**Exhibit
      15.1:**




**FINANCIAL
      STATEMENTS  OF REMOTE DYNAMICS, INC.  AND SUBSIDIARY FOR THE
      QUARTERLY PERIOD ENDED NOVEMBER 31, 2006 AND 2005 AS PREVIOUSLY FILED WITH
      THE
      SEC ON JANUARY 24, 2007**





**REMOTE
                  DYNAMICS, INC. AND SUBSIDIARY****CONSOLIDATED
                  BALANCE SHEETS (UNAUDITED)****(in
                  thousands, except share
                  amounts)**
  **November
                                30,**
                            
                            
                            **August
                                31,****2006**
                            
                            
                            **2006****ASSETS**Current
                                assets:Cash
                                and cash equivalents
                            
                            $
                            107
                            
                            
                            $
                            303Accounts
                                receivable, net of allowance for doubtful accounts
                                of $66 and $77,
                                respectively
                            
                            
                            576
                            
                            
                            
                            586Inventories,
                                net of reserve for obsolescence of $112 and $112,
                                respectively
                            
                            
                            212
                            
                            
                            
                            360Deferred
                                product costs - current portion
                            
                            
                            1,112
                            
                            
                            
                            1,121Lease
                                receivables and other current assets, net
                            
                            
                            390
                            
                            
                            
                            299Total
                                current assets
                            
                            
                            2,397
                            
                            
                            
                            2,669Property
                                and equipment, net of accumulated depreciation and
                                amortization of $2,704
                                and $2,548 respectively
                            
                            
                            1,821
                            
                            
                            
                            2,237Deferred
                                product costs - non-current portion
                            
                            
                            952
                            
                            
                            
                            1,044Goodwill
                            
                            
                            2,395
                            
                            
                            
                            2,395License
                                right, net
                            
                            
                            66
                            
                            
                            
                            95Deferred
                                financing fees, net
                            
                            
                            1,960
                            
                            
                            
                            2,353Lease
                                receivables and other assets, net
                            
                            
                            367
                            
                            
                            
                            365Total
                                assets
                            
                            $
                            9,958
                            
                            
                            $
                            11,158**LIABILITIES
                                AND STOCKHOLDERS' DEFICIT**Current
                                liabilities:Accounts
                                payable
                            
                            $
                            1,424
                            
                            
                            $
                            1,090Deferred
                                product revenues - current portion
                            
                            
                            2,024
                            
                            
                            
                            2,033Series
                                A convertible notes payable (net of discount of $1,676
                                and $2,395,
                                respectively)
                            
                            
                            1,525
                            
                            
                            
                            1,438Note
                                payable - HFS
                            
                            
                            2,000
                            
                            
                            
                            2,000Accrued
                                expenses and other current liabilities
                            
                            
                            1,452
                            
                            
                            
                            1,793Total
                                current liabilities
                            
                            
                            8,425
                            
                            
                            
                            8,354Deferred
                                product revenues - non-current portion
                            
                            
                            1,632
                            
                            
                            
                            1,786Capital
                                leases, less current portion
                            
                            
                            90
                            
                            
                            
                            211Series
                                A convertible notes payable - non-current (net of
                                discount of
                                $1,917)
                            
                            
                            -
                            
                            
                            
                            -Other
                                non-current liabilities
                            
                            
                            321
                            
                            
                            
                            325Total
                                liabilities
                            
                            
                            10,468
                            
                            
                            
                            10,676Commitments
                                and contingenciesRedeemable
                                Preferred Stock - Series B (3% cumulative, $10,000
                                stated value, 2,000,000
                                shares authorized, 572 and 600 shares issued and
                                outstanding at November
                                30, 2006 and August 31, 2006, respectively (redeemable
                                in liquidation at
                                an aggregate of $6,599,196 at November 30, 2006)
                            
                            
                            4,723
                            
                            
                            
                            4,850Stockholders'
                                deficit:Common
                                stock, $0.01 par value, 230,000,000 shares authorized,
                                59,955,408 shares
                                issued and 59,025,460 outstanding at November 30,
                                2006; 230,000,0000
                                shares authorized, 10,463,385 shares issued and 9,533,437
                                outstanding at
                                August 31, 2006
                            
                            
                            600
                            
                            
                            
                            105Treasury
                                stock, 929,948 shares, at cost
                            
                            
                            (1,860
                            )
                            
                            
                            (1,860
                            )Additional
                                paid-in capital
                            
                            
                            35,913
                            
                            
                            
                            34,821Accumulated
                                deficit
                            
                            
                            (39,886
                            )
                            
                            
                            (37,434
                            )Total
                                stockholders' deficit
                            
                            
                            (5,233
                            )
                            
                            
                            (4,368
                            )Total
                                liabilities and stockholders' deficit
                            
                            $
                            9,958
                            
                            
                            $
                            11,158
  See
        accompanying notes to unaudited consolidated financial
        statements.









F-2


**REMOTE
                  DYNAMICS, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF OPERATIONS (UNAUDITED)****(In
                  thousands, except per share
                  amounts)**
  **Three
                                                    months ended****November
                                                    30,****2006**
                                                
                                                
                                                **2005**RevenuesService
                                                
                                                $
                                                717
                                                
                                                
                                                $
                                                1,236Ratable
                                                    product
                                                
                                                
                                                738
                                                
                                                
                                                
                                                623Product
                                                
                                                
                                                11
                                                
                                                
                                                
                                                71Total
                                                    revenues
                                                
                                                
                                                1,466
                                                
                                                
                                                
                                                1,930Cost
                                                    of revenuesService
                                                
                                                
                                                557
                                                
                                                
                                                
                                                1,008Ratable
                                                    product
                                                
                                                
                                                421
                                                
                                                
                                                
                                                303Product
                                                
                                                
                                                5
                                                
                                                
                                                
                                                148Total
                                                    cost of revenues
                                                
                                                
                                                983
                                                
                                                
                                                
                                                1,459Gross
                                                    profit
                                                
                                                
                                                483
                                                
                                                
                                                
                                                471ExpensesGeneral
                                                    and administrative
                                                
                                                
                                                931
                                                
                                                
                                                
                                                1,046Customer
                                                    service
                                                
                                                
                                                113
                                                
                                                
                                                
                                                247Sales
                                                    and marketing
                                                
                                                
                                                263
                                                
                                                
                                                
                                                743Engineering
                                                
                                                
                                                156
                                                
                                                
                                                
                                                287Depreciation
                                                    and amortization
                                                
                                                
                                                340
                                                
                                                
                                                
                                                669Impairment
                                                    loss on license right
                                                
                                                
                                                -
                                                
                                                
                                                
                                                144Goodwill
                                                    impairment
                                                
                                                
                                                -
                                                
                                                
                                                
                                                4,990Total
                                                    expenses
                                                
                                                
                                                1,803
                                                
                                                
                                                
                                                8,126Operating
                                                    loss
                                                
                                                
                                                (1,320
                                                )
                                                
                                                
                                                (7,655
                                                )Interest
                                                    income
                                                
                                                
                                                25
                                                
                                                
                                                
                                                31Interest
                                                    expense
                                                
                                                
                                                (1,188
                                                )
                                                
