        recognized in an enterprise’s financial statements in accordance with SFAS No.
        109,” Accounting
        for Income Taxes.” FIN
        No.
        48 prescribes a more-likely-than-not recognition threshold and a measurement
        attribute for the financial statement recognition and measurement of tax
        positions taken (or expected to be taken) in an income tax return. It also
        provides guidance on de-recognition, classification, interest and penalties,
        accounting in interim periods, disclosure and transition. The requirement
        to
        assess the need for a valuation allowance on net deferred tax assets is not
        affected by FIN No. 48. This pronouncement is effective for fiscal years
        beginning after December 31, 2006. Management is in the process of evaluating
        this guidance, and therefore has not yet determined the impact (if any) that
        FIN
        No.48 will have on the Company’s financial position or results of operation upon
        adoption.





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




**3.
      INVENTORY**





Inventories
      consisted of the following as of November 30, 2006:


Europe
              
              Asia
              
              TotalRaw
                  materials
              
              $
              -
              
              $
              -
              
              $
              -Work
                  in progress
              
              
              -
              
              
              -
              
              
              -Finished
                  goods
              
              
              10,242
              
              
              259,577
              
              
              269,819Totals
              
              $
              10,242
              
              $
              259,577
              
              $
              269,819





**4.
      NOTES PAYABLE TO STOCKHOLDERS**





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





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





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





During
      the quarter ended November 30, 2006, certain notes payable to stockholders
      and
      advances from stockholders were exchanged for warrants and convertible preferred
      stock (see Note 11 for additional information).





F-12


ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


**5.
      OTHER DEBT TRANSACTIONS**





***Debt
      Financing Transaction***





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





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




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





***Redeemable
      Preferred Stock of Subsidiary***





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





In
      August
      2006, in connection with the sale of Astrata SA’s Geomatics operations (see Note
      10), the preferred stockholders agreed to accept a lesser amount in full
      satisfaction of the remaining liability. As a result, the Company recorded
      a
      gain on debt extinguishment of approximately $332,000 during the quarter ended
      August 31, 2006. Such gain has been reported as an element of income from
      discontinued operations in the accompanying condensed consolidated statement
      of
      operations.





***Other
      Matters***





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




F-13




ASTRATA
      GROUP INCORPORTED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005


(UNAUDITED)




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





***Other
      Matters*** *(continued)*





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


Exercise
                  or Conversion
                Price
                  Per ShareOriginal
                  Amount
              
              
              Adjusted
                Amount548,148
                  warrants outstanding at February 28, 2005
              
              $
              5.00
              
              $
              2.881,043,106
                  warrants issued in April/May 2005
              
              
              3.50
              
              
              2.15Other
                  warrants issued after February 28, 2005:108,196
                  warrants
              
              
              5.00
              
              
              2.884,955
                  warrants
              
              
              3.50
              
              
              2.15$1,884,000
                  of convertible debt outstanding at February 28, 2006
              
              
              5.00
              
              
              2.88


**6.
      EQUITY TRANSACTIONS**





***Preferred
      Stock***





See
      Note
      11 for a description of the convertible preferred stock issued in October and
      November 2006.





***Common
      Stock***





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





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




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




F-14


ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


**6.
      EQUITY TRANSACTIONS** (continued)





***Common
      Stock*** *(continued)*


During
        the quarter ended August 31, 2006, the Company also issued 198,210 shares
        of its
        restricted common stock in exchange for services provided by consultants.
        Such
        shares were valued at approximately $165,000 (estimated to be the fair value
        based on the trading price on the issuance date, with a 15% discount from
        the
        market price). The transactions described in this paragraph constituted exempt
        offerings under Section 4(2) of the Securities Act.
 
 During
        the quarter ended November 30, 2006, the Company issued 273,589 shares of
        its
        common stock to satisfy liabilities for services provided by suppliers and
        employees. Such shares were valued at approximately $320,000 (estimated to
        be
        the fair value based on the trading price on the issuance date).
 
 During
        the quarter ended November 30, 2006, the Company also issued 111,197 shares
        of
        its restricted common stock in exchange for services provided by an employee.
        Such shares were valued at approximately $109,000 (estimated to be the fair
        value based on the trading price on the issuance date, with a 15% discount
        from
        the market price). The transactions described in this paragraph constituted
        exempt offerings under Section 4(2) of the Securities Act.
 
 During
        the quarter ended November 30, 2006, the Company also issued 83,325 shares
        of
        common stock (valued at approximately $108,000 based on the trading price
        on the
        issuance date) for the exercise of employee stock options.
 
 During
        the quarter ended November 30, 2006, the Company issued 21,192 shares of
        its
        common stock in exchange for services provided by consultants. Such shares
        were
        valued at approximately $24,000 (estimated to be the fair value based on
        the
        trading price on the issuance date).
 
 During
        the quarter ended November 30, 2006, the Company also issued 20,000 shares
        of
        its restricted common stock in exchange for services provided by consultants.
        Such shares were valued at approximately $14,000 (estimated to be the fair
        value
        based on the trading price on the issuance date, with a 15% discount from
        the
        market price). The transactions described in this paragraph constituted exempt
        offerings under Section 4(2) of the Securities Act.





**7.
      OTHER COMMITMENTS AND CONTIGENCIES**





***Legal
      Matters***





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





***Operating
      Leases***





The
      Company occupies facilities
      under operating lease agreements expiring on various dates through March 2011.
      Certain leases include future rental escalations and renewal options. As of
      November 30, 2006, future minimum payments under operating leases approximated
      the following for the fiscal years ending February 28/29 listed
      below:




2007
              
              $
              31,0002008
              
              
              45,0002009
              
              
              42,0002010
              
              
              42,0002011
              
              
              42,000Thereafter
              
              
              4,000$
              206,000




Rent
        expense approximated $73,000 and $594,000 for the nine months ended November
        30,
        2006 and 2005, respectively, and approximately $33,000 and $185,000,
        respectively, for the quarters ended November 30, 2006 and 2005.




F-15




ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)




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





***Government
      Contract***





In
      December 2004, a subsidiary of the Company was awarded a fixed-price contract
      to
      provide the Singapore government’s Civil Defense Force (the "SCDF") with
      software and hardware in an integrated control system designed to provide
      real-time tracking (the "System") of vehicles that are authorized to transport
      hazardous materials within the country. The contract amount approximates 2.0
      million Singapore dollars, or about $1.2 million as of August 31, 2005 (the
      "Contract"). The Company did not recognize any revenue on the Contract during
      the nine months ended November 30, 2006.





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





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





***Settlement
      of Disputed Liability***





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





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





***Registration
      Rights Penalties***


The
        Company is contractually liable for certain penalties because its registration
        statement was not filed (or expected to be declared effective by the SEC)
        by the
        deadline dates. Based on the current estimate of the filing and effective
        dates
        of such registration statement and the contractual deadlines, as of November
        30,
        2006 the Company has accrued estimated penalties and related interest of
        approximately $924,000 relating to the preferred stock transaction discussed
        in
        Note 11 and the April/May 2005 sale of equity units.
 
 See
        the
“10/13/06 Equity Financing Transactions” section of Note 11 for additional
        information regarding certain matters discussed in the preceding
        paragraph.





F-16




ASTRATA
      GROUP INCORPORTED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005


(UNAUDITED)


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





***Letter
      of Intent Regarding Sales Contract***





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





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





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





**8.
      SEGEMENT REPORTING AND GEOGRAPHIC INFORMATION**





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





*Geomatics*





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





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





*Telematics*





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





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





F-17




ASTRATA
      GROUP INCORPORTED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005


(UNAUDITED)


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





***Geographic
      Information***





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




For the three months ended November 30,
      2006:




Property
                  and
                Equipment,
                  net
              
              Revenue
              
              Gross
                Profit
                  (Loss)
              
              Operating
                  Expenses
              
              Operating
                (Loss)Asia
              
              $
              515,611
              
              $
              670,097
              
              $
              338,557
              
              $
              362,916
              
              $
              (24,359
              )United
                  states
              
              
              -
              
              
              -
              
              
              -
              
              
              1,059,212
              
              $
              (1,059,212
              )Western
                  Europe
              
              
              126,289
              
              
              87,938
              
              
              (4,189
              )
              
              804,031
              
              $
              (808,220
              )Total
              
              $
              641,900
              
              $
              758,035
              
              $
              334,368
              
              $
              2,226,159
              
              $
              (1,891,791
              )


For
      the
      three months ended November 30, 2005:





Property
                and
              Equipment,
                net
            
            Revenue
            
            Gross
              Profit
            
            Operating
                Expenses
            
            Operating
              (Loss)Asia
            
            $
            413,079
            
            $
            932,583
            
            $
            284,197
            
            $
            442,113
            
            $
            (157,916
            )United
                states
            
            
            3,519
            
            
            -
            
            
            -
            
            
            1,013,071
            
            $
            (1,013,071
            )Western
                Europe
            
            
            330,950
            
            
            144,173
            
            
            124,866
            
            
            558,098
            
            $
            (433,232
            )Total
            
            $
            747,548
            
            $
            1,076,756
            
            $
            409,063
            
            $
            2,013,282
            
            $
            (1,604,219
            )




For
        the nine months ended November 30, 2006:




Property
                  and
                Equipment,
                  net
              
              Revenue
              
              Gross
                Profit
                  (Loss)
              
              Operating
                  Expenses
              
              Operating
                (Loss)Asia
              
              $
              515,611
              
              $
              1,668,606
              
              $
              764,882
              
              $
              1,090,482
              
              $
              (325,600
              )United
                  states
              
              
              -
              
              
              -
              
              
              -
              
              
              3,217,901
              
              $
              (3,217,901
              )Western
                  Europe
              
              
              126,289
              
              
              428,635
              
              
              (66,884
              )
              
              1,884,611
              
              $
              (1,951,495
              )Total
              
              $
              641,900
              
              $
              2,097,241
              
              $
              697,998
              
              $
              6,192,994
              
              $
              (5,494,996
              )




For
      the nine months ended November 30,
      2005:




Property
                  and
                Equipment,
                  net
              
              Revenue
              
              Gross
                Profit
              
              Operating
                Expenses
              
              Operating
                (Loss)Asia
              
              $
              413,079
              
              $
              2,141,304
              
              $
              643,509
              
              $
              1,412,826
              
              $
              (769,317
              )United
                  states
              
              
              3,519
              
              
              -
              
              
              -
              
              
              2,082,201
              
              $
              (2,082,201
              )Western
                  Europe
              
              
              330,590
              
              
              345,322
              
              
              127,546
              
              
              2,393,586
              
              $
              (2,266,040
              )Total
              
              $
              747,188
              
              $
              2,486,626
              
              $
              771,055
              
              $
              5,888,613
              
              $
              (5,117,558
              )




See
      Note
      3 for geographic information on inventory.





F-18




ASTRATA
      GROUP INCORPORTED AND SUBSIDIARIES


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
      THE
      THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005


(UNAUDITED)




**9.
      LOSS PER COMMON SHARE**





The
      following is a reconciliation of the numerators and denominators of the basic
      and diluted loss per common share from continuing operations for the three
      months and nine months ended November 30, 2006 and 2005.




Three
                  Months
              
              Three
                  Months
              
              Nine
                  Months
              
              Nine
                  MonthsNovember
                  30,
              
              November
                  30,
              
              Ended November 30,
              
              Ended
                  November 30,2006
              
              2005
              
              2006
              
              2005Numerator
                  for basic and diluted loss per common share:Net
                  loss from continuing operations
              
              $
              (6,359,307
              )
              $
              (2,501,137
              )
              $
              (10,079,175
              )
              $
              (6,801,008
              )Deemed
                  dividend and cumulative undeclared dividends on preferred
                  stock
              
              
              (2,005,000
              )
              
              -
              
              
              (2,005,000
              )
              
              -Total
                  net loss from continuing operations charged to common
                  shareholders
              
              $
              (8,364,307
              )
              $
              (2,501,137
              )
              $
              (12,084,175
              )
              $
              (6,801,008
              )Denominator
                  for basic and diluted loss per common share:Weighted
                  average number of common shares outstanding
              
              
              13,877,950
              
              
              12,399,885
              
              
              13,563,893
              
              
              12,131,689Basic
                    and diluted loss per common sharefrom
                    continuing operations
              
              $
              (0.60
              )
              $
              (0.20
              )
              $
              (0.89
              )
              $
              (0.56
              )




Since
        the
        Company reported a loss from continuing operations for the quarters and nine
        month periods ended November 30, 2006 and 2005, no potential common shares
        have
        been included in any diluted income per common share
        amounts.





**10.
      DISCONTINUED OPERATIONS**





***Introduction***





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





Management
      believes that the Company has not incurred any material contingent liabilities
      in connection with the transactions and events described in the preceding
      paragraph or in the “Sale of Geomatics Business in South Africa” section of this
      Note. The Company did not recognize any losses for write-downs (to fair value,
      less cost to sell) of any assets related to discontinued operations during
      the
      nine months ended November 30, 2006. As described in the following paragraph,
      operations reported as discontinued in the accompanying condensed consolidated
      statements of operations are not expected to generate any significant continuing
      cash flows after May 31, 2006.




