**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-K**

| **Mark One**                                                                                                                    |                                                                                                    |
|---------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| **x**                                                                                                                           | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
| **For The Fiscal Year Ended December 31, 2006**                                                                            |
| **OR**                                                                                                                          |
| **o**                                                                                                                           | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| **For the Transition Period  from               to** |

 

**Commission File Number 333-125575**

**INFOLOGIX, INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                    |   | **20-1983837**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |   | (IRS Employer  Identification Number) |
| **101 E. County Line Road  Hatboro, PA**                        |   | **19040**                             |
| (Address of  principal executive offices)                       |   | (Zip code)                            |

 

**(215) 604-0691**

(Registrant’s telephonenumber, including area code)

Securities registered pursuant to Section 12(b) ofthe Act:

**NONE**

Securities registered pursuant to Section 12(g) ofthe Act:

**NONE**

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes o No x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Exchange Act. Yes o No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x No o

Indicate by check mark if disclosureof delinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of the registrant’s knowledge,in definitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K. x

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o         Accelerated filer o         Non-accelerated filer x

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). 

Yes o No x

As of June 30, 2006,the aggregate market value of the registrant’s common stock held bynon-affiliates of the registrant was $512,820 based on the closing price asreported on the National Association of Securities Dealers Over-the-CounterBulletin Board.

Thenumber of shares outstanding of each of the issuer’s classes of common stock asof the latest practicable date,

|                                            | **Class** | ** **        |   | ** ** | **Outstanding  at March 21, 2007** | ** ** |
|--------------------------------------------|-----------|-------------------|--------|------------|-----------------------------------------|------------|
| Common Stock,  $.00001 par value per share |      | 23,959,663 Shares |

 

**DOCUMENTSINCORPORATED BY REFERENCE**

The following documents (or parts thereof) areincorporated into the following parts of this Form 10-K:

(1) proxy statement for 2007 Annual Meeting ofStockholders—Part III Items 10, 11, 12, 13 and 14.

 

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**TABLEOF CONTENTS**

| **PART I**   |
|-------------------|
| Item 1.           |   | Business | 4 |
| Item 1A.          |   | Risk Factors | 17 |
| Item 1B.          |   | Unresolved Staff Comments | 28 |
| Item 2.           |   | Properties | 28 |
| Item 3.           |   | Legal Proceedings | 28 |
| Item 4.           |   | Submission of Matters to a Vote of Security Holders | 28 |
| **PART II**  |
| Item 5.           |   | Market for the Company’s Common Equity, Related  Stockholder Matters, and Issuer Purchases of Equity Securities | 29 |
| Item  6.          |   | Selected  Financial Data | 30 |
| Item 7.           |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operation | 30 |
| Item 7A.          |   | Quantitative and Qualitative Disclosures About Market  Risk | 37 |
| Item 8.           |   | Financial Statements and Supplementary Data | 38 |
| Item 9.           |   | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure | 60 |
| Item 9A.          |   | Controls and Procedures | 60 |
| Item  9B.         |   | Other  Information | 60 |
| **PART III** |
| Item 10.          |   | Directors, Executive Officers and Corporate Governance | 61 |
| Item 11.          |   | Executive Compensation | 61 |
| Item 12.          |   | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters | 61 |
| Item 13.          |   | Certain Relationships, Related Transactions, and  Director Independence | 61 |
| Item 14.          |   | Principal Accountant Fees and Services | 61 |
| **PART IV**  |
| Item 15.          |   | Exhibits and Financial Statement Schedules | 61 |
| Schedule II       |   | Valuation and Qualifying Account | 62 |
|              |   | Signatures | 65 |

 

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**CAUTIONARY LANGUAGEREGARDING FORWARD-LOOKINGSTATEMENTS AND INDUSTRY DATA**

This reportcontains “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995 that involve risks and uncertainties,many of which are beyond our control. Our actual results could differmaterially and adversely from those anticipated in such forward-lookingstatements as a result of certain factors, including those set forth in thisreport. Important factors that may cause actual results to differ fromprojections include, but are not limited to, for example:

·       adverse economicconditions;

·       inabilityto raise sufficient additional capital to operate our business;

·       unexpectedcosts, lower than expected sales and revenues, and operating deficits;

·       adverseresults of any legal proceedings;

·       inabilityto attract or retain qualified personnel, including sales and marketing, andscientific personnel; and

·       otherspecific risks that may be referred to in this report, including those under “RiskFactors.”

All statements, other than statements of historicalfacts, included in this report regarding our strategy, future operations,financial position, estimated revenue or losses, projected costs, prospects,current expectations, forecasts, and plans and objectives of management areforward-looking statements. When used in this report, the words “will,” “may,” “believe,”“anticipate,” “intend,” “estimate,” “expect,” “should,” “project,” “plan” andsimilar expressions are intended to identify forward-looking statements,although not all forward-looking statements contain such identifying words. Allforward-looking statements speak only as of the date of this report. We do notundertake any obligation to update any forward-looking statements or other informationcontained herein, except as required by federal securities laws. You should notplace undue reliance on these forward-looking statements. Although we believethat our plans, intentions and expectations reflected in or suggested by theforward-looking statements in this report are reasonable, we cannot assure youthat these plans, intentions or expectations will be achieved. We havedisclosed important factors that could cause our actual results to differmaterially from our expectations under “Risk Factors” and elsewhere in thisreport. These cautionary statements qualify all forward-looking statementsattributable to us or persons acting on our behalf.

**Information regarding market and industry statisticscontained in this report is included based on information available to us thatwe believe is accurate. It is generally based on academic and otherpublications that are not produced for purposes of securities offerings oreconomic analysis. We have not reviewed or included data from all sources, andwe cannot assure you of the accuracy or completeness of the data included inthis report. Forecasts and other forward-looking information obtained fromthese sources are subject to the same qualifications and the additionaluncertainties accompanying any estimates of future market size, revenue andmarket acceptance of products and services. We undertake no obligation toupdate forward-looking information to reflect actual results or changes inassumptions or other factors that could affect those statements. See “RiskFactors” for a more detailed discussion of uncertainties and risks that mayhave an impact on future results.**

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**PART I**

**Item 1. Business**

**General**

InfoLogix, Inc. is a Delaware corporation thatwas organized under the laws of the State of Nevada on November 22, 2004and subsequently merged with and into a corporation organized under the laws ofthe State of Delaware on November 22, 2006. InfoLogix stock is quoted onthe National Association of Securities Dealers’ Over-the-Counter Bulletin Board.On November 29, 2006, InfoLogix Systems Corporation (formed in 2001), aDelaware corporation, merged with and into a wholly owned subsidiary ofInfoLogix, Inc. As a result, InfoLogix, Inc. is a holding companyfor, and conducts substantially all of its operations through, its wholly-ownedsubsidiary InfoLogix Systems Corporation and its wholly-owned subsidiaries OPTAcquisition LLC and Embedded Technologies, LLC. On November 29, 2006,concurrent with the closing of the merger, InfoLogix, Inc. completed a privateplacement of 8,500,000 shares of common stock, which provided gross proceeds of$17,000,000. Prior to the merger, InfoLogix, Inc. conducted minimaloperations. After the merger, the business of InfoLogix Systems Corporation isnow the sole business of InfoLogix, Inc. References throughout this reportto “we”, “us”, “our”, “the Company” and “InfoLogix” are references to InfoLogix, Inc.and its wholly-owned direct and indirect subsidiaries unless otherwiseindicated.