                                                
                                                (82
                                                )Other
                                                    (expense) income
                                                
                                                
                                                73
                                                
                                                
                                                
                                                (13
                                                )Loss
                                                    before income taxes
                                                
                                                
                                                (2,410
                                                )
                                                
                                                
                                                (7,719
                                                )Income
                                                    tax benefit
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Net
                                                    loss
                                                
                                                
                                                (2,410
                                                )
                                                
                                                
                                                (7,719
                                                )Preferred
                                                    stock dividend
                                                
                                                
                                                (42
                                                )
                                                
                                                
                                                (130
                                                )Loss
                                                    on redemption of preferred stock
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (2,208
                                                )Net
                                                    loss attributable to common stockholders
                                                
                                                $
                                                (2,452
                                                )
                                                
                                                $
                                                (10,057
                                                )Net
                                                    loss per common share - basic
                                                    and diluted
                                                
                                                $
                                                (0.06
                                                )
                                                
                                                $
                                                (1.48
                                                )Weighted
                                                    average number of common shares
                                                    outstanding:Basic
                                                    and diluted
                                                
                                                
                                                38,851
                                                
                                                
                                                
                                                6,801
  See
        accompanying notes to unaudited consolidated financial statements.







F-3


**REMOTE
                  DYNAMICS, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENT OF STOCKHOLDERS' DEFICIT (UNAUDITED)****(in
                  thousands, except share
                  information)**


**Additional****Common
                  Stock**
              
              **Paid-in**
              
              **Treasury
                  Stock**
              
              **Accumulated****Shares**
              
              **Amount**
              
              **Capital**
              
              **Shares**
              
              **Amount**
              
              **Deficit**
              
              **Total****Stockholders'
                  deficit at August 31, 2006**
              
              
              10,463,385
              
              $
              105
              
              $
              34,821
              
              
              929,948
              
              $
              (1,860
              )
              $
              (37,434
              )
              $
              (4,368
              )Payment
                  of principal on Series A Notes with common stock
              
              
              31,742,893
              
              
              318
              
              
              316
              
              
              
              
              
              
              
              
              
              
              
              634Common
                  stock issued for services
              
              
              17,233,002
              
              
              172
              
              
              137
              
              
              
              
              
              
              
              
              
              
              
              309Conversion
                  of Series B preferred stock to common stock
              
              
              516,128
              
              
              5
              
              
              639
              
              
              
              
              
              
              
              
              
              
              
              644Series
                  B preferred stock dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (42
              )
              
              (42
              )Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,410
              )
              
              (2,410
              )**Stockholders'
                  deficit at November 30, 2006**
              
              
              59,955,408
              
              $
              600
              
              $
              35,913
              
              
              929,948
              
              $
              (1,860
              )
              $
              (39,886
              )
              $
              (5,233
              )






F-4




**REMOTE
                  DYNAMICS, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS (UNAUDITED)****(in
                  thousands)**
  **Three
                                                  months ended****November
                                                  30,****2006**
                                              
                                              
                                              **2005**Cash
                                                  flows from operating activities:Net
                                                  loss
                                              
                                              $
                                              (2,410
                                              )
                                              
                                              $
                                              (7,719
                                              )Adjustments
                                                  to reconcile net loss to cash used
                                                  in operating
                                                  activities:Depreciation
                                                  and amortization of property and
                                                  equipment
                                              
                                              
                                              311
                                              
                                              
                                              
                                              387Amortization
                                                  of license right
                                              
                                              
                                              29
                                              
                                              
                                              
                                              282Amortization
                                                  of deferred financing fees
                                              
                                              
                                              393
                                              
                                              
                                              
                                              -Amortization
                                                  of debt discount
                                              
                                              
                                              719
                                              
                                              
                                              
                                              -Impairment
                                                  loss on license right
                                              
                                              
                                              -
                                              
                                              
                                              
                                              144Goodwill
                                                  impairment
                                              
                                              
                                              -
                                              
                                              
                                              
                                              4,990Provision
                                                  for bad debts
                                              
                                              
                                              48
                                              
                                              
                                              
                                              34Loss
                                                  on assets retired or sold
                                              
                                              
                                              105
                                              
                                              
                                              
                                              18Stock
                                                  issued for services
                                              
                                              
                                              309
                                              
                                              
                                              
                                              -Changes
                                                  in operating assets and liabilities:Decrease
                                                  in accounts receivable
                                              
                                              
                                              18
                                              
                                              
                                              
                                              1,411Decrease
                                                  (increase) in inventories
                                              
                                              
                                              148
                                              
                                              
                                              
                                              (313
                                              )Increase
                                                  (decrease) in deferred product
                                                  costs
                                              
                                              
                                              101
                                              
                                              
                                              
                                              (144
                                              )(Increase)
                                                  decrease in lease receivables and
                                                  other assets
                                              
                                              
                                              (149
                                              )
                                              
                                              
                                              304Increase
                                                  in accounts payable
                                              
                                              
                                              334
                                              
                                              
                                              
                                              384Decrease
                                                  (increase) in deferred product
                                                  revenues
                                              
                                              
                                              (163
                                              )
                                              
                                              
                                              30Increase
                                                  (decrease) in accrued expenses
                                                  and other liabilities
                                              
                                              
                                              43
                                              
                                              
                                              
                                              (166
                                              )Net
                                                  cash used in operating activities
                                              
                                              
                                              (164
                                              )
                                              
                                              
                                              (358
                                              )Cash
                                                  flows from financing activities:Proceeds
                                                  from issuance of Series B preferred
                                                  stock and warrants, net of offering
                                                  costs
                                              
                                              
                                              -
                                              
                                              
                                              
                                              443Interest
                                                  paid on bridge note
                                              
                                              
                                              -
                                              
                                              
                                              
                                              36Dividends
                                                  paid on preferred stock
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (130
                                              )Payments
                                                  on capital leases and other notes
                                                  payable
                                              
                                              
                                              (32
                                              )
                                              
                                              
                                              (317
                                              )Net
                                                  cash provided by financing activities
                                              
                                              
                                              (32
                                              )
                                              
                                              
                                              32Decrease
                                                  in cash and cash equivalents
                                              
                                              
                                              (196
                                              )
                                              
                                              
                                              (326
                                              )Cash
                                                  and cash equivalents, beginning
                                                  of period
                                              
                                              
                                              303
                                              
                                              
                                              
                                              503Cash
                                                  and cash equivalents, end of period
                                              
                                              $
                                              107
                                              
                                              
                                              $
                                              177Supplemental
                                                  cash flow information:Interest
                                                  paid
                                              
                                              $
                                              15
                                              
                                              
                                              $
                                              74Non-cash
                                                  investing and financing activities:Purchases
                                                  of assets through capital leases
                                                  and other note payables
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              144Exchange
                                                  of bridge note into warrants
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              1,750Payment
                                                  of principal on Series A Notes
                                                  with common stock
                                              
                                              $
                                              634
                                              
                                              
                                              $
                                              -Conversion
                                                  of Series B preferred stock to
                                                  common stock
                                              
                                              $
                                              644
                                              
                                              
                                              $
                                              -Preferred
                                                  stock dividends accrued
                                              
                                              $
                                              42
                                              
                                              
                                              $
                                              130Preferred
                                                  stock dividends paid through the
                                                  issuance of Series B preferred
                                                  stock
                                              
                                              $
                                              517
                                              
                                              
                                              $
                                              -
  See
        accompanying notes to unaudited consolidated financial statements.