The
        Company had total receivables relating to discontinued Telematics operations
        (in
        South Africa) of approximately $138,000 at November 30, 2006. While management
        expects to collect such receivables during the twelve months ending May 31,
        2007, this does not involve any continuing operations; the business activity
        related thereto will be limited to the effort expended in the collection
        process. The collection of such receivables is a non-recurring event for
        the
        Company, and all of the cash will be used to pay liabilities that are reported
        as related to assets held for sale at November 30, 2006. Thus, management
        has
        concluded that the Company does not have any active continuing involvement
        with the components that have been classified as discontinued operations
        in the
        accompanying condensed consolidated financial statements.





F-19




ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


**10.
      DISCONTIUED OPERATIONS** (continued)





The
      income from discontinued operations reported by the Company for the quarter
      and
      nine months ended November 30, 2006 is summarized as follows:


For
                  the quarter ended November30,
                  2006:Discontinued
                  operations
              
              $
              294,000Income
                  from sale of Astrata SA's Geomatics business
              
              
              124,000$
              418,000For
                  the six months ended August 31, 2006:Disposal
                  and other non-operating transactions:Income
                  from sale of Astrata SA's Geomatics business (see below)
              
              
              1,484,000Gain
                    on extinguishment of liability for redeemable preferred stock
                    of
                    subsidiary(see Note 5)
              
              
              332,000Gain
                    on relief from net liabilities resulting from the liquidation
                    of Astrata
                    Systems (see below)
              
              
              326,0002,142,000Loss
                  from discontinued operations
              
              
              (1,653,000
              )Total
                    income from discontinued operations for the six months ended
                    August 31,
                    2006
              
              
              
              
              
              489,000Income
                    from discontinued operations for the nine-month period ended
                    November 30,
                    2006
              
              
              
              
              $
              907,000





Over
        90%
        of Astrata SA’s revenues for the nine months ended November 30, 2006 (which
        totaled approximately $3.4 million) relate to the Company’s former Geomatics
        operations. The income from discontinued operations for the six months ended
        August 31, 2006 includes interest expense of approximately $60,000 and severance
        pay of approximately $210,000 incurred during the May 31, 2006 quarter.
 
 ***Sale
        of Geomatics Business in South Africa***
 
 In
        a Form
        8-K filed with the SEC on June 23, 2006, the Company announced the
        following:
 
 Astrata
        South Africa (Pty) Ltd (sometimes hereinafter referred to as the "Subsidiary")
        is a wholly owned subsidiary of the Company. The Subsidiary's primary activity
        was the marketing, sale, and service of products for the Geomatics industry,
        which the Company did not sell or support outside of Africa. As an extension
        to
        the strategic growth plan announced in 2006, the Company has elected to divest
        the Subsidiary's Geomatics business and re-allocate its resources to the
        Telematics business only. This decision is supported by the Company's
        announcement on June 14, 2006 of a sales order for $17 million of Telematics
        products to a single European customer.


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





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




F-20


ASTRATA
          GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
          THE
          THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


**10.
      DISCONTINUED OPERATIONS** (continued)





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





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





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





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





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





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





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





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





Effective
      May 31, 2006, Astrata Systems was closed and its continuing operations
      terminated. Management then voluntarily placed the entity in liquidation when
      a
      winding-up order (a “statement of affairs”) was filed in June 2006 with the
      appropriate agency in South Africa. When the statement of affairs was filed,
      Astrata Systems had an excess of liabilities to outsiders over assets (“excess
      liabilities”) with a carrying value of approximately $326,000. Based on advice
      of local counsel, management has determined that (1) Astrata Systems is no
      longer responsible for the excess liabilities and (2) neither the assets of
      Astrata Group nor any of its other subsidiaries are available to the creditors
      of Astrata Systems. Therefore, management concluded that the Company had
      effectively disposed of Astrata Systems, and the Company recorded a gain on
      debt
      extinguishment of approximately $326,000 during the quarter ended August 31,
      2006. Such gain has been reported as an element of income from discontinued
      operations in the accompanying condensed consolidated statement of operations
      for the nine months ended November 30, 2006.





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




F-21


ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


**10.
      DISCONTINUED OPERATIONS** (continued)





***Other
      Matters***





The
      major
      classes of assets and liabilities related to discontinued operations as of
      November 30, 2006 are as follows:


Discontinued
                  Operations
                    AssetsTrade
                  and other receivables
              
              $
              258,985Other
                  current assets
              
              
              11,488Total
              
              $
              270,473Discontinued
                  Operations LiabilitiesTrade
                  and accrued payables
              
              $
              372,933Other
                  current Liabilities
              
              
              85,743Total
              
              $
              458,676








**11.**
            **CONVERTIBLE
                PREFERRED STOCK AND WARRANTS SOLD TO OUTSIDE INVESTOR AND ISSUED
                TO
                CERTAIN CREDITORS AND RESTRUCTURING OF THE OCTOBER 2005 DEBT FINANCING
                TRANSACTION**





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





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





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





Each
      share of Preferred Stock is convertible into a number of shares of the Company’s
      common stock equal to the quotient that results from dividing $1.00 by the
      “Conversion Price.” As defined in the October 12, 2006 Certificate of
      Designation of the Relative Rights and Preferences of the Series A Convertible
      Preferred Stock of Astrata Group Incorporated (the “Certificate of
      Designation”), the Conversion Price is a maximum of $0.50 per share except for
      adjustments relating to stock splits and stock combinations. The Conversion
      Price is subject to anti-dilution adjustments for reorganizations, mergers,
      consolidations, certain dividends and other corporate events set forth in the
      Certificate of Designation. Issuances of the Company’s common stock for reasons
      other than those described in the preceding sentence at a per-share price less
      than the then-current Conversion Price will generally trigger a downward
      adjustment of the Conversion Price, with a minimum adjusted price of $0.40
      per
      share. However, granting stock options or other equity instruments under the
      Company’s employee/director stock option plan and the exercise of any such
      equity instruments will not result in adjustment of the Conversion Price.




F-22


ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


**11.**
            **CONVERTIBLE
                PREFERRED STOCK AND WARRANTS SOLD TO OUTSIDE INVESTOR AND ISSUED
                TO
                CERTAIN CREDITORS AND RESTRUCTURING OF THE OCTOBER 2005 DEBT FINANCING
                TRANSACTION**(continued)





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


Under
        the
        terms of the Agreement, the Company issued warrants to the holders of the
        Preferred Stock; some of these warrants are contingently exercisable only
        under
        certain conditions. Each warrant entitles the holder to purchase Company
        common
        stock based on a percentage of the shares of common stock issuable upon
        conversion of the Preferred Stock (the “Conversion Shares”). The Series A and B
        warrants each entitle the holder to purchase 75% of the Conversion Shares
        at an
        exercise price of $1.00 and $1.50 per share, respectively; such warrants
        vested
        and became exercisable upon issuance. The Series J warrant permits the holder
        to
        acquire 100% of the Conversion Shares at an exercise price of $0.50 per share,
        provided that the stockholder has purchased Preferred Stock in a minimum
        amount
        of $2 million. Although the J warrant did not become exercisable until January
        11, 2007, it vested and was non-forfeitable upon issuance; thus, it was
        considered issued on the transaction date and has been accounted for during
        the
        quarter ended November 30, 2006. If the Series J warrant is exercised, the
        Series C and D warrants become exercisable. The latter would each permit
        the
        holder to purchase (at an exercise price of $1.00 and $1.50 per share,
        respectively) a number of shares equal to that obtained by exercising the
        J
        warrant; as of the date that this Form 10-QSB was filed with the SEC, the
        J
        warrant had not been exercised. Management is not presently able to determine
        whether the J warrant will be exercised or, if so (since a partial exercise
        is
        permitted by the warrant agreement), the number of shares that might be issued
        upon exercise of the J warrant. As a result, the number of shares which may
        be
        issued if and when the Series C and D warrants become exercisable is not
        considered reasonably estimable at this time. Therefore, management concluded
        that the Series C and D warrants had not reached a measurement date as of
        November 30, 2006; accordingly, such warrants have not been recognized for
        accounting purposes during the quarter then ended. These warrants expire
        as
        follows: the Series J Warrants in October 2007, and the other warrants in
        October 2011


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




Since
        the
        required registration statement has not yet been filed, the Company has begun
        incurring the penalty associated with the filing-date deadline. In the opinion
        of management, the estimated effective date of the registration statement
        is
        such that the Company will most likely incur the maximum penalty under the
        Registration Rights Agreement. As a result, the Company recorded a liability
        of
        approximately $425,000 at November 30, 2006, and has reported the related
        expense in the accompanying condensed consolidated statements of operations
        for
        the quarter and nine-month period then ended.
 
 As
        more
        fully explained in Note 12 and as required by the Certificate of Designation,
        the Company has amended its Articles of Incorporation to increase the authorized
        number of shares of its common stock in order to be able to affect the
        conversion/exercise of all the outstanding Preferred Stock and related warrants.




F-23




ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


**11.**
            **CONVERTIBLE
                PREFERRED STOCK AND WARRANTS SOLD TO OUTSIDE INVESTOR AND ISSUED
                TO
                CERTAIN CREDITORS AND RESTRUCTURING OF THE OCTOBER 2005 DEBT FINANCING
                TRANSACTION**(continued)





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





On
      October 13, 2006, under the terms of the Agreement the Investor purchased 2.5
      million shares of the Company’s Preferred Stock and received certain warrants
      for total consideration of $2.5 million; the net proceeds approximated $1.6
      million. The Company incurred a finder’s fee of $250,000 related to this
      transaction; in addition, $550,000 of the gross proceeds was used to partially
      repay the obligations described in the “Debt Financing Transaction” section of
      Note 5. As part of the same transaction, certain creditors (who are also common
      stockholders of the Company) exchanged $1.5 million of Company notes payable
      (which were due on demand) for Series A and B warrants and 1.5 million shares
      of
      Preferred Stock. One such creditor was the Company’s chief executive
      officer/chief financial officer, who held a promissory note payable by the
      Company in the amount of $250,000. Absent an election to the contrary, the
      Agreement limits the beneficial ownership resulting from conversion of the
      Preferred Stock and/or exercise of any related warrants to a maximum of 9.9%
      of
      the Company’s then outstanding shares of common stock. Based on the number of
      common shares outstanding at November 30, 2006 (including the common stock
      presently owned by the former creditors referenced above) and assuming that
      none
      of the Preferred Stock owners elect to opt out of the aforementioned ownership
      limitation, conversion of the outstanding Preferred Stock and exercise of the
      applicable warrants described in this Note would result in such stockholders
      owning approximately 50% of the Company’s then outstanding shares of common
      stock.





***Accounting
      for the 10/13/06 Equity Financing Transactions***


In
        November 2006, the Company sold to the Investor certain warrants (of the
        same
        type as described above) and an additional 250,000 shares of Preferred Stock
        for
        gross proceeds of $250,000; net proceeds approximated $218,000. Management
        accounted for the various elements of such transaction in the same manner
        as the
        October 2006 sale of equity instruments to the Investor. Except when the
        context
        requires otherwise or where specifically stated to the contrary, the amounts
        disclosed below in the “Accounting for the 10/13/06 Equity Financing
        Transactions” section of this Note include those related to the transaction
        described in this paragraph.
 
 Registration
        rights penalties have been accounted for as described above in accordance
        with
        FSP EITF 00-19-2. Accounting for the other aspects of the October 2006 equity
        financing transactions is discussed in the paragraphs which follow.
 
 *The
        Warrants*
 
 The
        Series A, B and J warrants entitle the Investor to purchase a total of
        approximately 13.8 million shares of the Company’s common stock at the
        exercise prices described above; such warrants are sometimes hereinafter
        collectively referred to as the “Investor Warrants.” In combination with the
        Preferred Stock and warrants issued to certain creditors (see “The Debt
        Extinguishment Transaction” section of this Note below) and the Preferred Stock
        sold to the Investor, the Company did not have sufficient authorized, unissued,
        and uncommitted shares to satisfy these potential stock issuances as of either
        the transaction date or November 30, 2006. Thus, based on EITF Issue No.
        00-19
        management concluded that the Investor Warrants were derivatives as of the
        dates
        referenced in the preceding sentence. Using the Black-Scholes option-pricing
        model and the 2006 assumptions described in the “Stock-Based Compensation”
section of Note 1, management determined that the transaction-date estimated
        fair value of such derivatives approximated $8 million; this liability has
        been
        recorded as a reduction of additional paid-in capital.
 
 At
        November 30, 2006, the estimated fair value of the derivatives described
        in the
        preceding paragraph declined to approximately $7,040,000. As a result, the
        Company reduced the original warrant derivative liability accordingly and
        has
        reported the mark-to-market adjustment of approximately $960,000 as other
        income
        in the accompanying condensed consolidated statements of operations for the
        quarter and nine-month period ended November 30, 2006.




F-24


ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


**11.**
            **CONVERTIBLE
                PREFERRED STOCK AND WARRANTS SOLD TO OUTSIDE INVESTOR AND ISSUED
                TO
                CERTAIN CREDITORS AND RESTRUCTURING OF THE OCTOBER 2005 DEBT FINANCING
                TRANSACTION**(continued)




*The
        Conversion Feature of the Preferred Stock*
 
 As
        more
        fully explained above, the Preferred Stock is convertible into common stock
        of
        the Company. Based on the market price of the Company’s common stock in
        mid-October 2006, the Preferred Stock (i) issued to the holders of the $1.5
        million of Company notes payable described above (who are sometimes hereinafter
        collectively referred to as “the Creditors”) and (ii) sold to the Investor
        contains a beneficial conversion feature (“BCF”). Considering the
        characteristics of the Preferred Stock set forth in the Certificate of
        Designation and the related discussion in SFAS No. 133, management believes
        that
        the Preferred Stock is essentially “cumulative participating perpetual preferred
        stock.” For that reason, the Preferred Stock is considered more akin to an
        equity instrument than a debt instrument on the issuance dates and as of
        November 30, 2006. Therefore, management concluded that the economic risks
        and
        characteristics of the BCF (an embedded potential derivative financial
        instrument) are clearly and closely related to the economic risks and
        characteristics of the “host contract” (the Preferred Stock).
 