We provide mobile workforce technology solutions tocustomers in the healthcare and enterprise sectors in North America. Ourbusiness is organized to provide consulting, business software applications,managed services, devices and other hardware products, and wirelesscommunications infrastructure. Our professional services and products includeproprietary software and radio frequency identification (RFID) technologiesthat enhance workflow and customer care using real-time information. We deliverour products and professional services to customers utilizing mobileapplications that run on handheld computers, cell phones, tablet computingdevices and mobile workstations, and that operate with existing enterprisesoftware solutions.

Mobile workforce technology solutions speed thedelivery of critical information throughout organizations allowing betterpatient care and management in hospitals, more effective customer service inretail settings, increased customer retention across all types of businesses,more efficient use of company assets and enhanced ability to identify newrevenue opportunities. The introduction of new technologies and the ubiquity ofwireless connectivity have improved the performance of enterprise mobilitysolutions by allowing organizations to collect, analyze and disseminateinformation on customers, assets, suppliers and manufacturers quickly and moreefficiently than legacy technologies. As recently introduced technologiescontinue to develop and new ones emerge, we believe companies will continue toinvest in enterprise mobility solutions, such as those offered by us. Ourenterprise mobility solutions leverage the improved information flow across theenterprise into a competitive advantage by reducing errors, identifying revenueopportunities and proactively managing and monitoring capital equipment andsupply chain functions. We believe that with our unique combination ofprofessional services and products, third-party strategic alliances,intellectual property and patent portfolio, our ability to integrate withenterprise software solutions, and our base of over 1,900 customers, we arewell positioned in the enterprise mobility solutions marketplace.

We believe the Company is well positioned tocapitalize on the growth of the mobile technology market by focusing our businessin two business units—Healthcare and Enterprise Mobility:

***Healthcare—******our*** healthcaregroup is focused on hospitals and other acute-care settings where we plan toestablish new customers and leverage our relationships with over 1,100 existingcustomers to introduce our mobile solutions designed to improve workflow andpatient care. We have sold over 40,000 mobile 

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work stations in thehealthcare market over the past four years, and have therefore established amarket leadership position.

***Enterprise Mobility***—ourenterprise mobility group is focused on delivering single source, integratedmobile workforce technology solutions to organizations in several industries.We enable suppliers, manufacturers, distributors, retailers and serviceproviders to transform their operations using our workforce automationsolutions to aggressively manage their end-to-end supply chain. We enhancejust-in-time manufacturing and production by incorporating real-timeinformation to all participants in the supply chain.

We have designed a uniqueapproach to the mobile and wireless market by combining our experience,industry and technology knowledge, and existing customer installed base thatintegrates our suite of offerings into a high-value solution. Our offeringsinclude consulting, business software applications, managed services, devicesand other hardware products, and wireless communications infrastructure. Thisstrategy allows us multiple entry points into both existing and new customerrelationships thereby creating future revenue generating opportunities for bothbusiness groups.

**Industry Overview**

We are positioned at the convergence of the growingenterprise mobility, healthcare information technology and RFID markets. Theaddressable market opportunity reflects a confluence of market dynamics. Accordingto Venture Development Corporation (VDC) research in September 2005,enterprise mobility solutions are projected to be a $21 billion market by 2008driven by rapid adoption within industries such as healthcare, manufacturing/distributionand retail for the purposes of streamlining data sharing and communication. Growthin the Hospital Information Systems (HIS) market is being driven by increasingHealth Insurance Portability and Accountability Act (HIPAA) and cost pressures.HIS market growth is estimated to grow from $52 billion today to $61 billion by2009 according to Health Industry Insights research of February 2006. Additionally,the RFID technology industry is also experiencing rapid adoption, with analystsprojecting market growth from $2 billion today to $25 billion by 2015 accordingto Gartner research of November 2005.

**EnterpriseMobility Solutions:****  **Enterprisemobility solutions provide healthcare and other commercial organizations withwireless access to a variety of digital information and resources throughhandheld and PC-based applications. In particular, these enterprise mobilitysolutions allow real-time access of information to remote employees, customers,suppliers and partners. Any business that tracks critical assets, from rentalcars to construction equipment to hospital beds, or that needs to interact withindividuals inside or outside of their organization is a potential client forenterprise mobility solutions.

**RFID:**   Radiofrequency identification technology uses radio frequency to send a signal to areceiver that accurately tracks the location of assets and individuals.Typically, this technology is housed in chips or tags that are placed onproducts that a company offers, manages or supports. By placing theseRFID-based chips or tags on products, an organization is better able todetermine the location, time of arrival or identification of a product andbetter manage its supply chain and inventory.

**Hospital InformationSystems:**   Hospital information systems are thosesystems that healthcare providers use to monitor or maintain patient records,billing, asset and inventory information, and overall facility management.

**Business Units**

We operate as two businessunits, Healthcare and Enterprise Mobility, each sharing sales, operations andadministrative support. Each business unit offers mobile workforce technologysolutions through the 

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combinationof consulting, business software applications, managed mobile services, devicesand hardware, and wireless communication infrastructure.

**Healthcare**

We are a single source, integrated healthcare mobilitysolutions provider. We have developed a portfolio of healthcare solutions thatconsist of software, professional services and hardware for point-of-care andpoint-of-activity. These mobile managed solutions enable our healthcare clientsto gain immediate access to up-to-the-minute information spanning theirenterprises. The software applications facilitate critical point-of-careintelligence for our healthcare clients, including access to real-time clinicalinformation, medication management solutions and enterprise asset and patienttracking.

Healthcare providers are under constant pressure frompatients, Medicare, insurers, regulators and other stakeholders to increase theproductivity and utilization of their mobile assets (for example, beds, IVpumps, and sonograms). This has to occur while maximizing the safety andefficacy of the care of their patients and maintaining the integrity and privacyof their medical records. These providers use disparate enterprise andapplication specific-systems in both their administrative and clinicalfunctions. To be effective, these systems must be able to interface with eachother, thereby creating integration challenges and increasing the overallcomplexity of the information technology infrastructure. Networkingtechnologies continue to evolve and grow, with local, wide-area and personalarea networks each having their advantages and disadvantages. In thisenvironment, systems engineers often find they must compromise thearchitectural integrity of the overall network to accommodate the proliferationof mobile devices requiring access to the network. Finally, in the healthcaresetting, interference with sensitive medical equipment (known as telemetry) andsecurity add another layer of complexity to the larger problems of mobilewireless computing.

From a healthcare-specific application perspective(for example, wireless prescription writing and charge capture), to more commonmessaging capabilities (for example, wireless e-mail and instant messaging), webelieve there are many possibilities for improvements to healthcare deliverythrough the use of mobile and wireless technologies. At the same time, however,the choices, complexity and integration challenges for information systemsmanagers continue to increase. Mobile devices continue to proliferate, with agrowing number of personal computing devices, enhanced phones and smart phonesentering the market. Architectural issues are an exercise in compromises.Networking technologies continue to evolve and grow, with local, wide-area andpersonal area networks each having their advantages and disadvantages. Interferencewith sensitive medical equipment and security are just two of the largerchallenges of mobile wireless computing in their environment. To meet theseneeds and address these challenges, there are a multitude of vendors, new andestablished, cross-industry and healthcare specific—all vying for a share ofthe mobile wireless healthcare market.