F-5




REMOTE
      DYNAMICS, INC. AND SUBSIDIARY


Notes
      to
      Consolidated Financial Statements


(Unaudited)







**1.**
            **Business
                Overview and Going Concern**






*Business
      Overview*






Remote
      Dynamics, Inc., a Delaware Corporation (“we” or the “Company”) was originally
      incorporated on February 3, 1994.  We market, sell and support
      automatic vehicle location (“AVL”) and mobile resource management solutions
      targeting companies that operate private vehicle fleets. We believe that the
      REDIviewTM family of solutions is ideal for metro, short-haul fleets within
      diverse industry vertical markets such as field services, distribution, courier,
      limousine, electrical/plumbing, waste management, and government.  Our
      core technology, telematics, combines wireless communications, GPS location
      technology, geospatial solutions and vehicle data integration with an
      easy-to-use web-accessible application that aids in the optimization of remote
      business solutions.  Our state of the art fleet management solution
      contributes to higher customer revenues and improved operator efficiency by
      improving the productivity of mobile workers through real-time position reports,
      route-traveled information, and exception based reporting designed to highlight
      mobile workforce inefficiencies. This in-depth reporting enables our customers
      to correct those inefficiencies and deliver significant savings to the bottom
      line.






Historically,
      much of our revenues have been derived from products sold to the long-haul
      trucking industry, and to member companies of SBC Communications, Inc.
      (“SBC”).  Revenues from these legacy customers have ceased as of
      December 31, 2005.  SBC selected an alternative vendor to supply its
      next generation AVL product, and, as of December 31, 2005, had deactivated
      all
      of its subscriber units.  For us to sustain ongoing business
      operations and ultimately achieve profitability, we must substantially increase
      our sales and penetration into the marketplace with next generation products
      and
      services.




We
      commercially launched our current product offering, REDIview, during January
      of
      2005.  REDIview is an Internet and service bureau-based software
      application that provides an extensive array of real-time and accurate mapping,
      trip replay, and vehicle activity reports.  REDIview includes a series
      of exception-based reports designed to highlight inefficiencies in the
      operations of a vehicle fleet.  Utilizing GPRS technology and our
      proven, high-capacity network service center, customers may access their
      information securely through the Internet from any personal computer or certain
      other devices.






REDIview
      incorporates technologies that allow for fast and effective integration into
      legacy applications operated by companies with vehicle fleets and mobile
      workers.  This design allows companies to easily extend their existing
      supply chain management systems to the mobile workforce for transaction
      processing and customer fulfillment.  REDIview was also designed to be
      hardware and network agnostic to provide the maximum flexibility in designing
      solutions that best fit the customer’s specific needs.






Our
      new
      REDIview product line forms the basis of our business plan for fiscal year
      2007
      and beyond.  We expect this product line to provide the foundation for
      a growth in revenues and, if our revenues grow as we anticipate, ultimately
      profitability.  In addition, the REDIview product line allows us to
      move to a recurring revenue model for all of its current product offerings,
      an
      important and necessary change to our revenue model to achieve overall sustained
      revenue growth and cash flow positive operations. In implementing our new
      business plan, we are completing a significant cost and operational-based
      restructuring, reducing our workforce at all levels, including the senior
      management level.  We are focusing our efforts on enhancing the
      existing REDIview product line.  As a result, in addition to
      significantly reducing projected operational costs, we have significantly
      reduced our projected sales targets and associated cash flows from our previous
      business plan which included multiple product offerings sold through both a
      direct sales force and third-party distributors.






F-6


*Going
      Concern*




Historically,
      much of our revenues
      have been derived from products and services sold to the long-haul trucking
      industry, small to medium-sized companies through our Vehicle Management
      InformationTM (“VMI”) product line, and to SBC.  Revenues from the
      long-haul trucking industry and SBC have ceased as of December 31, 2005. SBC
      selected an alternative vendor to supply its next generation AVL product, and,
      as of December 31, 2005, had deactivated all of its subscriber
      units.  We have ceased actively marketing and selling our VMI
      product.  For us to sustain ongoing business operations and ultimately
      achieve profitability, we must substantially increase our sales and penetration
      into the marketplace with competitive products and services.  We
      believe that the potential market opportunity for automatic vehicle location
      products in the United States, such as our GPRS-based REDIview product, is
      significant and that we will be well positioned with our telematics product
      lines and proven operations support to take advantage of the significant market
      potential.







At
      November 30, 2006 we have a significant working capital deficit, have incurred
      significant recurring losses and have used significant cash in
      operations.  We currently do not expect to achieve profitability
      during the 2007 fiscal year.  Based on our latest revised pricing
      structure and reduction in workforce, we currently estimate that to achieve
      profitability, we will need to have approximately $600,000 in monthly
      revenues.  However, there can be no assurances that we will achieve
      our REDIview sales targetsor our
      targeted operating cost reductions, and failure to do so may have a
      material adverse effect upon our business, financial condition and results
      of
      operations.




Critical
      success factors in our plans to achieve positive cash flow from operations
      include:









·
            Ability
                to increase sales of the REDIview product line to lessen the amount
                of
                capital resources necessary to fund our operations until such time
                that
                revenues from the REDIview product line are sufficient to fund ongoing
                operations.




·
            Ability
                to further reduce our operating costs in accordance with our latest
                revised business plan.




·
            Ability
                to complete development of additional features and functionality
                for the
                REDIview product line.




·
            Significant
                market acceptance of our product offerings from new customers, including
                our REDIview product line, in the United
                States.




·
            Maintaining
                and expanding our direct sales channel. New salespersons will require
                training and time to become productive. In addition, there is significant
                competition for qualified sales personnel, and we must continue to
                offer
                attractive compensation plans and opportunities to attract qualified
                salespersons.




·
            Expansion
                into new markets not currently served by
                us.




·
            Increasing
                sales production from existing channel
                partners.




·
            Obtaining
                new channel partners to distribute our product
                lines.




·
            Maintenance
                and expansion of indirect distribution channels for our REDIview
                product
                line.




·
            The
                securing and maintenance of adequate third party leasing sources
                for
                customers who purchase our
                products.






There
      can
      be no assurances that any of these success factors will be realized or
      maintained.







F-7




We
      currently believe that with the expected proceeds from our November 2006 private
      placement described in Note 3, and assuming the achievement of our revised
      REDIview sales targets and expected operating cost reductions, we have
      sufficient capital to fund our ongoing operations through the remainder of
      our
      2007 fiscal year.  The sufficiency of our cash resources depends to a
      certain extent on general economic, financial, competitive or other factors
      beyond our control. Moreover, despite actions to reduce costs and improve
      profitability, our operating losses and net operating cash outflows will
      continue through at least June 2007. As a result, we may not be able to achieve
      the revenue and gross margin objectives necessary to achieve positive cash
      flow
      or profitability without obtaining additional debt or equity financing. We
      do
      not currently have any arrangements for additional financing and we may not
      be
      able to secure additional debt or equity financing on terms acceptable to us,
      or
      at all, at the time when we need such funding. Further, our ability to secure
      certain types of additional financings is restricted under the terms of our
      existing financing arrangements.  There can be no assurance that we
      will be able to consummate a transaction for additional capital prior to
      substantially depleting our available cash reserves, and our failure to do
      so
      may force us to file for bankruptcy protection and/or cease
      operations.