 As
        a
        result of the conclusion stated immediately above, under paragraph 12(a)
        of SFAS
        No. 133 the BCF need not be separated from the host contract or accounted
        for as
        a derivative financial instrument. Hence, as explained below, management
        has
        measured the BCF using intrinsic value accounting.
  Based
          on
          a relative fair value allocation (as described in APB Opinion No. 14 and
          certain
          related GAAP pronouncements) of the proceeds from the Preferred Stock
          transactions, the intrinsic value of the BCF on the transaction dates
          approximated $1,965,000; this represents an imputed dividend to the holders
          of
          the Preferred Stock. Because the Preferred Stock was convertible upon issuance,
          the entire dividend was charged to equity on the transaction date. However,
          since the Company did not have any retained earnings in mid-October 2006,
          the
          imputed dividend was accounted for by reducing additional paid-in capital.
          Accounting for such dividends also requires that they be credited (i.e.,
          added)
          to additional paid-in capital; as a result, the net effect of the BCF accounting
          on the Company’s November 30, 2006 total stockholders’ deficit was nil.
  For
            purposes of reporting the basic and diluted loss per common share, the
            imputed
            dividend to the preferred stockholders discussed above has been added
            to the net
            loss from continuing operations in determining the net loss from continuing
            operations applicable to common stockholders in the accompanying condensed
            consolidated statements of operations for the quarter and nine-month
            period
            ended November 30, 2006.
 
 *The
        Debt Extinguishment Transaction*
 
 In
        exchange for notes payable of $1.5 million held by the Creditors, the Company
        issued Series A and B warrants and 1.5 million shares of Preferred Stock
        in
        October 2006. For reasons described above, management concluded that such
        warrants were derivatives as of both the transaction date and November 30,
        2006.
        Using the Black-Scholes option-pricing model and based on the 2006 assumptions
        described in the “Stock-Based Compensation” section of Note 1, management
        determined that the transaction-date estimated fair value of such derivatives
        approximated $2,745,000. As more fully explained in the following paragraph,
        this liability has been recorded in accounting for the debt extinguishment
        transaction. At November 30, 2006, the estimated fair value of such derivatives
        had declined to approximately $2,430,000. Thus, the Company reduced the original
        warrant derivative liability accordingly and reported the mark-to-market
        adjustment of approximately $315,000 as other income in the accompanying
        condensed consolidated statements of operations for the quarter and nine-month
        period ended November 30, 2006.
  On
        October 13, 2006, the Preferred Stock issued to the Creditors was convertible
        into 3 million shares of the Company’s restricted common stock. Based on the
        estimated fair value of such common stock, management determined that the
        fair
        value of the Preferred Stock approximated $2,800,000 upon issuance. As stated
        above, the transaction-date estimated fair value of the warrants issued to
        the
        Creditors approximated $2,745,000. Thus, the total estimated fair value of
        the
“basket” of equity instruments received by the Creditors approximated $5.5
        million. As a result, approximately $4,045,000 has been reported as a loss
        on
        debt extinguishment in the accompanying condensed consolidated statements
        of
        operations for the quarter and nine-month period ended November 30,
        2006.
 
 **Restructuring
        of the October 2005 Debt Financing Transaction**


The
      Company restructured certain elements of its October 2005 debt financing
      transaction (as amended, the “debt financing transaction”) on October 12, 2006.
      As noted above, $550,000 of the proceeds from the aforementioned equity
      financing transaction was paid to the creditors (who are sometimes hereinafter
      collectively referred to as the “October 2005 Creditors”) in the debt financing
      transaction. The other significant provisions of the October 2006 restructuring
      are summarized below.




F-25


ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


**11.**
            **CONVERTIBLE
                PREFERRED STOCK AND WARRANTS SOLD TO OUTSIDE INVESTOR AND ISSUED
                TO
                CERTAIN CREDITORS AND RESTRUCTURING OF THE OCTOBER 2005 DEBT FINANCING
                TRANSACTION**(continued)





***Restructuring
      of the October 2005 Debt Financing Transaction*** (continued)





The
      October 2006 debt restructuring (the “Restructuring”) provides that all of the
      original agreements documenting the debt financing transaction are void, and
      thus are no longer binding on any of the parties to the October 2005
      transaction. As part of the Restructuring, the Company issued four
      non-interest-bearing unsecured non-convertible promissory notes payable (the
      “2006 notes payable”) to the October 2005 Creditors in the total amount of
      $1,200,000; such notes are due in quarterly installments of $400,000 each
      beginning January 15, 2007. The 2006 notes payable were issued in exchange
      for
      the outstanding balance of the notes payable ($938,000) resulting from the
      debt
      financing transaction. There is no penalty for prepayment of the 2006 notes
      payable after December 30, 2006.





Under
      the
      terms of the Restructuring, the Company also issued 500,000 shares (the “default
      shares”) of its restricted common stock to the October 2005 Creditors in
      consideration for their waiver of all defaults by the Company relating to the
      debt financing transaction. As a result, the liability for registration rights
      penalties relating to the debt financing transaction has been extinguished.
      On
      October 12, 2006, the Company filed a Form RW with the SEC to withdraw its
      registration statement on Form SB-2 covering the common stock underlying the
      warrants described below and the convertible notes payable issued in the debt
      financing transaction.





The
      October 2005 Creditors have retained the warrants to purchase 480,000 shares
      of
      the Company’s common stock issued in the original transaction. See the “Debt
      Financing Transaction” section of Note 7 to the Company’s February 28, 2006
      consolidated financial statements included in its Form 10-KSB for the year
      then
      ended for additional information regarding such warrants. The Company has also
      executed an agreement whereby the October 2005 Creditors have been given
“piggyback” registration rights for the common stock underlying the warrants
      described in this paragraph and for the default shares; such rights become
      effective in April 2007. The Company will not be liable for penalties if any
      related registration statement is not filed or declared effective by the SEC
      by
      any particular date.





***Accounting
      for the Restructuring***





*The
      Warrants Retained by the October 2005 Creditors*





When
      the
      debt financing transaction was consummated, management determined that the
      warrants referenced in the preceding paragraph were derivatives because there
      was not an explicit limit on the related registration rights penalties. Under
      the terms of the Restructuring, there are no penalties associated with the
      registration rights presently held by the October 2005 Creditors. GAAP requires
      that management re-assess derivative financial instruments and “potential”
derivatives at each reporting date in order to ascertain whether their
      classification (as equity or an asset/liability) has been altered by any
      transactions or other events during the intervening period.




After
        conducting such re-assessment, management determined that the warrants
        referenced above ceased to be derivatives in mid-October 2006. As a result,
        the
        Company recorded an adjustment of approximately $225,000 to reduce the warrant
        liability to its estimated fair value at October 12, 2006; this adjustment
        has
        been reported as income in the accompanying condensed consolidated statements
        of
        operations for the quarter and nine-month period ended November 30, 2006.
        The
        balance of the warrant liability (after reflecting such adjustment) of
        approximately $200,00 has been credited to additional paid-in capital in
        the
        accompanying condensed consolidated balance sheet.
 
 *The
        BCF, Deferred Financing Costs, and Discount Related to the October 2005 Notes
        Payable*
 
 Since
        the
        notes payable in the debt financing transaction were restructured with
        substantially different terms, the unamortized October 12, 2006 balance of
        the
        BCF, the debt issuance discount, and the deferred financing costs associated
        with such notes in the total amount of approximately $820,000 has been charged
        to interest expense in the accompanying condensed consolidated statements
        of
        operations for the quarter and nine-month period November 30, 2006.


F-26




ASTRATA
        GROUP INCORPORTED AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
        THE
        THREE AND NINE MONTHS ENDED NOVEMBER 30, 2006 AND 2005
 (UNAUDITED)


**11.**
            **CONVERTIBLE
                PREFERRED STOCK AND WARRANTS SOLD TO OUTSIDE INVESTOR AND ISSUED
                TO
                CERTAIN CREDITORS AND RESTRUCTURING OF THE OCTOBER 2005 DEBT FINANCING
                TRANSACTION**(continued)





***Accounting
      for the Restructuring*** (continued)





*Loss
      on Debt Extinguishment*





According
      to EITF Issue No. 96-19, an exchange of debt instruments with substantially
      different terms is an “extinguishment” which shall be accounted for in
      accordance with SFAS No. 140; any resulting gain or loss must be recognized
      on
      such transactions. Management has determined that the Restructuring is a debt
      extinguishment as defined by GAAP.




In
        measuring gain or loss on an extinguished debt instrument that contained
        an
        embedded beneficial conversion feature, EITF Issue No. 98-5 states that part
        of
        the “reacquisition price” is considered the cost of repurchasing the BCF. The
        latter pronouncement requires that the amount allocated to the BCF for that
        purpose be its extinguishment-date intrinsic value, which has been determined
        by
        management in order to measure the debt extinguishment transaction. The residual
        (after such allocation) and the carrying amount of the 2005 notes payable
        (net
        of the unamortized balance of the related BCF) have been considered in measuring
        the loss on extinguishment of the notes payable in the debt financing
        transaction. As a result, a loss on debt extinguishment of approximately
        $380,000 has been reported in the accompanying condensed consolidated statements
        of operations for the quarter and nine-month period ended November 30, 2006.


*The
      Liability for Registration Rights Penalties*




Through
      mid-October 2006, the Company incurred certain penalties in connection with
      the
      debt financing transaction as a result of failing to meet the effectiveness-date
      deadline for the registration statement required by the related agreement with
      the October 2005 Creditors. As part of the Restructuring, the Company issued
      500,000 shares of its restricted common stock to such creditors in exchange
      for
      their waiver of all Company defaults related to the debt financing transaction,
      including forgiveness of the liability for registration rights penalties. Based
      on the estimated fair value of the common stock described in the preceding
      sentence, the Company recorded a gain on extinguishment of the debt associated
      with the aforementioned penalties; such gain is not significant to the
      accompanying condensed consolidated financial statements.




**12.**
            **SUBSEQUENT
                EVENTS**




In
        December 2006, an additional 50,000 units of Series A Preferred Stock were
        sold
        to a single unrelated investor at a price of $1.00 per unit. Each unit consisted
        of one Series A preferred share (which is initially convertible into two
        shares
        of common stock), one Series A warrant to purchase 1.5 shares of common stock
        at
        $1.00 per share, and one Series B warrant to purchase 1.5 shares of common
        stock
        at $1.50 per share. Such warrants are exercisable over a five-year
        period.
 
 On
        January 10, 2007, the following investors elected to convert Series A Preferred
        Stock into common stock:


Shares
                    of Preferred
                  StockSurrendered
              
              Shares
                      of Common
                    StockIssuedPointe
                  Capital Ltd
              
              
              500,000
              
              
              1,000,000Wick
                  Trust
              
              
              450,000
              
              
              900,000Infomax
                  Company Limited
              
              
              300,000
              
              
              600,000Martin
                  Euler
              
              
              250,000
              
              
              500,000




On
        January 11, 2007, the Board of Directors and the owners of a majority of
        the
        Company’s common stock approved an amendment of the Company’s Articles of
        Incorporation which increased the authorized number of shares of common stock
        to
        100 million.
 In
          January 2007, a director of the Company elected to convert approximately
          $408,000 of debt into Series A and B warrants and 400,000 shares of
          Preferred Stock. See “The 10/13/06 Equity Financing Transactions” section of
          Note 11 for a description of the equity instruments referenced in the preceding
          sentence.




F-27




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





***Overview***





The
      following discussion should be read in conjunction with the unaudited condensed
      consolidated financial statements and notes thereto of the Company appearing
      elsewhere in this report. Such financial statements have been prepared to
      reflect the Company’s financial position as of November 30, 2006, together with
      the results of operations for the three and nine months ended November 30,
      2006
      and 2005, and cash flows for the nine months ended November 30, 2006 and
      2005.





***Forward-Looking
      Statements***





Historical
      results and trends should not be taken as indicative of future operations.
      Management’s statements contained in this report that are not historical facts
      are forward-looking statements within the meaning of Section 27A of the
      Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of
      the Securities Exchange Act of 1934, as amended or the “Exchange Act”. Actual
      results may differ materially from those included in the forward-looking
      statements. We intend such forward-looking statements to be covered by the
      safe-harbor provisions for forward-looking statements contained in the Private
      Securities Litigation Reform Act of 1995, and are including this statement
      for
      the purposes of complying with those provisions. Forward-looking statements,
      which are based on certain assumptions and describe our future plans, strategies
      and expectations, are generally indentified by use of the word “believe,”
“expect,” “anticipate,” “project,” “prospects,” or similar expressions. Our
      ability to predict results or the actual effect of future plans or strategies
      is
      inherently uncertain. Factors which could have a material adverse affect on
      our
      operations and future prospects on a consolidated basis include, but are not
      limited to: changes in economic conditions generally in the United States of
      America and the other countries in which we operate, legislative regulatory
      changes, the political climate in the foreign countries in which we operate,
      the
      availability of capital, interest rates, competition, and changes in U.S.
      generally accepted accounting principles. These risks and uncertainties should
      be considered in evaluating forward-looking statements and undue reliance should
      not be placed on any such statements. Further information concerning us and
      our
      business, including additional factors that could materially affect our
      financial results, are included herein and in our other filings with the
      Securities and Exchange Commission (the “SEC’).