Mobile healthcare is the use of portable devices incombination with synchronization (i.e., either cradled or wireless) oralways-on (i.e., connected wirelessly) technology to bring computing power tothe point-of-care or wherever the healthcare professional or patient needs it.Mobile devices include enhanced phones/smart phones, personal digitalassistants (PDA), clamshell devices (i.e., pen), tablet notebooks and laptops.Wireless technology includes wireless local-area networks (WLAN), wirelesswide-area networks (WWAN) and wireless personal-area networks (WPAN). Althoughhealthcare is still in the early stages of adoption of mobile wirelesstechnology when compared to other industries and users (for example, packagedelivery companies, utilities workers, warehousing and the rental carindustry), it is already becoming clear that the rollout and management ofthese capabilities will offer significant challenges. This provides significantopportunities for consulting and directing companies’ mobile computingimplementations.

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Our point-of-care clinical solutions enable cliniciansto focus more on the important patient care tasks at hand and less ondocumentation. Access to electronic documentation at the bedside alsostreamlines the care process and assists physicians and nurses in making betterpatient care decisions. Critical patient data, such as identification andconfirmation of drug allergies and interactions, primary and secondarydiagnoses, laboratory results and vital signs, is literally at the clinician’sfingertips. Additionally, vital signs and other clinical data can be recordedelectronically through interfaces to patient monitors, further streamlining thedocumentation process. Communication between caregivers is enhanced sincepatient data is available in real-time to caregivers with access to the system.Recent technology advances mean clinicians have broader access to patientinformation.

We provide integratedproducts and professional services to the healthcare sector, includinghospitals and long term care facilities. Our integrated products andprofessional services are designed to help hospitals and clinicians reducemedical errors, improve workflow, enhance efficiency, reduce costs and build strongerpatient relationships. We believe that our products can reduce hospital errorsand thereby can reduce healthcare costs and potentially save lives. Thefollowing describes our integrated healthcare mobility solutions:

***Mobile Point-of-Care Workstations***

Our point-of-care workstations with RFID and barcodetechnologies automate the interaction between nurse and patient at bedside forcapturing clinical information as well as for administering medications andother treatments. We believe that our point-of-care applications will helpprevent inappropriate drug administration which could lead to adverse drugeffects and deaths from medication errors. We have been selling this productline since 2002, and currently have over 40,000 units deployed across the healthcaremarket. Our point-of-care product line represented over 40% of our totalrevenue in 2006.

We develop and manufacture ergonomic wireless mobilepoint-of-care solutions for the healthcare industry. Our mobile point-of-careworkstations provide the basis for hardware and software solutions that createa portal or gateway into a healthcare provider’s front-end and back-endclinical data information technology systems. The mobile point-of-careworkstation can be configured to address the full continuum of a client’smobile computing needs. Clients are provided the option to mount smallform-factor PCs, liquid crystal display flat panel monitors, laptop computers,tablet PCs, proprietary power solutions, medical-grade keyboards, bar-code datacollection devices and other mobility-enabled equipment, on our mobilepoint-of-care workstations. As a result, nurses, doctors, specialists and otherclinicians can gain ready access to HIPAA compliant, up-to-the-minute patientdata at the point-of-care.

Our mobile point-of-careworkstation models include:

·       ***Medication Mobile Point-of-Care Workstation***. The medication mobile point-of-careworkstation is a mobile technology platform that optimizes hospital medicationadministration. This automated point-of-care medication administration system,which features eight medication drawers, is designed to reduce medicationerrors and associated complications. Nurses scan the bar-coded medication toconfirm the right dose of medication and the patient’s bar-coded wristband to ensurethat the correct patient is receiving the appropriate dose of medication at theright time. The medication mobile point-of-care workstations operate inconjunction with a hospital pharmacy’s information technology systems.

·       ***Dual Monitor Picture Archival and Communications System (PACS) DisplayMobile Point-of-Care Workstation***. The Dual Monitor PACS mobile point-of-care workstation isdesigned to eliminate the cost and disruption of remodeling an operating roomwhen deploying PACS workstations. The mobile point-of-care workstation allowsfor liquid crystal display monitors to be mounted side-by-side on a mobileplatform.

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***Software***

Wehave dedicated significant resources and capital to developing, acquiring andpartnering with leading software firms to deliver a full range of healthcaresoftware applications, including patient bed management, hospital assettracking, e-Learning and computer security. These software applications are designedto facilitate and fully integrate point-of-care mobility solutions for ourcustomers. Our proprietary software applications include the following:

·       ***HealthTrax Wireless Tracking Software***. HealthTrax Wireless Trackingsoftware is designed to help hospitals identify the location of hospital assetsand patients. The HealthTrax solution includes RFID tags that are compatiblewith all hospital wireless network infrastructures and provide real-time assetand patient monitoring information leading to increased productivity andpatient safety. We developed the HealthTrax solution by integrating MobileView’slocation engine software with our own proprietary software. HealthTrax isintended to aid hospital administrators by:

·       improvingclinical workflow by ensuring the right people and equipment are in the rightlocation on a timely basis;

·       minimizingtheft or loss of expensive assets through timely tracking;

·       avoidingcostly “quick fixes,” such as leasing or buying additional equipment;

·       establishingchoke-points that trigger automatic alerts when equipment is moved somewhere thatit does not belong; and

·       ensuringstaff can pinpoint the location of any patient requiring immediate medicationor medical attention.

·       ***BedCentral Software***. Effectivehospital bed management is key to serving patients, reducing administrativecosts, increasing patient flow efficiency and increasing hospital revenue.Without reliable, real-time information regarding bed status, hospitals canencounter an array of problems that result in underutilized resources, patientinconvenience and a significant loss of revenue. Our BedCentral application isan interactive patient bed management software system that assists hospitals tomonitor bed status and improve communications thereby increasing bedavailability and decrease patient wait times. BedCentral provides more thanthirty customizable productivity and efficiency reports for improvedinformation analysis designed to (i) schedule, reserve or request patientbed assignments, (ii) assign and transfer patients, (iii) reduce oreliminate dependency on telephone calls to communicate patient and bedrequirements, (iv) reduce/eliminate paper processes and (v) provideclinicians with accurate and on-demand reports and automatic alerts viahand-held devices. The purpose of BedCentral is to help hospitals:

·       obtaina holistic, up-to-the-minute view of hospital bed status to help reduceadministrative costs and increase revenue through more effective and proactivebed management;

·       gainfaster access to reliable data needed to identify and resolve potentialproblems in a timely manner while preventing duplicate data;

·       placeclinical staff where they are needed most by having an accurate assessment ofavailable hospital beds;

·       bettermanage patient traffic, thereby increasing patient satisfaction and admissionsthrough more efficient management; and

·       reducefood waste using a dietary module that prevents dispatch of meals to emptybeds.

BedCentral was developedbeginning in 2006 for deployment throughout a major Houston, Texas-basedhospital system and is now pilot testing in two additional hospital systems.

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***e-Learning***

We offer e-Learningsolutions through an extensive library of interactive and dynamic coursesregarding HIPAA and other regulatory issues, and modules customized for aclient’s specific processes and procedures. In addition to healthcare training,we provide customized on-location training for our enterprise mobile customers.Whether used for an organization-wide implementation of a new technology or adepartment-wide procedural review, we believe that our e-Learning solutionsaddress numerous challenges faced by healthcare providers and commercial users,including:

·       complexlogistics of training a large number of people effectively on a stricttimetable;

·       minimizingtraining time spent by staff which results in more time available for patientand customer interaction;

·       developing,supporting and retaining a knowledgeable and skilled staff;

·       providingtrainees with diverse levels of education, styles of learning and familiaritywith technology;

·       deliveringa consistent, unified training message, communicating standard procedures andpolicies; and

·       educatingemployees hired after training events.