**2.           Basis
      of Presentation and Significant Accounting Policies**




*Basis
      of Presentation*




The
      unaudited consolidated financial statements have been prepared in accordance
      with the instructions to Form 10-QSB and Item 310 of Regulation
      S-B.  Accordingly, they do not include all footnote disclosures
      required by accounting principles generally accepted in the United States of
      America.  These consolidated financial statements should be read in
      conjunction with our audited consolidated financial statements and notes thereto
      in our Annual Report on Form 10-KSB for the year ended August 31,
      2006.  The accompanying consolidated financial statements reflect all
      adjustments, which are, in the opinion of management, necessary for a fair
      presentation of our financial position, results of operations and cash flows
      for
      the interim periods in accordance with accounting principles generally accepted
      in the United States of America.  The results for any interim period
      are not necessarily indicative of the results for the entire fiscal
      year.  Certain prior year amounts have been reclassified to conform to
      current year presentation.




*Estimates
      Inherent in the Preparation of Financial Statements*







The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and 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.  Actual results could differ from those
      estimates.







*Revenue
      Recognition*





We
      recognize revenue when earned in accordance with the applicable accounting
      literature including:  EITF No. 00-21, “Revenue Arrangements With
      Multiple Deliverables”, Statement of Position 97-2, “Software Revenue
      Recognition”, and Staff Accounting Bulletin No. 101, “Revenue Recognition in
      Financial Statements”, as amended by Staff Accounting Bulletin No. 104, “Revenue
      Recognition in Financial Statements”.  Revenue is recognized when the
      following criteria are met:  there is persuasive evidence that an
      arrangement exists, delivery has occurred and all obligations under such
      arrangement have been fulfilled, the price is fixed and determinable and
      collectibility is reasonably assured.





Initial
      sale proceeds received under
      multiple-element sales arrangements that require us to deliver products and
      services over a period of time and which are not determined by us to meet
      certain criteria are deferred.  All REDIview and VMI sales proceeds
      related to delivered products are deferred and recognized over the contract
      life
      that typically ranges from one to five years.   Product sales
      proceeds recognized under this method are portrayed in the accompanying
      Consolidated Statement of Operations as “Ratable product revenues.” The related
      deferred revenue is classified as a current and long term liability on the
      Consolidated Balance Sheets under the captions “Deferred product revenues –
current portion” and “Deferred product revenues non-current
      portion.”  If the customer relationship is terminated prior to the end
      of the customer contract term, such deferred sales proceeds are recognized
      as
      revenue in the period of termination.  Under sales arrangements, which
      initially meet the earnings criteria described above, revenues are recognized
      upon shipment of the products or upon customer acceptance of the delivered
      products if terms of the sales arrangement give the customer the right of
      acceptance.





F-8


Service
      revenue generally commences
      upon product installation and customer acceptance and is billed and recognized
      during the period such services are provided.





We
      provide lease financing to certain customers of our REDIview and VMI
      products.  Leases under these arrangements are classified as
      sales-type leases or operating leases.  These leases typically have
      terms of one to five years, and all sales type leases are discounted at interest
      rates ranging from 14% to 18% depending on the customer’s credit
      risk.  The net present value of the lease payments for sales-type
      leases is recognized as product revenue and deferred under our revenue
      recognition policy described above.  Income from operating leases is
      recognized ratably over the term of the leases.




*Goodwill
      and Other Intangibles*





We
      test
      our goodwill for impairment on an annual basis, or between annual tests if
      it is
      determined that a significant event or change in circumstances warrants such
      testing, in accordance with the provisions of SFAS  No. 142, “Goodwill
      and Other Intangible Assets”, (“SFAS 142”) which requires a comparison of the
      carrying value of goodwill  to the fair value of the reporting
      unit.   If the fair value of the reporting unit is less than the
      carrying value of goodwill, an adjustment to the carrying value of goodwill
      is
      required.




Since
      our
      launch of the REDIview product line in January of 2005, we have experienced
      significant competition in the marketplace which has eroded our price points
      and
      prevented us from achieving our sales targets with sales cycles for large
      accounts proving to be much longer and complex than originally
      anticipated.  Thus, in response to current market conditions, we
      revised our business plan modifying our pricing structures, our sales and
      marketing approach and added new feature sets to our REDIview product line
      to
      ensure that we remain competitive in the marketplace.  We have
      significantly reduced our future projected cash flows from previous
      projections.  Thus, we performed our annual test for goodwill
      impairment at August 31, 2005 utilizing an income approach, a discounted future
      cash flow analysis and an analysis of market multiples to determine our goodwill
      was impaired by an estimated $9.6 million.  Goodwill was thus written
      off by $9.6 million representing the full amount of the estimated impairment
      during the fiscal year ended August 31, 2005.




Based
      on
      our failure to achieve our forecasted sales targets for the three months ended
      November 30, 2005, we began analyzing and revising our current and long-term
      business plans, materially modifying our existing business plan in late December
      2005.  Our business plan significantly reduced our projected sales
      forecasts and operational costs from the former plan.  As a result,
      and in accordance with SFAS 142, we performed an interim test of our goodwill
      as
      of November 30, 2005 utilizing a discounted future cash flow analysis based
      on
      our new projected sales targets and the estimated impact of our cost saving
      measures.  We determined that goodwill was further impaired by an
      estimated $5.0 million.  Goodwill was thus further written off by $5.0
      million at November 30, 2005 representing the full amount of the estimated
      impairment.






We
      further modified our business plan as of August 31, 2006 significantly reducing
      our projected sales forecasts and operational costs from the former
      plan.  As a result, and in accordance with SFAS 142, we performed an
      annual test of our goodwill as of August 31, 2006 utilizing a discounted future
      cash flow analysis based on our new projected sales targets and the estimated
      impact of our additional cost saving measures.  We determined that
      goodwill was further impaired by an estimated $2.7 million.  Goodwill
      was thus further written off by $2.7 million at August 31, 2006 representing
      the
      full amount of the estimated impairment.  At August 31and November 30,
      2006, the carrying value of our goodwill was $2.4 million.







F-9




*Recent
      Accounting Pronouncements*




Financial
      Accounting Standards No. 155 (“FAS 155”).  In February 2006, the FASB
      issued FAS 155, “Accounting for Certain Hybrid Financial Instruments,” an
      amendment of Financial Accounting Standards No. 133, “Accounting for Derivative
      Instruments and Hedging Activities” (“FAS 133”) and Financial Accounting
      Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets
      and Extinguishments of Liabilities” (“FAS 140”). With respect to FAS 133, FAS
      155 simplifies accounting for certain hybrid financial instruments by permitting
      fair value remeasurement for any hybrid financial instrument that contains
      an
      embedded derivative that otherwise would require bifurcation and eliminates
      the
      interim guidance in Statement 133 Implementation Issue No. D1, “Application of
      Statement 133 to Beneficial Interests in Securitized Financial Assets,” which
      provided that beneficial interests in securitized financial assets are not
      subject to the provision of FAS 133. With respect to FAS 140, FAS 155 eliminates
      a restriction on the passive derivative instruments that a qualifying
      special-purpose entity may hold. FAS 155 is effective for all financial
      instruments acquired or issued after the beginning of an entity’s first fiscal
      year that begins after September 15, 2006. We do not expect the adoption of
      FAS
      155 to significantly affect our financial condition or results of
      operations.