**Company
      Overview**





***Strategic
      Direction***





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





***Structural
      Adjustments***





During
      the nine months ended November 30, 2006, a number of core structural changes
      were implemented.





These
      included decisions to:





*
      Withdraw from Geomatics and focus exclusively on Telematics




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





*
      Outsource all manufacturing activities





*
      Withdraw from the South African Telematics market where the primary market
      related to “stolen vehicle recovery” as opposed to more demanding and complex
      integrated solutions.





*
      Restructure our Indonesian arrangements with a view to minimizing
      costs.





In
      combination, these decisions also allowed Astrata to make further significant
      headcount and overhead savings by eliminating the South African selling, general
      and administrative expenses which, in fiscal 2007, amounted to $5.8 million
      or
      approximately 40% of total selling, general and administrative expenses. The
      associated headcount reductions approximate 120 members of staff, a reduction
      of
      cover 60%.




Page
          1




***Operational
      Considerations***





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





In
      line
      with our structural realignment during the quarter ended November 30, 2006,
      Astrata entered into a number of agreements to dispose of its South African
      operations. The effective date for these transactions is June 1, 2006. South
      Africa based operations that were not sold by this date were closed effective
      May 31, 2006 and on June 27, 2006 Astrata Systems (Pty) Ltd was placed in
      voluntary liquidation.





***Major
      Sales Order***





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





**Homeland
      Security - Letter of Intent**





In
      a Form
      8-K filed with the SEC on October 18, 2006, the Company disclosed
      that:




Effective
      October 16, 2006, Astrata Group Incorporated has entered into an exclusive
      letter of intent valued at $85 million from a Singapore based company for the
      supply of Astrata’s Intelligent Tracking Systems and the associated command and
      control Centers. This equipment is intended to meet a homeland security
      requirement and as a result the ultimate end user will remain
      confidential.





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





**Results
      of operations for the three months ended November 30, 2006 and
      2005**





As
      discussed above (see Note 10 to the condensed consolidated financial statements
      included elsewhere herein), the Company is discontinuing its operations and
      exiting South Africa. Accordingly, all South Africa operations are being
      reported as discontinued operations effective with the May 31, 2006
      quarter.





***Revenues***





Net
      sales
      were approximately $758,000 for the three months ended November 30, 2006 a
      decrease of approximately $319,000 compared to the three months ended November
      30, 2005 of approximately $1,077,000. This reflects a 30% decline quarter to
      quarter. Astrata’s core objective is to be a major service provider and supplier
      in the Telematics market sector. This objective has been further refined by
      exiting the South Africa based Geomatics segment and focusing on the homeland
      security and business to business sectors where the demand for complex
      integrated telematics solutions is driving market growth in North America,
      Europe and South East Asia.





***Gross
      Profit***





Gross
      profit decreased approximately $75,000 to approximately $334,000 for the three
      months ended November 30, 2006 compared to the three months ended November
      30,
      2005 of approximately $409,000. Gross profit as a percentage of revenue
      increased from 38% to 44%.





Page
          2


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





Selling
      general and administrative expenses for the three months ended November 31,
      2006
      were approximately $1.9 million, a decrease of approximately $0.4 million
      compared to the three months ended November 30, 2005 of approximately
      $2.3million





In
      Asia,
      operating expenses for the three months ending November 30, 2006 were
      approximately $363,000, compared to the three months ended November 30, 2005
      of
      approximately $442,000. These expenses are primarily related to staffing,
      facilities and travel costs.





In
      Europe, operating expenses for the three months ending November 30, 2006 were
      approximately $804,000, an increase of approximately $246,000 compared to the
      three months ended November, 2005 of approximately $558,000. These expenses
      are
      primarily related to staffing, facilities and travel costs. The London offices
      leased by Astrata Europe Ltd were vacated in May 2006.





Corporate
      operating expenses for the three months ending November 30, 2006 were
      approximately $1.1 million, compared to the three months ending November 31,
      2005 of approximately $1.0 million. Corporate operating expenses include public
      company expenses of approximately $219,000 (accounting, auditing, legal fees
      and
      director fees) and administrative expenses of approximately $556,000 (primarily
      marketing, salaries, facilities and travel expenses).





Research
      and development expenses for the three months ending November 30, 2006 were
      approximately $119,000, compared to the three months ending November 30, 2005
      of
      approximately ($223,000).





As
      more
      fully explained in Note 2 to the condensed consolidated financial statements
      included elsewhere herein, the adoption of SFAS 123-R “Share-Based Payment” from
      March 1, 2006 resulted in recording a non-cash expense of approximately $249,000
      in the quarter ending November 30, 2006.





***Net
      Results of Operations***





Our
      operating loss was approximately $1.9 million for the three months ended
      November 30, 2006 and approximately $1.7 million for the three months ended
      November 30, 2005. Underlying these results the impact of SFAS No. 123-R of
      approximately $249,000 was offset principally by savings in research and
      development overhead.





***Other
      income (expense)***





Interest
      expense for the three months ended November 30, 2006 was approximately
      $1,529,000 as compared to $840,000 for the quarter ended November 30, 2005.
      The
      fair value adjustment for a warrant liability was a benefit of approximately
      $1.5 million for the quarter ended November 30, 2006 as compared to nil for
      the
      quarter ended November 30, 2005.





***Net
      Results***




We
        are
        reporting a net loss of approximately $6.3 million or $0.45 per common share
        for
        the three months ended November 30, 2006 compared to a net loss of approximately
        $3.4 million or $0.27 per common share for the three months ended November
        30,
        2005. Our continuing operations resulted in a net loss of approximately $6.4
        million for the three months ended November 30, 2006. After factoring in
        the deemed dividend to the preferred stockholders of approximately $2.0 million
        (as described in “The Conversion Feature of the Preferred Stock” section of Note
        11 to the condensed consolidated financial statements included elsewhere
        herein), our net loss from continuing operations applicable to common
        stockholders is approximately $8.4 million or $0.60 per common share; and
        approximately $2.5 million or $0.20 per common share for the three months
        ended
        November 30, 2005. Our discontinued operations resulted in income of
        approximately $73,000 or $0.01 per common share for the three months ended
        November 30, 2006 and a loss of approximately $885,000 or $0.07 per common
        share
        for the three months ended November 30, 2005.  ******


**Results
      of operation for the nine months ended November 30, 2006 and
      2005**





***Revenues***





Net
      sales
      were approximately $2.1 million for the nine months ended November 30, 2006;
      a
      decrease of approximately $0.4 million compared to the nine months ended
      November 31, 2005 of approximately $2.5 million. This reflects a 16% decline
      quarter to quarter.





Page
          3




***Gross
      profit***





Gross
      profit decreased approximately $73,000 to approximately $698,000 for the nine
      months ended November 30, 2006 compared to the nine months ended November 30,
      2005 of approximately $771,000. Gross profit as a percentage of revenue
      increased from 31% to 33%.





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





Selling
      general and administrative expenses for the nine months ended November 30,
      2006
      were approximately $5.1 million, a decrease of approximately $1.0 million
      compared to the nine months ended November 30, 2005 of approximately $6.1
      million.





In
      Asia,
      operating expenses for the nine months ended November 30, 2006 were
      approximately $1.1million compared to the nine months ended November 30, 2005
      of
      approximately $1.4 million. These expenses are primarily related to staffing,
      facilities and travel costs.





In
      Europe, operating expenses for the nine months ending November 30, 2006 were
      approximately $1.9 million, a decline of approximately $0.5 million compared
      to
      the nine months ended November, 2005 of approximately $2.4 million. These
      expenses are primarily related to staffing, facilities and travel costs. The
      London offices leased by Astrata Europe Ltd were vacated in May
      2006.





Corporate
      operating expenses for the nine months ending November 30, 2006 were
      approximately $3.2 million, compared to the nine months ending November 30,
      2005
      of approximately $2.1 million. Corporate expenses include public company
      expenses of approximately $0.76 million (accounting, auditing, legal fees and
      director fees) and administrative expenses of approximately $1.4 million
      (primarily marketing, salaries, facilities and travel expenses).





Research
      and development expenses for the nine months ending November 30, 2006 were
      $119,000 compared to the nine months ending November 30, 2005 of approximately
      $50,000.





As
      more
      fully explained in Note 2 to the condensed financial statements included
      elsewhere herein, the adoption of SFAS 123-R “Share-Based Payments” from March
      1, 2006 resulted in recording a non-cash expense of approximately $978,000
      in
      the nine months ending November 30, 2006.





***Net
      Results of Operations***





Our
      operating loss was approximately $5.5 million for the nine months ended November
      30, 2006 and approximately $5.4 million for the nine months ended November
      30,
      2005. Underlying these results, the impact of SFAS No. 123-R of approximately
      $0.98 million was offset by reductions in selling, general and administrative
      overhead of approximately $1.0 million.








***Other
      income (expense)***





Interest
      expense for the nine months ended November 30, 2006 was approximately $2 million
      as compared to $1.4 million for the nine months ended November 30, 2005. The
      fair value adjustment for a warrant liability amounted to a benefit of approximately$1.8 million for the nine months ended November 30, 2006 as compared
      to
      nil for the nine months ended November 30, 2005.





***Net
      Results***


We
        are
        reporting a net loss of approximately $9.5 million or $0.70 per common share
        for
        the nine months ended November 30, 2006 compared to a net loss of approximately
        $8.7 million or $0.72 per common share for the nine months ended November
        30,
        2005. Our continuing operations resulted in a net loss of approximately $10.1
        million for the nine months ended November 30, 2006. After factoring in the
        deemed dividend to the preferred stockholders of approximately $2.0 million
        (as
        described in “The Conversion Feature of the Preferred Stock” section of Note 11
        to the condensed consolidated financial statements included elsewhere herein),
        our net loss from continuing operations applicable to common
        stockholders is approximately $12.1 million or $0.89 per common share; and
        approximately $6.8 million or $0.56 per common share for the nine months
        ended
        November 30, 2005. Our discontinued operations resulted in income of
        approximately $0.6 million or $0.04 per common share for the nine months
        ended
        November 30, 2006 and a loss of approximately $1.9 million or $0.16 per common
        share for the nine months ended November 30, 2005.





Page
          4


The
      following is a reconciliation of the basic and diluted loss on debt
      extinguishment per common share computations for the three months and nine
      months ended November 30, 2006.


**Three
                  Months****Ending**
                **November
                  30, 2006**
              
              **Nine
                  Months Ending**
                **November
                  30, 2006**Net
                    (loss) from continuing operations before loss on debt
                    extinguishment
              
              $
              (1,940,057
              )
              $
              (5,659,925
              )Loss
                  on debt extinguishment *
              
              
              (4,419,250
              )
              
              (4,419,250
              )Net
                  (loss) from continuing operations
              
              $
              (6,359,307
              )
              $
              (10,079,175
              )Basic
                  and diluted (loss) per common share:Continuing
                  operations before loss on debt extinguishment
              
              $
              (0.14
              )
              $
              (0.42
              )Loss
                  on debt extinguishment
              
              
              (0.32
              )
              
              (0.33
              )Continuing
                  operations after loss on debt extinguishment
              
              $
              (0.46
              )
              $
              (0.75
              )




*
      As more
      fully explained in Note 11 to the condensed consolidated financial statements
      included elsewhere
      herein




***Liquidity
      and Capital Resources***





*Balance
      Sheet Comparison of November 30, 2006 to February 28, 2006*





During
      the quarter ended May 31, 2006, the Company determined it would withdraw from
      Geomatics and focus exclusive on Telematics. The Geomatics business represented
      the vast majority of the revenue of Astrata South Africa (Pty) Ltd (“ASA”). On
      May 31,2006, the Company closed its subsidiary Astrata Systems (Pty) Ltd.
      (“Astrata Systems”); during the quarter then ended, management reached a
      decision to sell the assets of ASA as discussed in Note 10 to the condensed
      consolidated financial statements included elsewhere herein. As of November
      30,
      2006, we have approximately $270,000 in discontinued operations assets, and
      approximately $459,000 of liabilities related to discontinued operations, which
      should be completed in the near future.




For
        purpose of the matters discussed in the following two paragraphs, management
        has
        recast the Company’s February 28, 2006 consolidated balance sheet (included in
        the February 28, 2006 Form 10-KSB filed with the SEC on July 18, 2006) to
        retroactively reflect the estimated effect of assets classified as “held for
        sale” at November 30, 2006 and the related liabilities. These pro forma
        adjustments, which are for discussion purposes only, have been developed
        by
        management based on the transactions and events relating to the Company’s
        discontinued operations reported in the condensed consolidated financial
        statements (and discussed in the related notes) included elsewhere
        herein.


Total
        assets decreased by approximately $3.7 million from $6.9 million as of February
        28, 2006 to $3.2 million as of November 30, 2006. The decrease is primarily
        due
        to the sale of accounts receivable of approximately $1.0 million, the sale
        of
        inventory of approximately $1.7 million, the sale of property and equipment
        of
        approximately $0.5 million, the impairment of intangible asset and goodwill
        of
        approximately $0.6 million; offset by an increase in other assets of
        approximately $0.1 million.
 