Unlike traditionalclassroom training, our e-Learning solutions enable standardized and customizedtraining solutions to be efficiently delivered to large numbers of employeesboth on their schedules and directly at the point-of-access, typically by ourmobile point-of-activity or mobile point-of-care workstations. Training methodsinclude interactive tutorials, on-line knowledge assessments, wide area classroommethods and instruction services. Delivery options include media such as video,CD-ROM, video conferencing, web delivery, internet, audio-desktop conferences,paper-based materials, and stand-up instruction.

Training modules developedand implemented to date include HIPAA privacy and security training, clinicalapplication training templates (Siemens AG Medication Administration Checkertraining, McKesson Corporation’s Horizon Expert Documentation clinicaldocumentation training and Medical Information Technology, Inc.’s nursingtraining) and an assessment and certification module, designed to test,certify, provide feedback, and report on clinical courseware retention. We haveseveral other e-Learning software modules currently under development.

***HealthcareFinancing Practices***

We occasionally dependupon our senior lender to issue letters of credit to the benefit of oursuppliers and vendors in order to reduce the credit risk that such suppliersand vendors may incur as a result of large purchase orders we may place fromtime to time. Our senior lender charges us approximately .375% for each 90 dayperiod of the face value of a documentary letter of credit and 2.875% per annumof the face value of a standby letter of credit. The letters of credit areterminated upon the payment in full of the supplier or vendor invoice. We usethis form of credit enhancement on the resale of mobile and wireless hardwareand related equipment.

**Enterprise Mobility**

We are a single source,integrated enterprise mobility solutions provider to commercial enterprisesacross several industries. Our supply chain solutions enable suppliers,manufacturers, distributors, retailers and service providers to transform theiroperations using mobile computing solutions by having the tools to aggressivelymanage their end-to-end supply chain. We are enhancing just-in-timemanufacturing and production by incorporating real-time information to allparticipants in the supply chain.

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While the commercial market is further along than thehealthcare market in its adoption of mobile enterprise solutions it is still agrowing market. Nevertheless, our commercial customers continue to search forways to further optimize supply chain management requirements. Mobile computingsolutions positively impact companies by reducing costs in their procurementfunctions and in inventory management. Logistics organizations/departments areexpected to see continued pressures to reduce inventories as well as warehouseand transportation costs. We believe the application of technology will furtherreduce costs in three major areas: network optimization, selected outsourcingand enhanced supplier integration. These improvements will drive the trendtowards lean, mostly external logistics functions utilizing efficient,optimized networks, supported by technology which enables “virtual inventories”that blur the line between customer-owned and supplier-owned materials.

The use of mobiletechnology to quickly move and track products helps our customers save time,increase productivity, and enhance the flow of information between ourcustomers’ handheld devices at the point of transaction and their core businesssystems. We design our enterprise mobility solutions so that our customers canrespond quickly to their customers’ demands, increase inventory turns, improveline-level accuracy and simplify compliance with regulatory requirements, aswell as easily share supply information with customers and vendors. Our enterprisemobility solutions offer advanced data capture, mobile computing, wirelesslocal area networks, route delivery and management software with the intent tospeed the transfer of data and optimize the complete corporate operations ofour customers. This leads to faster and improved decision making. In additionto our mobile point-of-activity and mobile point-of-care workstations,wall-desks, mobile point-of-sale devices and vehicle-mounted workstations, weintegrate a broad portfolio of point-of-activity hardware products designed foruse in the commercial market, including laptops and tablet PCs, bar-code datacollection devices, computer keyboards, form-factor PCs, handheld devices,proprietary power solutions, wearable computers and wireless infrastructuredevices.

***Functional Applications***

Our commercialsolutions address critical functional applications including:

·       ***Distribution***.   Distributionlogistics relies on analyzing real-time information as it relates to productquantities, product movement and location throughout the supply chain. Examplesof distribution enterprise mobility solutions provided by us include wirelesshandheld computers used to scan products upon warehouse arrival and exit andwearable PCs used to permit warehouse operators to perform a multitude of tasks(such as physical inventory counts) in a hands-free environment.

·       ***Manufacturing***.   Manufacturinglogistics relies on accessing up-to-the-minute information as it relates tomaterials and parts inventory pipelines to enable just-in-time manufacturingprocesses. An example of an enterprise manufacturing solution includes mobile,rugged, computing solutions used to capture information on the warehouse floorand integrate that information into databases via wireless connectivitydevices, thus facilitating improved financial management, inventory control andtracking of customer orders.

·       ***Retail***.   Retail applicationsrely on accessing information at the point-of-sale and ensuring automaticreplenishment of inventories. In addition, enterprise mobility solutions areused by retail clients to accurately produce and capture shelf labels forin-store marketing and plannograms. Examples of retail enterprise mobilitysolutions include wireless point-of-sale devices used by client customers tosecurely complete financial transactions at a single location via a credit ordebit card and bar-code scanning devices used to enable client employees toquickly and efficiently perform physical inventories.

·       ***Transportationand Field Services***.   Transportation and field serviceslogistics rely on effectively planning, scheduling and managing goods accordingto pre-determined delivery expectations. Examples of transportation and fieldservices enterprise mobility solutions include vehicle-mounted 

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systems used tocapture and transmit real-time information on driver performance, routes takenand hours worked and handheld computers to allow client employees to receivepick-up and delivery schedules at the beginning and throughout a work shift.

***Automation of Commercial Processes***

Our integrated commercial mobility solutions allow ourcustomers to automate many of the essential steps in their manufacturing,production, delivery and other processes that are critical to the success oftheir businesses.

We believe that we combine the latest informationtechnology with extensive knowledge of warehousing, manufacturing, distributionand field-based operations. We also have vertical market specialists in areasincluding automotive, healthcare, retail and government. This industry specificexpertise ensures the best solution for each customer’s business. Our customersinclude Fortune 500 companies, including Kraft, Dell, UPS, McDonalds, Subaru,Barnes & Noble, and National Rental Car, as well as, small to medium-sizedmanufacturing, service and distribution companies.

We believe that we providethe experience, expertise and resources to maximize productivity, efficiencyand accuracy from off-the-shelf bar code data collection products to completeturnkey solutions including software, hardware, project management, training,installation, testing, documentation and support.

***Products and Services***

·       ***RouteDelivery System***.   Our route delivery system is a completemobile route delivery and transportation software solution which allows ourcustomers to mobilize their delivery workforce. It incorporates optimizedscheduling, route building, picking, loading and route delivery processes toclose the loop on inventory management and control. This can be delivered as anentire solution, or implemented in modules. It integrates functions such asmobile GPS/Mapping and signature capture for proof of delivery. It also allowsour customers’ drivers to transmit and receive data on the road and therebyprovide their customers with accurate deliveries and correct, timelyinformation on out-of-stock or promotional items while maintaining accurateon-truck inventory.

The real-timecapabilities in our route delivery system ensure that key stakeholders of ourcustomers have visibility into inventory and order information. Furthermore,optimized inventory processes ensure accurate customer orders are delivered ontime. These inventory and order efficiencies drive cost containment and costreduction throughout the supply chain by reducing and, in some cases,eliminating redundancies, unnecessary routes, picking and loading inaccuracies,shrinkage and driver mistakes.