FASB
      Interpretation No. 48 (“FIN 48”).  In July 2006, the FASB issued FIN
      48, “Accounting for Uncertainty in Income Taxes” which prescribes a recognition
      threshold and measurement process for recording in the financial statements
      uncertain tax positions taken or expected to be taken in a tax return.
      Additionally, FIN 48 provides guidance on derecognition, classification,
      accounting in interim periods and disclosure requirements for uncertain tax
      positions. The accounting provisions of FIN 48 will be effective for us
      beginning September 1, 2007. We are in the process of determining the effect,
      if
      any, the adoption of FIN 48 will have on our financial statements.





Financial
      Accounting Standards No. 157 (“FAS 157”).  In September 2006, the FASB
      issued FAS 157, “Fair Value Measurements.” FAS 157 defines fair value,
      established a framework for measuring fair value in generally accepted
      accounting principles (GAAP) and expands disclosures about fair value
      measurements. FAS 157 is effective for financial statements issued for fiscal
      years beginning after November 15, 2007. We do not expect the adoption of FAS
      157 to significantly affect our financial condition or results of
      operations.







**3.           Securities
      Purchase Agreements**




*Series
      A Preferred Stock*






On
      October 1, 2004, we closed the sale
      of 5,000 shares of Series A convertible preferred stock, with each preferred
      share having a face value of $1,000, for a total purchase price of
      $5,000,000.  Net cash proceeds were $4,651,000 after payment of
      expenses.  The Series A convertible preferred stock was convertible
      into shares of our common stock at a conversion price of $2.00 per share. We
      sold the Series A convertible preferred stock to SDS Capital Group SPC, Ltd
      (“SDS”).  The Series A convertible preferred stock was issued to SDS
      pursuant to the exemption from the registration requirements of the Securities
      Act of 1933 as amended, provided by Regulation D promulgated there
      under.  As discussed below, the Series A convertible preferred stock
      was exchanged for Series B convertible preferred stock in September
      2005.






F-10





*SDS
      Note Payable*






On
      May
      31, 2005, we consummated a bridge loan and security agreement with SDS in which
      we issued a promissory note in the amount of $1.75 million to SDS (the “Bridge
      Note”). The Bridge Note was secured by our assets, accrued interest at 8% per
      annum and was due and payable on September 30, 2005.  The Bridge Note
      automatically exchanged into a common stock purchase warrant with a 5-year
      term
      to purchase 1,666,667 shares of common stock at an exercise price of $0.01
      per
      share and a common stock purchase warrant with  a 5-year term to
      purchase 700,000 shares of common stock at an exercise price of $1.75 per share
      (the “Bridge Warrants”) upon approval of our stockholders. Our stockholders
      approved the exchange of the Bridge Note into the Bridge Warrants, and on
      September 2, 2005, the Bridge Note was extinguished and exchanged for the Bridge
      Warrants.






*Series
      B Preferred Stock*






On
      September 2, 2005, we closed the sale of $6.5 million of preferred stock and
      common stock purchase warrants in a private placement transaction with SDS
      previously entered into on May 31, 2005.  In consideration for the
      issuance of the Series B convertible preferred stock, SDS paid us $750,000
      and
      returned to us all of the outstanding Series A convertible preferred stock
      with
      a face value of $5 million which was held by SDS.  We incurred an
      early redemption penalty of $750,000 related to the Series A convertible
      preferred stock.  Net cash proceeds received by us were approximately
      $443,000 after deduction of brokers’ commissions, accrued interest on the bridge
      note and other expenses.  The Series B convertible preferred stock is
      convertible into common stock at an original conversion price of $1.55 per
      share. SDS also received a common stock purchase warrant with a 5-year term
      to
      purchase 2 million shares at an exercise price of $1.75 per share. We used
      the
      net proceeds from the financing transaction to fund our business
      plan.  We are obligated to register the common stock issuable upon
      conversion of the Series B convertible preferred stock or exercise of the common
      stock purchase warrants for public resale under the Securities and Exchange
      Act
      of 1933.






On
      December 16, 2005, in consideration
      of our reducing the exercise price on certain warrants held by SDS from $0.67
      to
      $0.30 per share, SDS exercised the warrants for the purchase of 1,125,000 shares
      of our common stock resulting in the receipt by us of cash proceeds in the
      amount of $337,500.  This repricing resulted in an increase in the net
      loss attributable to common shareholders of approximately $69,000 in the second
      quarter of fiscal year 2006.






*Series
      A Note Financing*




On
      February 24, 2006, we closed a Note and Warrant Purchase Agreement with certain
      institutional investors pursuant to which we sold $5.75 million of our series
      A
      senior secured convertible notes and original issue discount series A notes
      (“Series A Notes”) in a private placement transaction.   In the
      private placement, we received proceeds of approximately $4.1 million in cash
      (after deducting brokers’ commission but before payment of legal and other
      professional fees, the 15% original issue discount of $750,000 and the tendering
      of 50 shares of their 650 shares Series B preferred convertible stock with
      an
      aggregate face value of $500,000 by our sole series B preferred convertible
      stockholder).




The
      Series A Notes are secured by substantially all of our assets. There exists
      no
      material relationship between us and these investors other than in respect
      of
      the Series A Note purchase agreement. The Series A Notes mature 24 months from
      issuance and are convertible at the option of the holder into our common stock
      at a fixed conversion price of $0.20 per share (which adjusted to $0.016 per
      share upon the issuance of series B subordinated secured convertible notes
      discussed below).  Beginning on September 1, 2006 and continuing
      thereafter on the first business day of each month, we must pay an amount to
      each holder of a Series A Note equal to 1/18th of the original principal payment
      of the note; provided, that if on any principal payment date the outstanding
      principal amount of the note is less than such principal installment amount,
      then we must pay to the holder of the note the lesser amount. We may make such
      principal installment amounts in cash or in registered shares of our common
      stock. If paid in common stock, certain conditions must be satisfied, and the
      number of registered shares to be paid to the holder must be an amount equal
      to
      the principal installment amount divided by eighty percent (80%) of the average
      of the closing bid price for the ten (10) trading days immediately preceding
      the
      principal payment date.




F-11




We
      currently are not in compliance with certain of our obligations relating to
      our
      Series A Notes, including our failure to maintain sufficient authorized shares
      to permit conversion of the notes and our failure to register the resale of
      the
      shares of common stock issuable upon conversion of the notes.  As of
      November 30, 2006, we have obtained waivers of compliance of these obligations
      from all of the note holders, other than one holder of $100,000 principal amount
      of the notes.