 Total
        liabilities increased by approximately $5.3 million from approximately $16.5
        million as of February 28, 2006 to approximately $21.8 million as of November
        30, 2006. This is primarily due to an increase in warrant liability of $9.2
        million, notes payable of approximately $1.1 million, interest payable of
        $0.7
        million and other current liabilities of $0.7 million; offset by a decrease
        in
        notes payable to stockholders of $0.4 million, debentures net of discounts
        of
        $0.3 million, preference shares of $0.9 million, line of credit of $1.7 million,
        other liabilities of $0.8 million and accounts payable of approximately $2.3
        million which were assumed by the buyer in connection with the sale of our
        geomatics business within South Africa.





Page
          5


*Statement
      of Cash Flow Changes*


Our
        operating activities used approximately $1.6 million in cash during the nine
        months ended November 30, 2006. The net loss of approximately $9.5 million
        was
        offset by approximately $4.3 million in non cash items. These include the
        sale
        of our geomatics business, debt forgiveness and the change in fair value
        of
        derivative warrant liability, depreciation, amortization, deferred financing
        costs and issuance of stock for services and compensation and debt
        extinguishment (as more fully described in Note 11 to the condensed consolidated
        financial statements included elsewhere herein). The net change in receivables,
        payables and inventories of approximately $3.6 million yielded a net usage
        in
        cash of approximately $1.6 million.
 
 Cash
        flows from investing activities used approximately $257,000 primarily to
        support
        investment in affiliates. Cash flows provided by financing activities were
        $1.7
        million composed primarily of advances from stockholders of approximately
        $1.2
        million and net proceeds from the issuance of preferred stock of approximately
        $2.4 million; offset by repayment of long-term liabilities of approximately
        $0.8
        million, and the repayment in full of approximately $1.1 million on a line
        of
        credit.





At
      November 30, 2006, the Company had negative working capital of approximately
      $19.7 million. In order for us to fund our operations and continue management’s
      growth plan, substantial additional funding will be required from external
      sources. Management currently intends to fund operations through a combination
      of equity financing and lines of credit. As more fully described in Note 11
      to
      the condensed consolidated financial statements included elsewhere herein,
      the
      Company has recently concluded a convertible preferred stock (with warrants)
      offering that yielded gross proceeds of approximately $2.8 million of additional
      equity.





***Liquidity
      and Going Concern Considerations***




For
        the
        nine months ended November 30, 2006, we had a net loss of approximately $9.5
        million and negative cash flow from operating activities of approximately
        $1.6
        million. In addition, we had an accumulated deficit and negative working
        capital
        of approximately $31.8 million and $19.7 million, respectively, as of November
        30, 2006. Because of the Company’s financial condition, our independent public
        accountants included a going concern paragraph in their audit report on our
        February 28, 2006 consolidated financial statements. The going concern paragraph
        states that there is substantial doubt about the Company’s ability to continue
        as a going concern. Such financial statements and the condensed consolidated
        financial statements included elsewhere herein have been prepared assuming
        that
        the Company will continue as a going concern ( based upon management’s plans
        discussed herein) which contemplates, among other things, the realization
        of
        assets and satisfaction of liabilities in the ordinary course of business.
        Accordingly, the aforementioned financial statements do not include any
        adjustments related to the recoverability and classification of asset carrying
        amounts or the amount and classification of liabilities that might result,
        should the Company be unable to continue as a going concern.





In
      the
      first quarter of fiscal 2007, management revised our business plan to focus
      on
      the more developed markets in Europe, South East Asia and North America. As
      our
      core strategic direction is now to focus on the telematics market rather than
      the geomatics market, the Company entered into discussions regarding the sale
      of
      its geomatics business. The sale of this business and the winding down of our
      remaining South Africa operations (see Note10 to the condensed consolidated
      financial statements included elsewhere herein for additional information
      regarding these two events) is expected to yield annual savings of approximately
      $5.8 million, or 41% of the Company’s annual selling, general and administrative
      expenses with an associated headcount reduction of over 120 members of staff,
      a
      Company-wide reduction of about 60%. As more fully explained in Note 11 to
      the
      condensed consolidated financial statements included elsewhere herein, the
      Company has recently concluded a convertible preference share offering that
      yielded gross proceeds of approximately $2.8 million in equity.





The
      Company’s capital requirements depends on numerous factors, including the rate
      of market acceptance of the Company’s product and services, the Company’s
      ability to service its customers, the ability to maintain and expand our
      customer base, the level of resources required to expand the Company’s marketing
      and sales organization, finance research and development activities and other
      factors. As more fully explained elsewhere herein, management presently believes
      that cash generated from operations, the October 2006 equity transaction (which
      yielded net proceeds of approximately $1.6 million, and reduced debt by $1.5
      million), the October 2006 restructuring and partial repayment of other noted
      payable (see Note 11 to the condensed consolidated financial statements included
      elsewhere herein for additional information regarding these two transactions),
      the Company’s current credit facilities and the debt and/or equity financing
      proposals now under consideration, will be sufficient to meet the Company’s
      anticipated liquidity requirements through August 2007.





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




Page
          6




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





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





***Preferred
      Stock***


***The
        10/13/06 Equity Financing Transactions***
 
 As
        more
        fully described below, on October 13, 2006 the Company entered into certain
        equity transactions with an unrelated entity (which has represented itself
        as an
“accredited investor,” as that term is defined in Regulation D of the Securities
        Act) and certain creditors. The aforementioned unrelated entity is sometimes
        hereinafter referred to as the “Investor.” In the opinion of management - based
        in part on advice of counsel, such transactions are exempt from registration
        under the Securities Act.
 
 The
        Company has agreed to sell a maximum of 5.5 million shares of its Series
        A
        convertible preferred stock (with a par value of $0.0001 per share) and certain
        warrants to purchase its common stock for a total maximum purchase price
        of $5.5
        million. Such preferred stock is hereinafter referred to as the “Preferred
        Stock,” which is convertible into shares of the Company’s common stock based on
        a formula (see the next paragraph) set forth in the Series A Convertible
        Preferred Stock Purchase Agreement Dated October 13, 2006 (the “Agreement”). The
        Preferred Stock has a liquidation preference of $1.00 per share (the
“Liquidation Preference Amount”), and a cumulative annual cash dividend equal to
        8% of the Liquidation Preference Amount. Accrued dividends are generally
        payable
        only in the event of the dissolution, liquidation or winding up of Astrata
        Group, or upon conversion of the Preferred Stock.
 
 Each
        share of Preferred Stock is convertible into a number of shares of the Company’s
        common stock equal to the quotient that results from dividing $1.00 by the
        “Conversion Price.” As defined in the October 12, 2006 Certificate of
        Designation of the Relative Rights and Preferences of the Series A Convertible
        Preferred Stock of Astrata Group Incorporated (the “Certificate of
        Designation”), the Conversion Price is a maximum of $0.50 per share except for
        adjustments relating to stock splits and stock combinations. The Conversion
        Price is subject to anti-dilution adjustments for reorganizations, mergers,
        consolidations, certain dividends and other corporate events set forth in
        the
        Certificate of Designation. Issuances of the Company’s common stock for reasons
        other than those described in the preceding sentence at a per-share price
        less
        than the then-current Conversion Price will generally trigger a downward
        adjustment of the Conversion Price, with a minimum adjusted price of $0.40
        per
        share. However, granting stock options or other equity instruments under
        the
        Company’s employee/director stock option plan and the exercise of any such
        equity instruments will not result in adjustment of the Conversion Price.
 
 Under
        the
        terms of the Agreement, the Company issued warrants to the holders of the
        Preferred Stock; some of these warrants are contingently exercisable only
        under
        certain conditions. Each warrant entitles the holder to purchase Company
        common
        stock based on a percentage of the shares of common stock issuable upon
        conversion of the Preferred Stock (the “Conversion Shares”). The Series A and B
        warrants each entitle the holder to purchase 75% of the Conversion Shares
        at an
        exercise price of $1.00 and $1.50 per share, respectively; such warrants
        vested
        and became exercisable upon issuance. The Series J warrant permits the holder
        to
        acquire 100% of the Conversion Shares at an exercise price of $0.50 per share,
        provided that the stockholder has purchased Preferred Stock in a minimum
        amount
        of $2 million. Although the J warrant did not become exercisable until January
        11, 2007, it vested and was non-forfeitable upon issuance; thus, it was
        considered issued on the transaction date and has been accounted for during
        the
        quarter ended November 30, 2006. If the Series J warrant is exercised, the
        Series C and D warrants become exercisable. The latter would each permit
        the
        holder to purchase (at an exercise price of $1.00 and $1.50 per share,
        respectively) a number of shares equal to that obtained by exercising the
        J
        warrant; as of the date that this Form 10-QSB was filed with the SEC, the
        J
        warrant had not been exercised. Management is not presently able to determine
        whether the J warrant will be exercised or, if so (since a partial exercise
        is
        permitted by the warrant agreement), the number of shares that might be issued
        upon exercise of the J warrant. As a result, the number of shares which may
        be
        issued if and when the Series C and D warrants become exercisable is not
        considered reasonably estimable at this time. Therefore, management concluded
        that the Series C and D warrants had not reached a measurement date as of
        November 30, 2006; accordingly, such warrants have not been recognized for
        accounting purposes during the quarter then ended. These warrants expire
        as
        follows: the Series J Warrants in October 2007, and the other warrants in
        October 2011.




Page
          7


The
        Company has granted registration rights (the “Registration Rights Agreement”)
        for the common stock underlying both the aforementioned warrants and the
        Preferred Stock; such common stock is sometimes hereinafter collectively
        referred to as the “Registrable Securities.” Under the terms of the Registration
        Rights Agreement, the Company is required to file a registration statement
        with
        the SEC providing for the resale of all Registrable Securities on a continuous
        basis pursuant to Rule 415 of the Securities Act. Until such registration
        statement is declared effective by the SEC, the Registrable Securities, the
        Preferred Stock, and the related warrants are restricted under Rule 144 of
        the
        Securities Act. The Registration Rights Agreement also provides that the
        Company
        will incur liquidated damages in the form of a cash penalty if (a) the
        aforementioned registration statement is not filed by November 12, 2006 or
        (assuming that such registration statement receives a “full review” by the SEC)
        is not declared effective by the SEC by approximately February 12, 2007,
        or (b)
        the effectiveness of such registration statement is not continuously maintained
        until the earlier of when all the Registrable Securities have been sold or
        all
        the Rule 144 restrictions relating to such securities have lapsed. The penalty
        would also be triggered if the Company’s common stock was delisted or no longer
        quoted by the OTCBB. The penalty is 2% per month (or any portion thereof)
        of the
        holder’s initial investment in the Preferred Stock, with a maximum penalty of
        10% of the base amount.
 
 Since
        the
        required registration statement has not yet been filed, the Company has begun
        incurring the penalty associated with the filing-date deadline. In the opinion
        of management, the estimated effective date of the registration statement
        is
        such that the Company will most likely incur the maximum penalty under the
        Registration Rights Agreement. As a result, the Company recorded a liability
        of
        approximately $425,000 at November 30, 2006, and has reported the related
        expense in the condensed consolidated statements of operations for the quarter
        and nine-month period then ended included elsewhere herein.
 
 As
        more
        fully explained in Note 12 to
        the
        condensed consolidated financial statements included elsewhere herein and
        as required by the Certificate of Designation, the Company has amended its
        Articles of Incorporation to increase the authorized number of shares of
        its
        common stock in order to be able to affect the conversion/exercise of all
        the
        outstanding Preferred Stock and related warrants.
 
 On
        October 13, 2006, under the terms of the Agreement the Investor purchased
        2.5
        million shares of the Company’s Preferred Stock and received certain warrants
        for total consideration of $2.5 million; the net proceeds approximated $1.6
        million. The Company incurred a finder’s fee of $250,000 related to this
        transaction; in addition, $550,000 of the gross proceeds was used to partially
        repay the obligations described in the “Debt Financing Transaction” section of
        Note 5. As part of the same transaction, certain creditors (who are also
        common
        stockholders of the Company) exchanged $1.5 million of Company notes payable
        (which were due on demand) for Series A and B warrants and 1.5 million shares
        of
        Preferred Stock. One such creditor was the Company’s chief executive
        officer/chief financial officer, who held a promissory note payable by the
        Company in the amount of $250,000. Absent an election to the contrary, the
        Agreement limits the beneficial ownership resulting from conversion of the
        Preferred Stock and/or exercise of any related warrants to a maximum of 9.9%
        of
        the Company’s then outstanding shares of common stock. Based on the number of
        common shares outstanding at November 30, 2006 (including the common stock
        presently owned by the former creditors referenced above) and assuming that
        none
        of the Preferred Stock owners elect to opt out of the aforementioned ownership
        limitation, conversion of the outstanding Preferred Stock and exercise of
        the
        applicable warrants described in this Note would result in such stockholders
        owning approximately 50% of the Company’s then outstanding shares of common
        stock.
 
 ***Accounting
        for the 10/13/06 Equity Financing Transactions***
 
 In
        November 2006, the Company sold to the Investor certain warrants (of the
        same
        type as described above) and an additional 250,000 shares of Preferred Stock
        for
        gross proceeds of $250,000; net proceeds approximated $218,000. Management
        accounted for the various elements of such transaction in the same manner
        as the
        October 2006 sale of equity instruments to the Investor. Except when the
        context
        requires otherwise or where specifically stated to the contrary, the amounts
        disclosed below in “Accounting for the 10/13/06 Equity Financing
        Transactions” include those related to the transaction described in this
        paragraph.
 