Real-timevisibility of enterprise information is necessary for gaining and maintainingoperating efficiencies, and is another reason organizations are looking towireless mobile technologies. Our route delivery system is web-enabled,which allows for the real-time flow of information from drivers and trucks tothe back office. This enhanced visibility provides decision makers access tocritical enterprise and supply chain data, including order pick lists,schedules, truck routes, delivery status and discrepancies.

·       ***RFID Solutions for Vehicle Tracking and FleetManagement***.   Our RFID vehicle tracking solution is intendedto assist companies in managing their distribution process. We believe thatthese solutions are particularly useful in the construction and transportationindustries to help our customers track vehicle movement through various pickupor loading locations. The system collects information on the truck, projectassignment, and weight for each load by RFID tag readers throughout plantlocations. Utilizing an RFID vehicle tracking solution, it is possible for ourcustomers to replace 

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manual reporting ofdeparture and arrival times, weight, and other data gathered at the destinationor site locations with automation. Similarly, our RFID solutions allow fleetmanagers to monitor and track their vehicles, which should provide thefollowing benefits:

·        increasedproductivity and reduced costs;

·        improvedasset utilization and management by real-time equipment availability andshipment arrival information;

·        increasedcustomer satisfaction;

·        fastervehicle entry, exit and authorization for fueling or maintenance; and

·        increasedsecurity via continuous, automatic monitoring and tracking.

·       ***RFID Solutions for Warehousing Logistics***.   Theuse of RFID solutions in warehousing logistics impacts everyone working formanufacturing companies, from the forklift operator to the head of logistics.We believe that it improves warehouse and distribution center efficiency, savestime in deliveries, increases productivity and reduces human error. We alsobelieve that it allows for cost savings in out-of-stock supply chainreductions, helps to prevent counterfeit issues and theft, and assistscompanies in obtaining key information on customers and their activities. Thecombination of RFID hardware with a unique electronic product code transformsthe supply chain and enables manufacturers to associate specific informationwith each RFID tagged object.

·       ***Supply Chain and Logistics Products***.   Expertisein systems architecture and infrastructure are still vital elements inselecting new applications and vendors, especially for complex supply-chainsystems solutions. Organizations demand that the implementation of new softwarewill not disrupt production or shipping. We provide complete packages of mobilewireless solutions to facilitate supply chain management. We offer a widevariety of barcode readers ranging from simple keyboard wedge bar code scannersto advanced radio frequency terminals. Our core business focuses on helpingclients to optimize their accessibility to information through wireless mobilecomputing technology. We believe that the benefits from our supply chain andlogistics products are:

·        higherproductivity with real-time inventory visibility across the supply chain;

·        improvedfill rates and decreased overall logistics costs;

·        reducedorder cycle times with collaboration support with suppliers;

·        reducedlabor costs by eliminating inefficient inventory movements;

·        improvedefficiencies with paperless execution of supply chain processes;

·        improvedthroughput and use of facility space;

·        reducedadministrative and data entry costs with automated data acquisition;

·        improvedpicking and put-away productivity;

·        reducedinventory carrying and holding costs; and

·        improvedcustomer service by eliminating picking and shipping errors.

·       ***Services for Retailers***.   Weprovide mobile point-of-sale systems, retail inventory management systems,solutions and technology. Wireless data collection solutions link our customers’enterprise resource planning systems to their retail floors using advancedautomated barcode and RFID wireless data capture terminals and printers thusproviding enhanced inventory management.

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We work with someof the world’s largest retailers across a wide application set spanning fromthe loading dock to the retail floor. With operations and facilities acrossNorth America and Europe, these clients have the resources needed to deploy amulti-site, multi-national solution. We also have experience within the retailinventory management environment, working with a diverse group of retailcustomers including mass merchandisers, department stores, specialty goods, andothers. Our retail application suite includes mobile point-of-sale, stockauditing, inventory management, proof of delivery, and supply chain management.

·       ***Mobile Point-of-Activity Workstations***.   Ourmobile point-of-activity workstations are designed to deliver productivitygains from efficient employee interaction, improved data collection accuracyand dissemination, and increased client employee and client customersatisfaction. Our mobile point-of-activity workstations are constructed ofdurable materials to withstand occupational abuses. The mobilepoint-of-activity workstations feature small, sturdy bases, secure wheels anddurable handles to provide smooth operation and a spacious desk-top work area. Theworkstations are highly versatile, supporting unique combinations of laptopsand tablet personal computers, proprietary power solutions, bar-code datacollection devices and other peripheral hardware solutions. Our mobilepoint-of-activity workstations typically include mounted printer technologies.

·       ***Mobile Point-of-Sale Devices***.   OurMPT400 is a point-of-sale solution that offers retail and field service clientsa complete wireless transaction platform in a mobile hand-held device. TheMPT400 is specifically designed for clients employing a mobile workforce whoneed to manage inventory, conduct surveys, track assets and collect payments.Offering technologically-advanced feature sets, the MPT400 delivers integratedradio systems, as well as a built-in one-dimensional or two-dimensionalbar-code data collection device, a thermal printer, a magstripe reader,directional/numeric keypad and a color touch screen.

·       ***Vehicle-mounted Workstations***.   Vehicle-mountedcomputers are designed for use in the most rugged environments where they aremounted to warehouse and manufacturing equipment and vehicles (such asforklifts).

·       ***Otherproducts.  ***Our mobility solutions for commercialenterprises also include bar-code data collection devices, form-factor PCs,secure wireless networks, handheld devices, tablet PCs, mobile wirelessbar-code and label printers, vehicle-mounted computers, wearable computers,wireless connectivity and interconnectivity devices, and proprietary powersolutions.

***Commercial Financing Practices***

Only our healthcarebusiness requires us to depend on our senior secured asset-based line of creditand cash balances to fund the sales and related costs associated with ouroperations. We generally do not depend on third-party credit enhancementprograms in this business unit.

**Sales and Marketing**

We employ direct and indirect selling models. Thesales organization is primarily geographically based across our Healthcare andEnterprise Mobility Solutions businesses. We currently employ 20 direct salesrepresentatives located in the United States. Our sales organization managesour customers and prospects using a variety of methodologies and informationtechnology-based tools. We have created a proprietary sales force automationsystem that helps our management and sales/marketing representatives manage thesales process efficiently, while providing direct integration into their emailcommunication system.

We sell and market ourtechnology solutions through a network of strategic alliances. To date, we havepartnered with over twenty leading third-party providers including Cisco, Dell,Intermec, Alien and Zebra Technologies. These relationships are synergistic: werefer business to partners from our existing 

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customersand, in exchange, we receive preferential pricing and referrals from thesepartners. We market our products, solutions, and professional services througha variety of methods including: direct selling, inside sales, industry tradeshows and professional conferences, public relations and targeted marketingcampaigns, our corporate website (www.InfoLogixsys.com), search engineoptimization and marketing, and channel partner programs.

**Patents andProprietary Technology**

We file patent applications to protect technology,innovations and improvements that we consider important to the development ofour business. Throughout our history, we have proactively invested in andacquired intellectual property assets. We continue to partner and invest todevelop, capture and deliver unique, high-quality, differentiated andcost-effective mobile workforce technology solutions for our customers. We have14 issued patents in the U.S. related to wearable computers, and 5 patentapplications pending with the U.S. Patent and Trademark Office related to aproprietary power solution specifically designed for mobile workstations, asystem and method for live interactive distance learning, and related mobilewireless computer systems. The patents for which we have received a finalissuance have remaining legal lives that vary from 5 to 11 years.