The
      purchasers of the Series A Notes (and the placement agent in the transaction)
      received the following common stock purchase warrants:





·
            Series A-7
                warrants to purchase 20,625,000 million shares in the aggregate of
                common stock at an initial exercise price of $0.40 per share subject
                to
                adjustment for stock splits and combinations, certain dividends and
                distributions, reclassification, exchange or substitution, reorganization,
                merger, consolidation or sales of assets; issuances of additional
                shares
                of common stock, and issuances of common stock equivalents.  The
                exercise price of the series A-7 warrants adjusted to $0.016 per
                share
                upon the issuance of our series B subordinated secured convertible
                notes
                discussed below.   The series A-7 warrants are exercisable
                for a seven-year period from the date of issuance.  1.9 million
                of these shares are exercisable over 5
                years.





·
            Series B-4
                warrants to purchase 13,750,000 million shares in the aggregate of
                common stock at an initial exercise price of $0.90 per share subject
                to
                adjustment for stock splits and combinations, certain dividends and
                distributions, reclassification, exchange or substitution, reorganization,
                merger, consolidation or sales of assets; issuances of additional
                shares
                of common stock, and issuances of common stock equivalents.  The
                exercise price of the series B-4 warrants adjusted to $0.016 per
                share
                upon the issuance of our series B subordinated secured convertible
                notes
                discussed below.  The series B-4 warrants are exercisable for a
                four-year period beginning on the date a resale registration statement
                for
                the shares underlying the warrants is declared effective by the Securities
                and Exchange Commission. 1.3 million of these shares are exercisable
                over
                5 years.





·
            Series C-3
                warrants to purchase 27,500,000 million shares in the aggregate of
                common stock at an initial exercise price of $0.21 per share subject
                to
                adjustment for stock splits and combinations, certain dividends and
                distributions, reclassification, exchange or substitution, reorganization,
                merger, consolidation or sales of assets; issuances of additional
                shares
                of common stock, and issuances of common stock equivalents.  The
                exercise price of the series C-3 warrants adjusted to $0.016 per
                share
                upon the issuance of our series B subordinated secured convertible
                notes
                discussed below. The series C-3 warrants are exercisable for a three-year
                period from the date of issuance.  2.5 million of these shares
                are exercisable over 5 years.





·
            Series
                D-1 warrants (callable only at our option) to purchase 19,250,000
                shares
                in the aggregate of common stock at an exercise price per share equal
                to
                the lesser of: (a) $0.35 and (b) 90% of the average of the 5 day
                volume weighted average price of our common stock on the OTC Bulletin
                Board preceding the call notice, as defined in the
                warrant.









*HFS
      Note Payable*




On
      July
      20, 2004, we entered into and consummated the Third Amended Letter Agreement
      with HFS Minorplanet Funding LLC (“HFS”) issuing a $2.0 million convertible
      promissory note to HFS with the principal balance being due 36 months from
      the
      date of funding, with an annual interest rate of 12 percent.  Upon
      issuance of the Note, HFS provided the $2 million funding to us less a
      commission in the amount of $80,000 representing four percent (4%) of the loan
      proceeds.   A Director of HFS currently serves as a Director on
      our Board of Directors.  During the three months ended November 30,
      2006 and 2005, we made interest payments to HFS totaling $10,000 and $60,000
      respectively.  We accrued $50,000 and $6,000, respectively, during the
      same periods.






F-12




On
      November 30, 2006, we entered into a promissory note with HFS in the principal
      amount of $1,000,000 and having a maturity date of December 1, 2007. As of
      the
      date of this report, no amounts have been advanced under this
      note.  Advances are only available under certain limited
      circumstances.  At maturity, (a) the promissory note (and all amounts
      due under the note) automatically convert into our securities of the same kind
      issued by us in our November 2006 private placement (based on a $1,000,000)
      and
      (b) the existing $2,000,000 convertible promissory note issued by us to HFS
      will
      be cancelled.






*Series
      B Note Financing*




On
      November 30, 2006, we entered into a Note and Warrant Purchase Agreement with
      Bounce Mobile Systems, Inc. (“BMSI”) and other accredited
      investors.  As discussed below, we did not receive any proceeds from
      this transaction until December 4, 2006.  Pursuant to the Note and
      Warrant Purchase Agreement, we will receive up to $1,754,000 in gross proceeds
      (of which BMSI has committed to provide $1,200,000) from the sale of up to
      (i)
      $1,754,000 principal amount of our series B subordinated secured convertible
      promissory notes (“Series B Notes’), (ii) $701,600 principal amount of our
      original issue discount series B subordinated secured convertible promissory
      notes (“Series B OID Notes”), (iii) our series E-7 warrants (“E-7 Warrants”) to
      purchase 82,218,750 shares of our common stock and (iv) our series F-4 warrants
      (“F-4 Warrants”) to purchase 82,218,750  shares of our common
      stock.





·
            The
                Series B Notes and the Series B OID Notes are secured by all of our
                assets, subject to existing liens, are due December 4, 2009 and begin
                amortization of principal (in nine quarterly installments) on August
                1,
                2007.  We may make principal installment payments in cash or in
                registered shares of our common stock. If paid in common stock, certain
                conditions must be satisfied, and the number of registered shares
                to be
                paid to the holder must be an amount equal to the principal installment
                amount divided by the greater of (i) $0.02 and (ii) 90% of the average
                of
                the volume weighted average trading prices of the common stock for
                the ten
                trading days immediately preceding the principal payment.  The
                Series B Notes and Series B OID Notes are convertible into our common
                stock at an initial conversion price of $0.016 per share, subject
                to
                reduction if we fail to achieve specified financial and operating
                milestones and subject to adjustment for stock splits and combinations,
                certain dividends and distributions, reclassification, exchange or
                substitution, reorganization, merger, consolidation or sales of assets;
                issuances of additional shares of common stock, and issuances of
                common
                stock equivalents.





·
            The
                E-7 Warrants have an exercise price of $0.02 per share, subject to
                adjustment for stock splits and combinations, certain dividends and
                distributions, reclassification, exchange or substitution, reorganization,
                merger, consolidation or sales of assets; issuances of additional
                shares
                of common stock, and issuances of common stock equivalents.  The
                E-7 Warrants are exercisable for a seven-year period from the date
                of
                issuance.





·
            The
                F-4 Warrants have an exercise price of $0.03 per share, subject to
                adjustment for stock splits and combinations, certain dividends and
                distributions, reclassification, exchange or substitution, reorganization,
                merger, consolidation or sales of assets; issuances of additional
                shares
                of common stock, and issuances of common stock equivalents. The F-4
                Warrants are exercisable for a four-year period beginning on the
                date a
                resale registration statement for the shares underlying the warrants
                is
                declared effective by the Securities and Exchange
                Commission.