 Registration
        rights penalties have been accounted for as described above in accordance
        with
        FSP EITF 00-19-2. Accounting for the other aspects of the October 2006 equity
        financing transactions is discussed in the paragraphs which follow.
 
 Page
            8




*The
        Warrants*
 
 The
        Series A, B and J warrants entitle the Investor to purchase a total of approximately 13.8
        million shares of the Company’s common stock at the exercise prices described
        above; such warrants are sometimes hereinafter collectively referred to as
        the
“Investor Warrants.” In combination with the Preferred Stock and warrants issued
        to certain creditors (see “The Debt Extinguishment Transaction” section of this
        Note below) and the Preferred Stock sold to the Investor, the Company did
        not
        have sufficient authorized, unissued, and uncommitted shares to satisfy these
        potential stock issuances as of either the transaction date or November 30,
        2006. Thus, based on EITF Issue No. 00-19 management concluded that the Investor
        Warrants were derivatives as of the dates referenced in the preceding sentence.
        Using the Black-Scholes option-pricing model and the 2006 assumptions described
        in the “Stock-Based Compensation” section of Note 1, management determined that
        the transaction-date estimated fair value of such derivatives approximated
        $8
        million; this liability has been recorded as a reduction of additional paid-in
        capital.
 
 At
        November 30, 2006, the estimated fair value of the derivatives described
        in the
        preceding paragraph declined to approximately $7,040,000. As a result, the
        Company reduced the original warrant derivative liability accordingly and
        has
        reported the mark-to-market adjustment of approximately $960,000 as other
        income
        in the condensed consolidated statements of operations for the quarter and
        nine-month period ended November 30, 2006 included
        elsewhere herein.
 
 *The
        Conversion Feature of the Preferred Stock*
 
 As
        more
        fully explained above, the Preferred Stock is convertible into common stock
        of
        the Company. Based on the market price of the Company’s common stock in
        mid-October 2006, the Preferred Stock (i) issued to the holders of the $1.5
        million of Company notes payable described above (who are sometimes hereinafter
        collectively referred to as “the Creditors”) and (ii) sold to the Investor
        contains a beneficial conversion feature (“BCF”). Considering the
        characteristics of the Preferred Stock set forth in the Certificate of
        Designation and the related discussion in SFAS No. 133, management believes
        that
        the Preferred Stock is essentially “cumulative participating perpetual preferred
        stock.” For that reason, the Preferred Stock is considered more akin to an
        equity instrument than a debt instrument on the issuance dates and as of
        November 30, 2006. Therefore, management concluded that the economic risks
        and
        characteristics of the BCF (an embedded potential derivative financial
        instrument) are clearly and closely related to the economic risks and
        characteristics of the “host contract” (the Preferred Stock).
 
 As
        a
        result of the conclusion stated immediately above, under paragraph 12(a)
        of SFAS
        No. 133 the BCF need not be separated from the host contract or accounted
        for as
        a derivative financial instrument. Hence, as explained below, management
        has
        measured the BCF using intrinsic value accounting.
  Based
          on
          a relative fair value allocation (as described in APB Opinion No. 14 and
          certain
          related GAAP pronouncements) of the proceeds from the Preferred Stock
          transactions, the intrinsic value of the BCF on the transaction dates
          approximated $1,965,000; this represents an imputed dividend to the holders
          of
          the Preferred Stock. Because the Preferred Stock was convertible upon issuance,
          the entire dividend was charged to equity on the transaction date. However,
          since the Company did not have any retained earnings in mid-October 2006,
          the
          imputed dividend was accounted for by reducing additional paid-in capital.
          Accounting for such dividends also requires that they be credited (i.e.,
          added)
          to additional paid-in capital; as a result, the net effect of the BCF accounting
          on the Company’s November 30, 2006 total stockholders’ deficit was nil.
 
 For
          purposes of reporting the basic and diluted loss per common share, the
          imputed
          dividend to the preferred stockholders discussed above has been added to
          the net
          loss from continuing operations in determining the net loss from continuing
          operations applicable to common stockholders in the accompanying condensed
          consolidated statements of operations for the quarter and nine-month period
          ended November 30, 2006.
 
 *The
        Debt Extinguishment Transaction*
 
 In
        exchange for notes payable of $1.5 million held by the Creditors, the Company
        issued Series A and B warrants and 1.5 million shares of Preferred Stock
        in
        October 2006. For reasons described above, management concluded that such
        warrants were derivatives as of both the transaction date and November 30,
        2006.
        Using the Black-Scholes option-pricing model and based on the 2006 assumptions
        described in the “Stock-Based Compensation” section of Note 1, management
        determined that the transaction-date estimated fair value of such derivatives
        approximated $2,745,000. As more fully explained in the following paragraph,
        this liability has been recorded in accounting for the debt extinguishment
        transaction. At November 30, 2006, the estimated fair value of such derivatives
        had declined to approximately $2,430,000. Thus, the Company reduced the original
        warrant derivative liability accordingly and reported the mark-to-market
        adjustment of approximately $315,000 as other income in the condensed
        consolidated statements of operations for the quarter and nine-month period
        ended November 30, 2006 included elsewhere herein.
  Page
            9




On
        October 13, 2006, the Preferred Stock issued to the Creditors was convertible
        into 3 million shares of the Company’s restricted common stock. Based on the
        estimated fair value of such common stock, management determined that the
        fair
        value of the Preferred Stock approximated $2,800,000 upon issuance. As stated
        above, the transaction-date estimated fair value of the warrants issued to
        the
        Creditors approximated $2,745,000. Thus, the total estimated fair value of
        the
“basket” of equity instruments received by the Creditors approximated $5.5
        million. As a result, approximately $4,045,000 has been reported as a loss
        on
        debt extinguishment in the condensed consolidated statements of operations
        for
        the quarter and nine-month period ended November 30, 2006 included elsewhere
        herein.


***Common
      Stock***





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





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




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




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





During
      the quarter ended November 30, 2006, the Company issued 273,589 shares of its
      registered common stock to satisfy liabilities for services provided by
      suppliers and employees. Such shares were valued at approximately $320,000
      (estimated to be the fair value based on the trading price on the issuance
      date).


Page
            10


During
      the quarter ended November 30, 2006, the Company also issued 111,197 shares
      of
      its unregistered common stock in exchange for services provided by an employee.
      Such shares were valued at approximately $109,000 (estimated to be the fair
      value based on the trading price on the issuance date, with a 15% discount
      from
      the market price). The transactions described in this paragraph constituted
      exempt offerings under Section 4(2) of the Securities Act.





During
      the quarter ended November 30, 2006, the Company also issued 83,325 shares
      of
      registered common stock (valued at approximately $108,000 based on the trading
      price on the issuance date) for the exercise of employee stock
      options.





During
      the quarter ended November 30, 2006, the Company issued 21,192 shares of its
      registered common stock on exchange for services provided by consultants. Such
      shares were valued at approximately $24,000 (estimated to be the fair value
      based on the trading price on the issuance date).




During
      the quarter ended November 30, 2006, the Company also issued 20,000 shares
      of
      its common stock in exchange for services provided by consultants. Such shares
      were valued at approximately $14,000 (estimated to be the fair value based
      on
      the trading price on the issuance date, with a 15% discount from the market
      price). The transactions described in this paragraph constituted exempt
      offerings under Section 4(2) of the Securities Act.




***Restructuring
        of the October 2005 Debt Financing Transaction***
 
 The
        Company restructured certain elements of its October 2005 debt financing
        transaction (as amended, the “debt financing transaction”) on October 12, 2006.
        As noted above, $550,000 of the proceeds from the aforementioned equity
        financing transaction was paid to the creditors (who are sometimes hereinafter
        collectively referred to as the “October 2005 Creditors”) in the debt financing
        transaction. The other significant provisions of the October 2006 restructuring
        are summarized below.
 
 The
        October 2006 debt restructuring (the “Restructuring”) provides that all of the
        original agreements documenting the debt financing transaction are void,
        and
        thus are no longer binding on any of the parties to the October 2005
        transaction. As part of the Restructuring, the Company issued four
        non-interest-bearing unsecured non-convertible promissory notes payable (the
        “2006 notes payable”) to the October 2005 Creditors in the total amount of
        $1,200,000; such notes are due in quarterly installments of $400,000 each
        beginning January 15, 2007. The 2006 notes payable were issued in exchange
        for
        the outstanding balance of the notes payable ($938,000) resulting from the
        debt
        financing transaction. There is no penalty for prepayment of the 2006 notes
        payable after December 30, 2006.
 
 Under
        the
        terms of the Restructuring, the Company also issued 500,000 shares (the “default
        shares”) of its restricted common stock to the October 2005 Creditors in
        consideration for their waiver of all defaults by the Company relating to
        the
        debt financing transaction. As a result, the liability for registration rights
        penalties relating to the debt financing transaction has been extinguished.
        On
        October 12, 2006, the Company filed a Form RW with the SEC to withdraw its
        registration statement on Form SB-2 covering the common stock underlying
        the
        warrants described below and the convertible notes payable issued in the
        debt
        financing transaction.
 
 The
        October 2005 Creditors have retained the warrants to purchase 480,000 shares
        of
        the Company’s common stock issued in the original transaction. See the “Debt
        Financing Transaction” section of Note 7 to the Company’s February 28, 2006
        consolidated financial statements included in its Form 10-KSB for the year
        then
        ended for additional information regarding such warrants. The Company has
        also
        executed an agreement whereby the October 2005 Creditors have been given
        “piggyback” registration rights for the common stock underlying the warrants
        described in this paragraph and for the default shares; such rights become
        effective in April 2007. The Company will not be liable for penalties if
        any
        related registration statement is not filed or declared effective by the
        SEC by
        any particular date.
  Page
            11
  ***Accounting
          for the Restructuring***
 
 *The
          Warrants Retained by the October 2005 Creditors*
 
 When
          the
          debt financing transaction was consummated, management determined that
          the
          warrants referenced in the preceding paragraph were derivatives because
          there
          was not an explicit limit on the related registration rights penalties.
          Under
          the terms of the Restructuring, there are no penalties associated with
          the
          registration rights presently held by the October 2005 Creditors. GAAP
          requires
          that management re-assess derivative financial instruments and “potential”
derivatives at each reporting date in order to ascertain whether their
          classification (as equity or an asset/liability) has been altered by any
          transactions or other events during the intervening period.
 
 After
          conducting such re-assessment, management determined that the warrants
          referenced above ceased to be derivatives in mid-October 2006. As a result,
          the
          Company recorded an adjustment of approximately
          $225,000to reduce the warrant liability to its estimated fair value at
          October 12, 2006; this adjustment has been reported as income in the
          accompanying condensed consolidated statements of operations for the quarter
          and
          nine-month period ended November 30, 2006. The balance of the warrant liability
          (after reflecting such adjustment) of approximately $200,000 has been
          credited to additional paid-in capital in the condensed consolidated balance
          sheet  included elsewhere herein.
  *The
          BCF, Deferred Financing Costs, and Discount Related to the October 2005
          Notes
          Payable*
 Since
            the
            notes payable in the debt financing transaction were restructured with
            substantially different terms, the unamortized October 12, 2006 balance
            of the
            BCF, the debt issuance discount, and the deferred financing costs associated
            with such notes in the total amount of approximately $820,000 has been
            charged
            to interest expense in the condensed consolidated statements of operations
            for
            the quarter and nine-month period November 30, 2006 included elsewhere
            herein.
 
 *Loss
            on Debt Extinguishment*
 
 According
            to EITF Issue No. 96-19, an exchange of debt instruments with substantially
            different terms is an “extinguishment” which shall be accounted for in
            accordance with SFAS No. 140; any resulting gain or loss must be recognized
            on
            such transactions. Management has determined that the Restructuring is
            a debt
            extinguishment as defined by GAAP.
 
 In
            measuring gain or loss on an extinguished debt instrument that contained
            an
            embedded beneficial conversion feature, EITF Issue No. 98-5 states that
            part of
            the “reacquisition price” is considered the cost of repurchasing the BCF. The
            latter pronouncement requires that the amount allocated to the BCF for
            that
            purpose be its extinguishment-date intrinsic value, which has been determined
            by
            management in order to measure the debt extinguishment transaction. The
            residual
            (after such allocation) and the carrying amount of the 2005 notes payable
            (net
            of the unamortized balance of the related BCF) have been considered in
            measuring
            the loss on extinguishment of the notes payable in the debt financing
            transaction. As a result, a loss on debt extinguishment of approximately
            $380,000 has been reported in the condensed consolidated statements of
            operations for the quarter and nine-month period ended November 30, 2006 
included elsewhere herein.
 
 *The
            Liability for Registration Rights Penalties*
 
 Through
            mid-October 2006, the Company incurred certain penalties in connection
            with the
            debt financing transaction as a result of failing to meet the effectiveness-date
            deadline for the registration statement required by the related agreement
            with
            the October 2005 Creditors. As part of the Restructuring, the Company
            issued
            500,000 shares of its restricted common stock to such creditors in exchange
            for
            their waiver of all Company defaults related to the debt financing transaction,
            including forgiveness of the liability for registration rights penalties.
            Based
            on the estimated fair value of the common stock described in the preceding
            sentence, the Company recorded a gain on extinguishment of the debt associated
            with the aforementioned penalties; such gain is not significant to the
            condensed
            consolidated financial statements  included elsewhere herein.