We also rely on trade secrets and proprietary know-howthat we seek to protect, in part, through confidentiality agreements with ouremployees, consultants, customers, business partners, and other third parties.As a condition of employment, we require that all full-time and part-timeemployees enter into an inventor assignment and non-disclosure agreement.

We intend to continue to broaden the scope of ourintellectual property portfolio, which we consider critical to our futureproduct development.

If we are unable toprotect our patents and proprietary rights, our reputation and competitivenessin the marketplace could be materially damaged. Litigation may therefore benecessary in order to enforce any patents that we now hold, that are issued tous, or that we acquire in the future.

**Customers**

We have deliveredenterprise mobility solutions to over 1,900 customers in North America. Thefollowing are examples of the enterprise mobility solutions that we havedelivered in the healthcare and commercial markets:

·       ***Regional 650-bed hospital***.   Ourhealthcare solutions group designed and implemented a complete wirelessmobility solution for the hospital to capture patient-level clinicalinformation and support medication administration at the point of care. Thewireless solution has now expanded our opportunity to address other mobileapplications such as HealthTrax Wireless Tracking, Computerized Physician OrderEntry using handheld PDA’s and Mobile Voice over IP Phones. All of the mobilesolutions were deployed using our e-Learning education technologies.

·       ***A Fortune 1000 company that is one of the leadingcar rental firms with over 800 locations in the United States and Canada***.   Ourcommercial solutions group designed and implemented wireless and mobile carreturn and counter system. We have installed 450 corporate rental locations forreturns utilizing wireless and handheld devices managing approximately 165,000vehicles nationwide. We are now deploying our proprietary point of sale countersystem for check in and reservation services. We have been contracted toprovide Mobile Managed Support Services for each location, which include oure-Learning, installation, and customer care portal for asset tracking andmanagement.

As a percentage of totalrevenue, our five largest customers accounted for, in the aggregate,approximately 28%, 42% and 28% of our revenue for the fiscal years ended December 31,2006, 2005 and 

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2004,respectively. For the year ended December 31, 2006, one customerrepresented 13% of our revenue. In the year ended December 31, 2005, 25%of our revenue was generated from two customers. In the year ended December 31,2004, one customer represented 12% of our revenue. Management does not believethat the loss of any single customer will have a material adverse effect on ourbusiness or results of operations.

**Competition**

We operate in a fragmented marketplace, competing witha variety of participants in the wireless mobility market including companiesthat design systems, provide hardware and software applications, integratesoftware and hardware applications, provide consulting services and offermanagement and maintenance services. Our primary competition comes fromregional and local firms that are similar to us in terms of revenue and numbersof employees.

We sell and support mobile point-of-care workstationswith over 40,000 of our units currently in use in the U.S. healthcare market. Inthis business, we compete with a variety of companies, including furniture andfixture distributors and several nationally known mobile cart manufacturers anddistributors. The larger competitors include Stinger Medical (in business forten years and the first company to provide mobile carts to the healthcareindustry), Flo (the holder of several patents on mobile computing), Ergotron,Rubbermaid, NAware, Lionville, Howard Computer, Artomick and Enovate IT.

In the healthcare market, we also compete with devicemanufacturers, service providers and software platform companies that offerunique, specialty use products. For example, Palm and Dictaphone compete formarket share in the sales of devices to physicians and other providers,Microsoft and Intel are positioning for wireless IP platform adoption, whilecompanies like MedQuist and Scribe vie for customers of specialty use softwareapplications and services. While we maintain our focus on enterprise mobilitysolutions, we will encounter these companies in the marketplace selling againstus for a portion of the work-flow and voice-over-IP solution sets.

We encounter the very large consulting firms such asIBM Global Services, Accenture, Deloitte Consulting, EDS, CSC, FirstConsulting, and Affiliated Computer Services in both our commercial andhealthcare groups. Many of these national and international consulting firmsfocus on design and architecture of wireless networks, and work-flow or processimprovement. We believe there are also many small, local and regionalconsulting firms offering services similar to the larger firms, as well assite-surveys, infrastructure support and information technology outsourcing.Each of these participants will continue to compete with us for our coreservices around enterprise mobility solutions and mobile managed services.

We compete with handheld mobile computer productscompanies in our supply-chain solutions business, including Symbol/Motorola,Intermec, LXE and other makers of tablet computers such as Dell, HP, Sony andFujitsu. Symbol/Motorola  is a globalleader in mobile data management systems and services with innovative customersolutions based on wireless local area networking for voice and data,application-specific mobile computing and bar-code data capture.

We also compete with a smaller group of companies thatare more solutions oriented, but that are clearly in the sectors in which weoperate including healthcare, transportation, manufacturing, distribution andretail. These companies include Wavelink Corporation, Ennovative, Inc.,and OAT (a recognized RFID framework provider). This group of companiescompetes for business that delivers software and solutions to empowerbusinesses to achieve competitive advantage from the use of RFID. Solution setsinclude data and content management, materials management, e-commerce,e-Learning, custom application and web interface development, andinfrastructure management.

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In addition to the foregoing, there are hundreds offirms that operate in a variety of vertical-specific or technology-centricgroupings. Due to the increasing level of market activity related to these twogeneral areas, an increasing number of companies are claiming capabilities.

When evaluating ourcompetitive landscape, we consider:

·       Thelarge number of RFID and mobile wireless hardware solution providers. Manyfirms attempt to differentiate their services by promoting “solution”integration capabilities. The larger enterprises understand the value addelements of software integration (either proprietary or 3rd party integration)as well as service capabilities to integrate and manage.

·       Agrowing number of private companies are establishing meaningful market presenceby leveraging software integration and solution management capabilities.

·       Cross industry penetrationseems to be a constant theme for many companies; however, industryspecialization is viewed as an important differentiator.

**Product Development**

To ensure our ability toidentify and develop new technologies and applications for our mobile workforcetechnology solution platforms, we have organized a software and technologyengineering group to provide identification, design, programming, testing,quality assurance and implementation support. We have experienced managers andengineering staff that provide the necessary expertise required to position usfor future growth in our business.

**Manufacturing**

We engage contractmanufacturers to produce our mobile point-of-care and point-of-activityworkstations. We currently do not have a long-term contract with the companyproviding us with the majority of these products. Most of the manufacturedproducts are shipped directly from the manufacturing facility to our customersite. Our employees provide on-site customized assembly and installation, uponrequest of our customers.

**Employees**

As of December 31, 2006, we had 81 employees ofwhich 24 were in sales and marketing, 26 were in software engineering, qualityassurance, and field services, 17 were in operations and customer support, and14 were in finance, executive and administrative capacities. We are not subjectto any collective bargaining agreements, and we believe that our relationshipwith our employees is good.

In addition to full-timeemployees, we utilize the services of various independent contractors,primarily for certain product development and foreign sales, marketing andadministrative activity.

**AvailableInformation**

All periodic and current reports, registrationstatements, and other filings that we are required to file with the Securitiesand Exchange Commission (SEC), including our annual report on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K,and amendments to those reports filed or furnished pursuant to Section 13(a) or15(d) of the Securities  ExchangeAct of 1934, as amended, are available free of charge from the SEC’s website(http://www.sec.gov) or public reference room at 450 Fifth Street N.W.,Washington, DC 20549 (1-800-SEC-0330) or through our websiteat http://www.infologixsys.com. Such documents are available as soon asreasonably practicable after electronic filing of the material with the SEC.Copies of these reports (excluding exhibits) may also be obtained free ofcharge, upon written 

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request to:  Investor Relations, InfoLogix, Inc., 101E. County Line Road, Suite 210, Hatboro, Pennsylvania, 19040.