F-13


The
      private placement is structured to occur in four closings, each providing
      $438,500 in gross proceeds to us.  The first closing occurred on
      December 4, 2006 and the second closing occurred on January 10,
      2007.  The third closing will occur within five business days after
      the date that we file an amendment to our Certificate of Incorporation making
      effective an increase in the number of our authorized shares of common stock
      to
      575,000,000 and a one-for-fifty reverse stock split of our common stock. The
      fourth closing will occur within five business days after the date that an
      initial resale registration statement for the shares underlying the notes and
      warrants issued in the private placement is declared effective by the Securities
      and Exchange Commission.  Each closing is subject to certain other
      conditions being satisfied, including (i) our representations and warranties
      in
      the agreement being true and correct in all material respects as of each closing
      date, (ii) our having performed, satisfied and complied in all material respects
      with all covenants, agreements and conditions required by the agreement to
      be
      performed, satisfied or complied with by us at or prior to each closing date,
      and (iii) no material adverse effect on the business, operations, properties,
      prospects, or financial condition of us and our subsidiaries having
      occurred.





As
      a
      result of the private placement and pursuant to the terms of "most favored
      nations" rights granted to investors in our February 2006 private placement
      of
      our Series A Notes, we issued to certain of our February 2006 private placement
      investors, in exchange for $1,652,111 principal amount of the Series A Notes,
      an
      additional (i) $1,784,111 principal amount of Series B Notes, (ii) $713,644
      principal amount of Series B OID Notes, (iii) E-7 Warrants to purchase
      83,690,203 shares of our common stock and (iv) F-4 Warrants to purchase
      83,690,203 shares of our common stock.  We received no additional
      proceeds from the exchange.





In
      connection with the private placement, we agreed to pay to the placement agent
      for the transaction consideration consisting of (a) a cash sales commission
      of
      $150,480, (b) warrants to purchase 23,021,250 shares of common stock, with
      each
      warrant having an exercise price of $0.016 per share and being exercisable
      for
      ten years, (c) E-7 Warrants to purchase 12,332,813 shares of common stock,
      and
      (d) F-4 Warrants to purchase 12,332,813 shares of common stock. We also agreed
      to pay legal fees in the amount of $35,000 to legal counsel for the investors
      in
      the private placement.





The
      issuance of the Series B Notes triggered anti-dilution adjustments to the
      conversion price of our Series A Notes and the exercise price of the common
      stock purchase warrants issued in connection with the Series A Notes as
      follows:  (a) the conversion price of the Series A Notes changed from
      $0.20 to $0.016 per share, (b) the exercise price of our Series A-7 warrants
      changed from $0.40 to $0.016 per share, (c) the exercise price of our Series
      B-4
      warrants changed from $0.90 to $0.016, and (d) the exercise price of our Series
      C-3 warrants changed from $0.21 to $0.016 per share. In addition, the
      transaction triggered an anti-dilution adjustment to certain warrants issued
      to
      SDS in September 2005 in connection with the Series B preferred stock
      transaction, by changing the exercise price from $1.75 to $0.0966 per share
      and
      increasing the number of shares of common stock for which the warrants can
      be
      exercised from 750,000 to 12,683,191.




*BounceGPS
      Acquisition*






On
      November 30, 2006, we entered into a Share Exchange Agreement with Bounce Mobile
      Systems, Inc. (“BMSI”).  Pursuant to the Share Exchange Agreement, we
      agreed to acquire from BMSI 100% of the capital stock of BounceGPS, Inc., a
      provider of mobile asset management solutions, in exchange for:




·
            5,000
                shares of our newly authorized series C convertible preferred
                stock


·
            A
                Series B Note in the principal amount of
                $660,000


·
            A
                Series B OID Note in the principal amount of
                $264,000


·
            An
                E-7 Warrant to purchase 30,937,500 shares of common
                stock


·
            A
                F-4 Warrant to purchase 30,937,500 shares of common
                stock







F-14


As
      part
      of the acquisition of BounceGPS, Inc., we acquired approximately 600 mobile
      subscribers, executive management and marketing expertise.  Total
      assets acquired were approximately $380,000, consisting primarily of inventory
      and other current assets in the amount of $149,000, and $231,000 in fixed and
      other assets.  Total liabilities acquired were approximately $380,000
      consisting of accounts payable and other current liabilities of $103,000 and
      notes payable of $277,000.  We anticipate that cash flows from
      operations from BounceGPS to be minimal.




The
      transactions contemplated by the Share Exchange Agreement closed on December
      4,
      2006.




The
      series C convertible preferred stock issued under the Share Exchange Agreement
      has a face amount of $1,000 per share ($5,000,000 in the aggregate), ranks
      junior to the Company’s series B convertible preferred stock and senior to its
      common stock with respect to payment of dividends and amounts upon any
      liquidation, dissolution or winding up of the Company, and is entitled to
      receive cumulative dividends in an amount equal to 8% per year (payable at
      the
      election of the holder in cash or additional shares).






The
      series C convertible preferred stock issued under the Share Exchange Agreement
      is initially convertible into 51% of the number of our fully diluted shares,
      as
      defined to include, without limitation:




·
            Shares
                of common stock outstanding on the date of issuance of the Series
                C
                Preferred Stock;


·
            Shares
                of common stock issuable upon conversion, exercise or exchange of
                any
                convertible security or purchase right outstanding on the date
                of  issuance (including, without limitation, the series C
                convertible preferred stock, the Company’s series B convertible preferred
                stock, the Series A Notes, the Series B Notes, the Series B OID Notes,
                the
                E-7 Warrants and the F-4 Warrants);


·
            Shares
                of common stock issuable upon conversion, exercise or exchange of
                any
                convertible security or purchase right issued after the issuance
                date of
                the series C convertible preferred stock in conversion, exercise
                or
                exchange of securities outstanding as of the issuance date or as
                a
                dividend, interest payment, liquidated damages, penalty, compromise,
                settlement or other payment of certain securities or  pursuant
                to or in connection with any agreement, indebtedness or other obligation
                of the Company existing as of the issuance date, or with respect
                to any
                amendment, waiver or modification thereto or extension
                thereof;


·
            Shares
                of common stock issued after the issuance date of the series C convertible
                preferred stock as a dividend, interest payment, liquidated damages,
                penalty, compromise, settlement or other payment of certain securities
                or  pursuant to or in connection with any agreement,
                indebtedness or other obligation of the Company existing as of the
                issuance date, or with respect to any amendment, waiver or modification
                thereto or extension thereof; and


·
            Shares
                of common stock authorized for issuance from time to time under the
                Company’s equity incentive plans.







The
      series C convertible preferred
      stock generally has the right to vote on all matters before the common
      stockholders on an as-converted basis voting together with the common
      stockholders as a single class. In addition, the holders of a majority of the
      Series C Preferred Stock, voting as a separate class, have the right to appoint
      a majority of the members of our Board of Directors (as long as we have not
      exercised our limited rights to redeem series C convertible preferred
      stock).






F-15




As
      a
      result of the Share Exchange Agreement and Note and Warrant Purchase Agreement
      transactions, BMSI, as the sole holder of our series C convertible preferred
      stock, currently holds approximately 94.2% of the voting power of our
      outstanding securities and beneficially owns approximately 61.5% of our common
      stock (calculated on a fully diluted basis).