***Related
      Party Loans***





During
      the period from June 1, 2006 thru August 31, 2006, Astrata Group received loans
      of approximately $401,000 from existing shareholders. The loans are repayable
      on
      demand and carry an annual interest rate of 15%




Page
          12




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





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





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





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





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





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





***Major
      Sales Order***





In
      a Form
      8-K filed with the SEC on June 23, 2006, the Company announced that it received
      a purchase order from AST Europe Group AB for 50,000 Fleet Management/AVL
      devices plus associated software. The order is expected to produce revenues
      of
      approximately $17 million, making it the largest sales order Astrata Group
      has
      received to date. It is anticipated that delivery for al the units will be
      completed during fiscal 2007.





***Off
      Balance Sheet Arrangements***





As
      of
      November 30, 2006, there were no off balance sheet arrangements. Please refer
      to
      Note 7 (“Other Commitments and Contingencies’) to the Company’s condensed
      consolidated financial statements included elsewhere herein for additional
      information.




**Inflation**





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





**Foreign
      Currency Exchange Rate Risk**





The
      operation of our subsidiary in international market results in exposure to
      fluctuations in foreign currency exchange rates. The potential of volatile
      foreign currency exchange rate fluctuation in the future could have a
      significant effect on our results of operations. Prior to June 2006, we
      purchased forward foreign exchange contracts to cover certain product purchase
      transactions denominated in U.S. dollars. During the three months ended November
      30, 2006, we had transactions denominated in the British Pound, the Singapore
      Dollar, the Malaysian Ringgit, and the Brunei Dollar.





**Interest
      Rate Risk**





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




Page
          13




**Critical
      Accounting Policies**





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




Because
        of the significance of the derivative financial instruments issued by the
        Company in the November 30, 2006 quarter (see Note 11 to the condensed
        consolidated financial statements included elsewhere herein), we have added
        the
        related accounting policy to our “Critical Accounting Policies” as described
        below.




*Inventories*





Inventories
      are stated at the lower of cost (first-in, first-out) or estimated market,
      and
      consist exclusively of finished goods at November 30, 2006. Market is determined
      by comparison with recent sales or estimated net realizable value.





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





*Long-lived
      Assets*





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





As
      of
      February 28, 2006, management determined that as a result of the decision
      reached in the first quarter of fiscal 2007 to exit the South African market
      certain long-lived assets were impaired. Accordingly the carrying values of
      such
      assets were reduced as of that date. As of November 30, 2006, we determined
      that
      no additional impairment indicators existed; thus, no adjustments have been
      made
      to the carrying values of long-lived assets (that are either held for sale
      or
      held and used) as of November 30, 2006. There can be no assurance that market
      conditions will not change or demand for our services and products will continue
      which could result in further impairment of long-lived assets in the
      future.




*Intangible
      Assets*





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





*Revenue
      Recognition*





General





Except
      as
      described in “Contract Accounting” below, the Company’s revenues are recorded in
      accordance with the SEC’s Staff Accounting Bulletin No. 104, “Revenue
      Recognition”. The Company recognizes revenue when persuasive evidence of an
      arrangement exists, delivery has occurred, the fee is fixed or determined,
      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.




Page
          14




Sales
      as
      a Distributor





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





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





Contract
      Accounting





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





Services
      Revenue





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




Other
      Matters





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





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


*Derivative
        Financial Instruments*
 
 The
        Company records all derivative financial instruments in its consolidated
        financial statements at estimated fair value, regardless of the purpose or
        intent for issuing or holding the instrument. Changes in the fair value of
        derivative financial instruments are either recognized periodically in the
        results of operations or in stockholders’ equity (deficit) as a component of
        accumulated other comprehensive income (loss), depending on whether the
        derivative instrument qualifies for hedge accounting as defined by SFAS No.
        133,
“Accounting for Derivative Instruments and Hedging Activities” and related
        interpretations. Changes in the fair value of derivatives not qualifying
        for
        hedge accounting are included in the results of operations as they occur. None
        of
        the derivatives issued by the Company as of November 30, 2006 qualify for
        hedge
        accounting.




Page
          15




*Research
      and Development Costs*





Research
      and development costs relating to computer software products to be sold or
      otherwise marketed that are incurred before technological feasibility of the
      product has been established and after general release of the product to
      customers are expensed as incurred. Management believes that technological
      feasibility is not established until a beta version of the product exists.
      Historically, costs incurred during the period from when a beta version is
      available until general release to the public have not been material. Thus,
      we
      have not capitalized any software development costs.





*Registration
      Payment Arrangements*


On
        December 21, 2006, the Financial Accounting Standards Board issued FASB Staff
        Position (FSP) EITF 00-19-2, "Accounting for Registration Payment
        Arrangements" (the "FSP"). Under this pronouncement, contingently
        payable registration payment arrangements are accounted for separately from
        and
        do not affect the classification of the underlying shares, warrants, or other
        financial instruments subject to the registration payment provisions. This
        was accomplished by amending SFAS No. 133 and No. 150 to include scope
        exceptions for registration payment arrangements. A liability for a registration
        payment arrangement should be recognized when payment is probable and the
        amount
        is reasonably estimable (whether at inception or during the life of the
        arrangement) in accordance with SFAS No. 5, "Accounting for
        Contingencies."
 
 The
        FSP
        is effective for registration payment arrangements and the financial instruments
        subject to such arrangements that are entered into or modified after
        December 21, 2006. For registration payment arrangements and financial
        instruments subject to those arrangements that were entered into before
        December 22, 2006, companies are required to account
        for transitioning to the FSP through a cumulative-effect adjustment to
        the opening balance of accumulated deficit or retained earnings in fiscal
        years
        beginning after December 15, 2006. However, early adoption of this
        pronouncement for interim or annual periods for which financial statements
        or interim reports have not been issued is permitted. Accordingly, the Company
        adopted the FSP effective with the quarter ended November 30, 2006;
        see Note 11 to the condensed consolidated financial statements included
        elsewhere herein for additional information.


**Other
      Recently Issued Accounting Pronouncements**


Except
        as
        described in “Registration Payment Arrangements” immediately above and the
        following two paragraphs, in the opinion of management neither the FASB
        (including its Emerging Issues Task Force), the American Institute of Certified
        Public Accountants nor the SEC have issued any accounting pronouncements
        since
        the Company filed its February 28, 2006 Form 10-KSB that are believed by
        management to have a material impact on the Company’s present or future
        consolidated financial Statements.
 
 In
        June
        2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “ *Accounting
        for Uncertainty in Income Taxes, an interpretation of FASB Statement No.
        109* .”
This
        interpretation clarifies the accounting for uncertainty in income taxes
        recognized in an enterprise’s financial statements in accordance with SFAS No.
        109, “ *Accounting
        for Income Taxes* .”
FIN
        No. 48 prescribes a more-likely-than-not recognition threshold and a measurement
        attribute for the financial statement recognition and measurement of tax
        positions taken (or expected to be taken) in an income tax return. It also
        provides guidance on de-recognition, classification, interest and penalties,
        accounting in interim periods, disclosure and transition. The requirement
        to
        assess the need for a valuation allowance on net deferred tax assets is not
        affected by FIN No. 48. This pronouncement is effective for fiscal years
        beginning after December 31, 2006. Management is in the process of evaluating
        this guidance, and therefore has not yet determined the impact (if any) that
        FIN
        No. 48 will have on the Company’s financial position or results of operations
        upon adoption.
 
 In
        September 2006, the FASB issued SFAS No. 157, “ *Fair
        Value Measurements* ,”
which
        defines fair value, establishes a framework for measuring fair value in GAAP,
        and expands disclosure about fair value measurements. SFAS No. 157 simplifies
        and codifies related guidance within GAAP, but does not require any new fair
        value measurements. The guidance in SFAS No. 157 applies to derivatives and
        other financial instruments measured at estimated fair value under SFAS No.
        133,
“ *Accounting
        for Derivative Instruments and Hedging Activities* ”
and
        related pronouncements. SFAS No. 157 is effective for financial statements
        issued for fiscal years beginning after November 15, 2007, and interim periods
        within those fiscal years. Management does not expect the adoption of SFAS
        No.
        157 to have a significant effect on the Company’s financial position or results
        of operations.


Page
          16




**Subsequent
      Events**


In
        December 2006, an additional 50,000 units of Series A Preferred Stock were
        sold
        to a single unrelated investor at a price of $1.00 per unit. Each unit consisted
        of one Series A preferred share (which is initially convertible into two
        shares
        of common stock), one Series A warrant to purchase 1.5 shares of common stock
        at
        $ 1.00 per share, and one Series B warrant to purchase 1.5 shares of common
        stock at $ 1.50 per share. Such warrants are exercisable over a five-year
        period.
 
 On
        January 10, 2007, the following investors elected to convert Series A Preferred
        Stock into common stock:
 Shares
                        of Preferred
                      StockSurrendered
                  
                  Shares
                          of Common
                        StockIssuedPointe
                      Capital Ltd
                  
                  
                  500,000
                  
                  
                  1,000,000Wick
                      Trust
                  
                  
                  450,000
                  
                  
                  900,000Infomax
                      Company Limited
                  
                  
                  300,000
                  
                  
                  600,000Martin
                      Euler
                  
                  
                  250,000
                  
                  
                  500,000
  On
        January 11, 2007, the Board of Directors and the owners of a majority of
        the
        Company’s common stock approved an amendment of the Company’s Articles of
        Incorporation which increased the authorized number of shares of common stock
        to
        100 million.
 In
          January 2007, a director of the Company elected to convert approximately
          $408,000 of debt into Series A and B warrants and 400,000 shares of
          Preferred Stock. See “The 10/13/06 Equity Financing Transactions” section of
          Note 11 to the condensed consolidated financial statements included elsewhere
          herein for a description of the equity instruments referenced in the preceding
          sentence.





Page
          17


**Item
      3: Controls and Procedures**





We
      carried out an evaluation of the effectiveness of the design and operation
      of
      our disclosure controls and procedures (as defined in Exchange Act Rules
      13a-15(e) and 15d-15(e)) as of November 30, 2006. This evaluation was
      carried out under the supervision and with the participation of our Chief
      Executive Officer and Chief Financial Officer. Based upon that evaluation,
      our
      Chief Executive Officer and Chief Financial Officer concluded that, as of
      November 30, 2006 our disclosure controls and procedures are effective. However,
      upon further review, certain misstatements in the fiscal 2004 statement of
      cash
      flows and our revised interpretation of financial reporting requirements
      resulted in the restatement of our fiscal 2004 and 2005 statements of cash
      flows
      and the weighted average common shares outstanding reported in the fiscal 2005
      statement of operations as disclosed in Note 16 to the consolidated financial
      statements included in the Company’s February 28, 2005 Form 10-KSB/A filed with
      the SEC on July 14, 2006. There have been no significant changes in our internal
      controls over financial reporting during the quarter ended November 30, 2006
      that have materially affected or are reasonably likely to materially affect
      such
      controls.





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





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





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




Page
          18


**PART
      II - OTHER INFORMATION**





**Item
      1: Legal Proceedings**





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





**Item
      1A: Risk Factors**





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





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





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





·
            Potential
                inability to successfully integrate acquired operations and/or products
                or
                to realize cost savings or other anticipated benefits from
                integration.





·
            loss
                of key employees of acquired
                operations;





·
            the
                potential disruption of our ongoing
                business;





·
            unanticipated
                expenses related to such
                integration;





·
            unanticipated
                expenses related to discontinuance of
                operations;





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





·
            the
                potential unknown liabilities associated with acquired
                business;





·
            inability
                to recover strategic investments in development stage
                entities;





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





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





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





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





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





Page
          19




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





·
            changes
                in foreign currency exchange rates;





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





·
            trade
                protection measures and import or export licensing
                requirements;





·
            potentially
                negative consequences from changes in tax
                laws;





·
            difficulty
                in managing widespread sales and manufacturing
                operations’





·
            less
                effective protection of intellectual
                property;





·
            longer
                sales cycles in international
                markets;





·
            tariffs,
                export controls and other trade
                barriers;





·
            difficulties
                in collecting accounts receivable in foreign
                countries





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





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





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





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





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





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





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





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





Page
          20


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





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





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





*We
      are subject to foreign currency exchange rate fluctuations.*





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





*We
      operate in a single market segment* .





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





The
      following risk factor has been updated as indicated below:





*The
      issuance of shares of common stock could result in a change in
      control.*





Our
      Articles of Incorporation authorize the issuance of 100,000,000 shares of common
      stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock,
      par value $0.0001. Our board of directors has the authority to issue up to
      the
      authorized capital stated in the Articles of Incorporation. In early February
      2006, we were negotiating a potential debt /equity financing transaction
      pursuant to which we would have issued a maximum of $20 million of junior
      convertible notes payable subject to a fixed conversion price per share and
      detachable warrants to purchase 28% of our fully -diluted outstanding common
      stock (as to be defined) at an exercise price of $2.00 per share. As of November
      30, 2005, management estimated that these warrants would be exercisable into
      approximately 5.7 million shares of our common stock. Management has abandoned
      this potential transaction. However, should we enter into a transaction on
      similar terms, the issuance of any such shares will result in a reduction
      of the proportionate ownership and voting power of all other stockholders and
      may result in a change of control of our corporation.