Our website address is included in this report forinformation purposes only. Our website and the information contained therein orconnected thereto are not incorporated into this Annual Report on Form 10-K.

The following corporategovernance documents are available free of charge on the Company’s website: thecharters of our Audit, Compensation and Nominating and Corporate GovernanceCommittees, our Statement on Corporate Governance and our Code of Conduct.Copies of these corporate governance documents also may be obtained by anyshareholder, free of charge, upon written request to: Corporate Secretary, InfoLogix, Inc.,101 E. County Line Road, Suite 210, Hatboro, Pennsylvania, 19040. We alsowill post on our website any amendments to or waivers of our Code of Conductthat relate to our directors and executive officers.

**Item 1A. RiskFactors**

*An investment in our common stock involves a number ofrisks. Before deciding to invest in us or to maintain or increase yourinvestment, you should carefully consider the risks described below, inaddition to the other information contained in this report and other reports wehave filed with the Securities and Exchange Commission. The risks anduncertainties described below are not the only ones facing our Company.Additional risks and uncertainties not presently known to us or that wecurrently deem immaterial may also affect our business operations. If any ofthese risks are realized, our business, financial condition or results ofoperations could be seriously harmed. In that event, the market price for ourcommon stock could decline and you may lose all or part of your investment.*

**Risks Relating toour Business and Industry**

***We are anearly-stage company with a limited operating history, which limits theinformation available to you to evaluate our business.***

InfoLogix Systems Corporation was formed in 2001. Thereis limited operating and financial information to evaluate our historicalperformance and our future prospects. We face the risks and difficulties of anearly-stage company including the uncertainties of competition, cost increasesand delays in achieving business objectives. There can be no assurance that wewill succeed in addressing any or all of these risks or that our efforts willgenerate significant revenue or achieve future profitability. The failure to doso would have an adverse effect on our business, financial condition andoperating results.

***We have incurredlosses in the past and our ability to operate profitability in the future isuncertain.***

For the year ended December 31, 2006 we generatedrevenues of $60.8 million and incurred net losses of $1.9 million. We haveincurred net losses in two out of the last five fiscal years and we may incuradditional losses in the future. Even if we achieve profitability, we may notbe able to sustain or increase profitability on a quarterly or annual basis. Ifour business and revenues grow more slowly than we anticipate, our operatingexpenses exceed our expectations, we are unable to sell our products andservices at acceptable prices relative to our costs, or if we fail to developand introduce on a timely basis new products and services from which we canderive additional revenues, our financial results will suffer.

***We may needadditional financing to fund our operations and finance our growth, but we maybe unable to obtain financing on terms acceptable to us.***

Although we believe that the net proceeds from ourrecently conducted private placement, our credit facilities and our anticipatedcash flows from operations will be sufficient to meet our operating and capitalrequirements for at least the next 12 months, we may be required to raiseadditional capital through either equity or debt financing to fund ouroperations and to implement our current or future strategies including 

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strategic acquisitions. Factorsthat could increase our need to seek additional financing include decreaseddemand and market acceptance for our products, the inability to successfullydevelop our next-generation products, competitive pressures resulting in lowerpricing, acquisition opportunities, and new product offerings by our competitors.In addition, when our existing credit facilities expire, we may need to obtainreplacement debt financing. There can be no assurance that additional orreplacement debt financing will be available to us on commercially reasonableterms or at all. If we incur additional debt, our interest expense wouldincrease. If we raise capital through the sale of equity securities, thepercentage ownership of our existing stockholders would be diluted. Inaddition, any new equity securities may have rights, preferences or privilegessenior to those of our common stock. If we are unable to obtain additional orreplacement financing, our ability to fund our operations and meet our plansfor expansion would be adversely affected.

***Our sales andprofitability may be affected by changes in economic, business or industryconditions.***

If the economic climate in the U.S. or abroaddeteriorates, customers or potential customers could reduce or delay theirtechnology investments. Reduced or delayed technology investments could decreaseour sales and profitability. In this environment, our customers may experiencefinancial difficulty, cease operations and fail to budget or reduce budgets forthe purchase of our products and professional services. This may lead to longersales cycles, delays in purchase decisions, payment and collection, and mayalso result in downward price pressures, causing our sales and profitability todecline. In addition, general economic uncertainty and general declines incapital spending in the information technology sector make it difficult topredict changes in the purchasing requirements of our customers and the marketswe serve. There are many other factors which could affect our business,including:

·       theintroduction and market acceptance of new technologies, products and services;

·       newcompetitors and new forms of competition;

·       thesize and timing of customer orders;

·       thesize and timing of capital expenditures by our customers;

·       adversechanges in the credit quality of our customers and suppliers;

·       changesin the pricing policies of, or the introduction of, new products and servicesby us or our competitors;

·       changesin the terms of our contracts with our customers or suppliers;

·       theavailability of products from our suppliers; and

·       variationsin product costs and the mix of products sold.

These trends and factors could adversely affect ourbusiness, profitability and financial condition and diminish our ability toachieve our strategic objectives.

***Increasing ourprofitability is necessary to achieve our strategic objectives.***

The industries in which our Healthcare and EnterpriseMobility businesses compete are highly competitive. To meet our growthobjectives, we believe that we need to add and increasingly emphasizehigher-value, proprietary solutions, including software applications andprofessional services.

There can be no assurance that we will effectivelydeploy our initiatives or be successful in obtaining customer acceptance of ourcurrent and anticipated higher margin products or developing new products andsolutions with higher margins, and if we do not, we would not meet ourstrategic objectives. Also, if the RFID market or other markets in which we areinvesting do not grow, we may be unable to achieve the projected margins forthese products and solutions.

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In addition, the implementation of our strategicinitiatives to improve profitability may have the unintended effect ofstraining our operations, increasing operating expenses, and adverselyaffecting our profitability. The difficulties associated with implementingthese initiatives may place a significant burden on our management and ouroperational and financial resources. If we fail to successfully implement theseinitiatives or encounter unexpected difficulties during the implementation, ourbusiness could be harmed.

***We have limitedexperience in acquiring other businesses and cannot assure you that we will beable to successfully integrate any businesses, products, technologies orpersonnel that we might acquire in the future.***

We may, from time to time, consider investments incomplementary companies, products or technologies. In the event of any futureacquisitions, we could:

·       issuestock that would dilute our current stockholders’ percentage ownership;

·       incurdebt;

·       assumeliabilities of the acquired business;

·       incurexpenses related to the impairment of goodwill; or

·       incurlarge and immediate write-offs.

Our operation ofany acquired business will also involve numerous risks, including:

·       problemscombining the acquired operations, technologies or products;

·       unanticipatedcosts;

·       diversionof management’s time and attention from our core business;

·       adverseeffects on existing business relationships with suppliers and customers;

·       risksassociated with entering markets in which we have no or limited priorexperience; and

·       potentialloss of key employees, particularly those of acquired companies.

We have previously acquired the business and assets ofother companies, but we cannot assure you that we will be able to successfullyintegrate any businesses, products, technologies or personnel that we mightacquire in the future. Any failure to do so could have a material adverseeffect on our financial condition and results of operations.