**4.**
            **Inventories**





Inventories
      consist of the following
      (in thousands):


November
                              30,
                          
                          
                          August
                              31,2006
                          
                          
                          2006Complete
                              systems
                          
                          $
                          85
                          
                          
                          $
                          201Component
                              parts
                          
                          
                          127
                          
                          
                          
                          159$
                          212
                          
                          
                          $
                          360
  **5.           Other
        Commitments and Contingencies**




*Product
      Warranty Guarantees*





We
      provide a limited warranty on all
      REDIview product sales, at no additional cost to the customer, which provides
      for replacement of defective parts for one year after the product is
      sold.  We provide a limited warranty on all VMI product sales, at no
      additional cost to the customer, which provides for replacement of defective
      parts during the contract term, typically ranging from one to five
      years.  We establish an estimated liability for expected future
      warranty commitments based on a review of historical warranty expenditures
      associated with these products and other similar products.  The
      product warranty liability, which is included in “Accrued expenses and other
      current liabilities” and “Other non-current liabilities” in the accompanying
      Consolidated Balance Sheets, totaled approximately $132,000 at November 30,
      2006.







*Purchase
      Obligations*




We
      had
      purchase obligations of approximately $1.1 million primarily related to the
      purchase of inventory as of November 30, 2006.




*Other
      Commitments and Contingencies*




From
      time
      to time, we may be subject to legal proceedings and claims that arise in the
      ordinary course of business or are incidental to our business. We may suffer
      an
      unfavorable outcome as a result of one or more these claims.  We do
      not expect the final resolution of such claims, individually or in the
      aggregate, to have a material adverse effect on our financial position. However,
      depending on the amount and timing of unfavorable resolutions of claims against
      us, or the costs of settlement or litigation, our future results of operations
      or cash flows could be materially adversely affected.







F-16




**6.                 Segment
      Reporting**




Our
      reportable segments offer different products and/or services.  Each
      segment also requires different technology and marketing
      strategies.  Our two reportable segments are VMI and Network Service
      Center Systems (“NSC Systems”).  REDIview products and services are
      included in NSC Systems.




Operating
      expenses are allocated to
      each segment based on management’s estimate of the utilization of financial
      resources by each segment.  Impairment loss on license right is
      allocated solely to the VMI segment.  Goodwill impairment is allocated
      solely to the NSC Systems segment.  The following tables set forth
      segment financial information (in thousands):




As
                              of and for the Three Months EndedNovember
                              30, 2006NSC
                              Systems
                          
                          
                          VMI
                          
                          
                          ConsolidatedRevenues
                          
                          $
                          1,141
                          
                          
                          $
                          325
                          
                          
                          $
                          1,466Operating
                              loss
                          
                          
                          (1,413
                          )
                          
                          
                          93
                          
                          
                          
                          (1,320
                          )Interest
                              expense
                          
                          
                          (1,188
                          )
                          
                          
                          -
                          
                          
                          
                          (1,188
                          )Interest
                              income
                          
                          
                          19
                          
                          
                          
                          6
                          
                          
                          
                          25Depreciation
                              and amortization
                          
                          
                          (302
                          )
                          
                          
                          (38
                          )
                          
                          
                          (340
                          )Net
                              loss
                          
                          
                          (2,509
                          )
                          
                          
                          99
                          
                          
                          
                          (2,410
                          )Total
                              assets
                          
                          
                          9,903
                          
                          
                          
                          55
                          
                          
                          
                          9,958
   As
                                of and for the Three Months Ended
                              November
                                30, 2005NSC
                                Systems
                            
                            VMI
                            
                            ConsolidatedRevenues
                            
                            $
                            1,283
                            
                            $
                            647
                            
                            $
                            1,930Operating
                                loss
                            
                            
                            (7,348
                            )
                            
                            (307
                            )
                            
                            (7,655
                            )Interest
                                expense
                            
                            
                            (82
                            )
                            
                            -
                            
                            
                            (82
                            )Depreciation
                                and amortization
                            
                            
                            (576
                            )
                            
                            (93
                            )
                            
                            (669
                            )Impairment
                                loss on license right
                            
                            
                            -
                            
                            
                            (144
                            )
                            
                            (144
                            )Goodwill
                                impairment
                            
                            
                            (4,990
                            )
                            
                            -
                            
                            
                            (4,990
                            )Net
                                loss
                            
                            
                            (7,429
                            )
                            
                            (290
                            )
                            
                            (7,719
                            )Total
                                assets
                            
                            
                            12,805
                            
                            
                            1,606
                            
                            
                            14,411
  **7.                 Earnings
          Per Share**




We
      compute earnings per share in accordance SFAS No. 128, “Earnings Per
      Share.”  Net loss per basic share was computed by dividing net loss by
      the weighted average number of shares outstanding during the respective periods.
      Diluted earnings per share is computed using the “Treasury Stock
      Method.”  Our potentially dilutive securities**have been
      excluded from the weighted average number of shares outstanding, since their
      effect would be anti-dilutive.




The
      securities listed below were not included in the computation of diluted earnings
      per share as the effect from their conversion/exercise would have been
      antidilutive:






F-17





For
                              the Three Months Ended
                            November
                              30,2006
                          
                          
                          2005Restricted
                              stock ( not vested)
                          
                          
                          -
                          
                          
                          
                          565,000Convertible
                              notes payable
                          
                          
                          26,240,765
                          
                          
                          
                          649,350Convertible
                              preferred stock
                          
                          
                          3,690,323
                          
                          
                          
                          4,193,548Outstanding
                              warrants to purchase common stock
                          
                          
                          87,991,667
                          
                          
                          
                          5,491,667




**8.           Shareholders’
      Deficit**




During
      the three months ended November
      30, 2006, we issued approximately 32 million shares of our common stock for
      the
      repayment of approximately $634,000 in Series A Notes and accrued
      interest.





During
      the three months ended November
      30, 2006, we issued approximately 17 million shares of our common stock for
      the
      payment of certain professional and legal fees totaling approximately
      $309,000.  Common stock was credited for approximately $177,000 and
      additional paid-in-capital was credited for approximately $132,000.





On
      September 15, 2006, at the request
      of SDS, and in accordance with the terms of our Series B preferred stock, we
      exchanged 80 shares of our redeemable Series B preferred stock into
      approximately 516,000 shares of our common stock at a conversion rate of $1.55
      per share.  The carrying value of our Series B preferred stock was
      reduced by approximately $644,000.







**9.           Preferred
      Stock**




On
      October 12, 2006, we converted
      approximately $520,000 in accrued dividends due SDS for 52 shares of redeemable
      Series B preferred stock.







**10.           Legal
      Proceedings**






On
      October 13, 2006, we entered into a Memorandum of Understanding with @Road,
      Inc.
      with respect to a settlement of a lawsuit brought by @Road, Inc. on August
      10,
      2005 alleging intentional interference with prospective economic advantage
      against us (@Road, Inc. v. Kierston Dowd, et al., Stanislaus County Superior
      Court).  Under the Memorandum of Understanding, @Road agreed to
      dismiss their lawsuit with prejudice in exchange for a payment from us of the
      sum of $250,000, payable in 24 equal monthly installments
      beginning  January 1, 2007 (subject to acceleration upon certain
      change of control and financing transactions) and accruing interest at the
      rate
      of 8% per annum.  The settlement is subject to the approval of our
      Board of Directors and execution of a final settlement agreement and general
      release.  This amount is recorded as a liability at August 31, 2006
      and November 30, 2006.






F-18