As
        more
        fully explained in Note 12 and in the “10/13/06 Equity Financing Transactions”
section of Note 11 to the Company’s November 30, 2006 condensed consolidated
        financial statements included elsewhere herein, the Company (a) may issue
        a
        minimum of approximately 49.3 million shares of its common stock if all of
        the
        warrants and convertible preferred stock described in Note 11 are issued
        and
        exercised/converted (including at least 13.8 million shares to an outside
        investor, assuming that none of the J, C or D warrants are exercised) and
        (b)
        has amended its Articles of Incorporation to increase the number of shares
        of
        authorized common stock to 100 million. If the maximum number of shares of
        common stock are issued and none of the preferred stock or warrants issued
        after
        November 2006 are owned by the former creditors referenced in Note 11, based
        on
        the number of common shares outstanding on November 30, 2006 there will be
        a
        change of control.


Page
          21


The
        following risk factors has been updated to reflect (1) the change in beneficial
        ownership of our common stock resulting from the transactions described in
        the
“10/13/06 Equity Financing Transactions” and the “Restructuring of the October
        2005 Debt Financing Transaction” sections of Note 11 to the Company’s November
        30, 2006 condensed consolidated financial statements included elsewhere herein
        and (2) common stock transactions since the fifth amendment of the Company’s
        Form SB-2 registration statement (now withdrawn) was filed with the SEC on
        February 17, 2006.
 
 *Because
        a limited number of stockholders together beneficially own approximately
        75% of
        our voting stock, the voting power of other stockholders may be
        limited*
 
 Our
        directors, officers and greater than 5% stockholders own, as of November
        30,
        2006 approximately 50% of our outstanding common stock and beneficially own
        approximately 75% assuming (a) except as described below issuance of all
        currently unissued shares underlying convertible preferred stock, options
        and
        warrants held by directors, officers and more-than-5% stockholders and (b)
        that
        the investor which purchased preferred stock in October and November 2006
        does
        not elect to opt out of the 9.9% beneficial ownership limitation. Accordingly,
        these stockholders may, if they act together, exercise significant influence
        over all matters requiring stockholder approval, including the election of
        a
        majority of the directors and the determination of significant corporate
        actions. The concentration could also have the effect of delaying or preventing
        a change in control that might be beneficial to our other stockholders, could
        delay or prevent an acquisition, and/or could cause the market price of our
        stock to decline. Some of these persons may have interests different than
        yours.
        For example, they could be more interested than our other stockholders in
        selling us to an acquirer or in pursuing alternative strategies.


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





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





Because
      of the matters described in the “Restructuring of the October 2005 Debt
      Financing Transaction” section of Note 11 to the Company’s November 30, 2006
      condensed consolidated financial statements included elsewhere herein, the
      following risk factor has been removed. As more fully explained in Note 11
      to
      the aforementioned financial statements, the notes payable described below
      have
      been replaced with debt instruments that are not convertible.





*Conversion
      of convertible notes issues to certain investors could negatively impact our
      share price.*




On
        October 7, 2005 we agreed to issue convertible notes in the aggregate principal
        amount of $2,170,000. The number of shares issuable upon conversion of the
        convertible notes was based on a price of not less than $0.78 per share.
        Based
        on that exercise price, upon conversion holders of the convertible notes
        would
        have been entitled to receive 2,782,050 shares of our common stock. Conversion
        of the convertible notes may have a dilutive impact on our stockholders.
        As a
        result, our income (loss) per common share could decrease (increase) in the
        future, and the market price of our common stock could
        decline.





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





***Preferred
      Stock***


As
        more
        fully described below, on October 13, 2006 the Company entered into certain
        equity transactions with an unrelated entity (which has represented itself
        as an
“accredited investor,” as that term is defined in Regulation D of the Securities
        Act) and certain creditors. The aforementioned unrelated entity is sometimes
        hereinafter referred to as the “Investor.” In the opinion of management - based
        in part on advice of counsel, such transactions are exempt from registration
        under the Securities Act.
 
 The
        Company has agreed to sell a maximum of 5.5 million shares of its Series
        A
        convertible preferred stock (with a par value of $0.0001 per share) and certain
        warrants to purchase its common stock for a total maximum purchase price
        of $5.5
        million. Such preferred stock is hereinafter referred to as the “Preferred
        Stock,” which is convertible into shares of the Company’s common stock based on
        a formula (see the next paragraph) set forth in the Series A Convertible
        Preferred Stock Purchase Agreement Dated October 13, 2006 (the “Agreement”). The
        Preferred Stock has a liquidation preference of $1.00 per share (the
“Liquidation Preference Amount”), and a cumulative annual cash dividend equal to
        8% of the Liquidation Preference Amount. Accrued dividends are generally
        payable
        only in the event of the dissolution, liquidation or winding up of Astrata
        Group, or upon conversion of the Preferred Stock.





Page
          22




Each
        share of Preferred Stock is convertible into a number of shares of the Company’s
        common stock equal to the quotient that results from dividing $1.00 by the
        “Conversion Price.” As defined in the October 12, 2006 Certificate of
        Designation of the Relative Rights and Preferences of the Series A Convertible
        Preferred Stock of Astrata Group Incorporated (the “Certificate of
        Designation”), the Conversion Price is a maximum of $0.50 per share except for
        adjustments relating to stock splits and stock combinations. The Conversion
        Price is subject to anti-dilution adjustments for reorganizations, mergers,
        consolidations, certain dividends and other corporate events set forth in
        the
        Certificate of Designation. Issuances of the Company’s common stock for reasons
        other than those described in the preceding sentence at a per-share price
        less
        than the then-current Conversion Price will generally trigger a downward
        adjustment of the Conversion Price, with a minimum adjusted price of $0.40
        per
        share. However, granting stock options or other equity instruments under
        the
        Company’s employee/director stock option plan and the exercise of any such
        equity instruments will not result in adjustment of the Conversion Price.
 
 Under
        the
        terms of the Agreement, the Company issued warrants to the holders of the
        Preferred Stock; some of these warrants are contingently exercisable only
        under
        certain conditions. Each warrant entitles the holder to purchase Company
        common
        stock based on a percentage of the shares of common stock issuable upon
        conversion of the Preferred Stock (the “Conversion Shares”). The Series A and B
        warrants each entitle the holder to purchase 75% of the Conversion Shares
        at an
        exercise price of $1.00 and $1.50 per share, respectively; such warrants
        vested
        and became exercisable upon issuance. The Series J warrant permits the holder
        to
        acquire 100% of the Conversion Shares at an exercise price of $0.50 per share,
        provided that the stockholder has purchased Preferred Stock in a minimum
        amount
        of $2 million. Although the J warrant did not become exercisable until January
        11, 2007, it vested and was non-forfeitable upon issuance; thus, it was
        considered issued on the transaction date and has been accounted for during
        the
        quarter ended November 30, 2006. If the Series J warrant is exercised, the
        Series C and D warrants become exercisable. The latter would each permit
        the
        holder to purchase (at an exercise price of $1.00 and $1.50 per share,
        respectively) a number of shares equal to that obtained by exercising the
        J
        warrant; as of the date that this Form 10-QSB was filed with the SEC, the
        J
        warrant had not been exercised. Management is not presently able to determine
        whether the J warrant will be exercised or, if so (since a partial exercise
        is
        permitted by the warrant agreement), the number of shares that might be issued
        upon exercise of the J warrant. As a result, the number of shares which may
        be
        issued if and when the Series C and D warrants become exercisable is not
        considered reasonably estimable at this time. Therefore, management concluded
        that the Series C and D warrants had not reached a measurement date as of
        November 30, 2006; accordingly, such warrants have not been recognized for
        accounting purposes during the quarter then ended. These warrants expire
        as
        follows: the Series J Warrants in October 2007, and the other warrants in
        October 2011.
 
 The
        Company has granted registration rights (the “Registration Rights Agreement”)
        for the common stock underlying both the aforementioned warrants and the
        Preferred Stock; such common stock is sometimes hereinafter collectively
        referred to as the “Registrable Securities.” Under the terms of the Registration
        Rights Agreement, the Company is required to file a registration statement
        with
        the SEC providing for the resale of all Registrable Securities on a continuous
        basis pursuant to Rule 415 of the Securities Act. Until such registration
        statement is declared effective by the SEC, the Registrable Securities, the
        Preferred Stock, and the related warrants are restricted under Rule 144 of
        the
        Securities Act. The Registration Rights Agreement also provides that the
        Company
        will incur liquidated damages in the form of a cash penalty if (a) the
        aforementioned registration statement is not filed by November 12, 2006 or
        (assuming that such registration statement receives a “full review” by the SEC)
        is not declared effective by the SEC by approximately February 12, 2007,
        or (b)
        the effectiveness of such registration statement is not continuously maintained
        until the earlier of when all the Registrable Securities have been sold or
        all
        the Rule 144 restrictions relating to such securities have lapsed. The penalty
        would also be triggered if the Company’s common stock was delisted or no longer
        quoted by the OTCBB. The penalty is 2% per month (or any portion thereof)
        of the
        holder’s initial investment in the Preferred Stock, with a maximum penalty of
        10% of the base amount.
 
 Since
        the
        required registration statement has not yet been filed, the Company has begun
        incurring the penalty associated with the filing-date deadline. In the opinion
        of management, the estimated effective date of the registration statement
        is
        such that the Company will most likely incur the maximum penalty under the
        Registration Rights Agreement. As a result, the Company recorded a liability
        of
        approximately $425,000 at November 30, 2006, and has reported the related
        expense in the condensed consolidated statements of operations for the quarter
        and nine-month period then ended included
        elsewhere herein.
 
 As
        more
        fully explained in Note 12 to
        the
        condensed consolidated financial statements included elsewhere
        herein and as required by the Certificate of Designation, the
        Company has amended its Articles of Incorporation to increase the authorized
        number of shares of its common stock in order to be able to affect the
        conversion/exercise of all the outstanding Preferred Stock and related
        warrants.


Page
          23




On
        October 13, 2006, under the terms of the Agreement the Investor purchased
        2.5
        million shares of the Company’s Preferred Stock and received certain warrants
        for total consideration of $2.5 million; the net proceeds approximated $1.6
        million. The Company incurred a finder’s fee of $250,000 related to this
        transaction; in addition, $550,000 of the gross proceeds was used to partially
        repay the obligations described in the “Debt Financing Transaction” section of
        Note 5. As part of the same transaction, certain creditors (who are also
        common
        stockholders of the Company) exchanged $1.5 million of Company notes payable
        (which were due on demand) for Series A and B warrants and 1.5 million shares
        of
        Preferred Stock. One such creditor was the Company’s chief executive
        officer/chief financial officer, who held a promissory note payable by the
        Company in the amount of $250,000. Absent an election to the contrary, the
        Agreement limits the beneficial ownership resulting from conversion of the
        Preferred Stock and/or exercise of any related warrants to a maximum of 9.9%
        of
        the Company’s then outstanding shares of common stock. Based on the number of
        common shares outstanding at November 30, 2006 (including the common stock
        presently owned by the former creditors referenced above) and assuming that
        none
        of the Preferred Stock owners elect to opt out of the aforementioned
        ownership limitation, conversion of the outstanding Preferred Stock and exercise
        of the applicable warrants described in this Note would result in such
        stockholders owning approximately 50% of the Company’s then outstanding shares
        of common stock.




***Common
      Stock***




During
      the quarter ended November 30, 2006, the Company issued 273,589 shares of its
      registered common stock to satisfy liabilities for services provided by
      suppliers and employees. Such shares were valued at approximately $320,000
      (estimated to be the fair value based on the trading price on the issuance
      date).





During
      the quarter ended November 30, 2006, the Company also issued 111,197 shares
      of
      its restricted common stock in exchange for services provided by an employee.
      Such shares were valued at approximately $109,000 (estimated to be the fair
      value based on the trading price on the issuance date, with a 15% discount
      from
      the market price). The transactions described in this paragraph constituted
      exempt offerings under Section 4(2) of the Securities Act.





During
      the quarter ended November 30, 2006, the Company also issued 83,325 shares
      of
      registered common stock (valued at approximately $108,000 based on the trading
      price on the issuance date) for the exercise of employee stock
      options.





During
      the quarter ended November 30, 2006, the Company issued 21,192 shares of its
      registered common stock on exchange for services provided by consultants. Such
      shares were valued at approximately $24,000 (estimated to be the fair value
      based on the trading price on the issuance date).





During
      the quarter ended November 30, 2006, the Company also issued 20,000 shares
      of
      its common stock in exchange for services provided by consultants. Such shares
      were valued at approximately $14,000 (estimated to be the fair value based
      on
      the trading price on the issuance date, with a 15% discount from the market
      price). The transactions described in this paragraph constituted exempt
      offerings under Section 4(2) of the Securities Act.





Through
      mid-October 2006, the Company incurred certain penalties in connection with
      the
      debt financing transaction as a result of failing to meet the effectiveness-date
      deadline for the registration statement required by the related agreement with
      the October 2005 Creditors. As part of the Restructuring, the Company issued
      500,000 shares of its restricted common stock to such creditors in exchange
      for
      their waiver of all Company defaults related to the debt financing transaction,
      including forgiveness of its liability for the registration rights
      penalties.




Page
          24





**Item
      3: Defaults upon Senior Securities**





None





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





None





**Item
      5: Other Information**





None








**Item
      6: Exhibits**




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




Page
          25


SIGNATURES




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


**ASTRATA
                GROUP INCORPORATED**By:
              /s/ MARTIN
                EULERMartin
                  Euler
                Chief
                  Executive Officer,
                Chief
                  Financial Officer,
                Principal
                  Accounting Officer and Secretary
              
              
              Date: January 19,
                2007










**EXHIBIT
      INDEX**


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