***We are dependent onour key industry relationships.***

We maintain important relationships with hardware andsoftware technology leaders, including AeroScout, Dell, Fujitsu, FuturaServices, Intermec, JACO, Medical Information Technology, Oracle, Power Up,Siemens and Symbol/Motorola. These strategic relationships are more than atraditional supplier relationship and represent an important lead referralservice and sales channel for us.

If our partners do not perform adequately, we couldexperience delays in the development of our products, which could adverselyimpact our business.

There can be no assurance that we will continue to besuccessful in maintaining our relationships with our partners or that we couldfind adequate replacements. The loss of any of our partners could result in thetemporary or permanent cessation of a group of products or solutions and resultin the loss of a portion of our existing or anticipated customer base.

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***Wedepend on third-party component suppliers and contract manufacturers tomanufacture our products. If these third parties experience any delay,disruption or quality control problems in their operations, or ceasemanufacturing our products, we could lose market share and revenues, and ourreputation may be harmed.***

A substantial portion of our products are manufactured,assembled, tested and packaged by contract manufacturers. We rely on severalcomponent suppliers and contract manufacturers to procure components and, insome cases, subcontract engineering work. Some of our products are manufacturedby a single contract manufacturer and if we were to lose the services of thismanufacturer, finding a suitable replacement could prove particularly difficult.We do not have any long-term contracts with any of these third party componentsuppliers and contract manufacturers. Product pricing is generally negotiatedon an order-by-order basis. If our component suppliers and contractmanufacturers encounter financial or other business difficulties, if theirstrategic objectives change, or if they perceive us to no longer be anattractive customer, they may cease to manufacture our products and ourbusiness could be harmed.

The loss of the services of any of our primarycontract manufacturers or a material change in terms could cause a significantdisruption in operations and delays in product shipments and adversely impactcash flow. Qualifying a new contract manufacturer and commencing volumeproduction is expensive and time consuming.

Our reliance onthird-party component suppliers and contract manufacturers also exposes us tothe following risks over which we have limited control:

·       inabilityto procure key required components for our finished products to meet ourcustomer’s demand;

·       unexpectedincreases in manufacturing and repair costs;

·       unexpectedreductions in payment terms;

·       interruptionsin shipments if one of our manufacturers is unable to complete production;

·       inabilityto control the quality of finished products;

·       inabilityto control delivery schedules;

·       inabilityto obtain favorable pricing;

·       unpredictabilityof manufacturing yields; and

·       potentiallack of adequate capacity to manufacture all or a part of the products werequire.

***If we are unable toprovide our third-party component suppliers and contract manufacturers with anaccurate forecast of our component and material requirements, we may experiencedelays in the manufacturing of our products and the costs of our products mayincrease.***

We provide our third-party component suppliers andcontract manufacturers with forecasts of our demand that they use to determinetheir material and component requirements. Lead times for ordering materialsand components vary significantly and depend on various factors, such as thespecific supplier, contract terms and demand and supply for a component at agiven time. Some of our components require substantial lead times. If ourforecasts are less than our actual requirements, our contract manufacturers maybe unable to manufacture enough products in a timely manner. If our forecastsare too high, our component suppliers and contract manufacturers may be unableto use the components they have purchased. Therefore, our cost of producingproducts may be higher than that of our competitors, due to an over-supply ofhigher-priced components. Moreover, if they are unable to use certaincomponents, we may be required to reimburse them for any losses they incur.

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***In manycircumstances, we rely upon third parties for technology that is critical toour products, and if we are unable to continue to license this technology andfuture technology our ability to offer competitive products could be harmed andour costs of production could increase.***

In many circumstances, we obtain non-exclusivesoftware license rights to technologies from third parties that areincorporated into and necessary for the operation and functionality of ourproducts. Because the intellectual property we license is available from thirdparties, barriers to entry for our competitors may be lower than if we ownedexclusive rights to the technology we license and use. On the other hand, if acompetitor enters into an exclusive arrangement with any of our third-partytechnology providers, our ability to develop and sell products containing thattechnology could be severely limited. Our licenses often require royalty paymentsor other consideration to third parties. Our success will depend in part on ourcontinued ability to have access to these technologies on commerciallyreasonable terms. If we are unable to license the necessary technology, we maybe forced to acquire or develop alternative technology of lower quality orperformance standards. This could limit and delay our ability to offercompetitive products and increase our costs of production. As a result, ourprofitability, and market share could be harmed.

***Our industry ishighly competitive, and competitive pressures from existing and new companiesmay have a materially adverse effect on our business, revenues, growth ratesand market share.***

Our industry ishighly competitive and is influenced by the following:

·       advancesin technology;

·       introductionof new products and services;

·       evolvingindustry standards;

·       productimprovements;

·       rapidlychanging customer needs;

·       intellectualproperty invention and protection;

·       marketingand distribution capabilities;

·       competitionfrom highly capitalized companies;

·       entranceof new competitors;

·       customerbudget pressure on information technology spending; and

·       pricecompetition.

If we do not keep pace with product and technologyadvances, our products and services could be rendered obsolete, which wouldhave a material adverse effect on our competitive position, revenues andprospects for growth. There is also likely to be continued pricing pressure ascompetitors attempt to maintain or increase market share.

The products manufactured and marketed by us and ourcompetitors in our industry are becoming more complex. As the technological andfunctional capabilities of future products increase, these products may beginto compete with products being offered by companies that have substantiallygreater financial, technical, marketing and manufacturing resources than we do.We may not be able to compete successfully against these new competitors, andcompetitive pressures may result in a material adverse effect on our business orprofitability.

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***If we fail tocontinue to introduce new products that achieve broad market acceptance on atimely basis, we will not be able to compete effectively and we will be unableto increase or maintain sales and profitability.***

Our future success depends on our ability to developand introduce new products and product enhancements that achieve broad marketacceptance. If we are unable to develop and introduce new products that respondto emerging technological trends and customers’ mission critical needs, ourprofitability and market share may suffer. The process of developing newtechnology is complex and uncertain, and if we fail to accurately predictcustomers’ changing needs and emerging technological trends, our business couldbe harmed. We must commit significant resources to developing new productsbefore knowing whether our investments will result in products the market willaccept. We may encounter delays in deploying new or improved products.

We are active in the identification and development ofnew products and technologies and in enhancing our current products. However,in the enterprise mobility solutions industry, such activities are complex andfilled with uncertainty. If we expend a significant amount of resources and ourefforts do not lead to the successful introduction of new or improved products,there could be a material adverse effect on our business, profitability,financial condition and market share.

We may also encounter delays in the manufacturing andproduction of new products. Additionally, new products may not be commerciallysuccessful. Demand for existing products may decrease upon the announcement ofnew or improved products. Further, since products under development are oftenannounced before introduction, these announcements may cause customers to delaypurchases of any products, even if newly introduced, until the new or improvedversions of those products are available. If customer orders decrease or aredelayed during the product transition, we may experience a decline in revenueand have excess inventory on hand which could decrease gross profit margins. Ourprofitability might decrease if customers, who may otherwise choose to purchaseexisting products, instead choose to purchase lower priced models of newproducts. Delays or deficiencies in the development, manufacturing, anddelivery of, or demand for, new or improved products could have a negativeeffect on our business or profitability.

***We may beunsuccessful in expanding our professional services and, as a result, fail toachieve our objectives.***

We are in the process of restructuring ourprofessional services in order to expand our service offerings and enhance ourtechnical expertise. We hope to accomplish that by increasing our in-housetalent pool and introducing new models for support and professional services. Welook to leverage new employees that are skilled in our business to reduce ourdependencies on outside assistance. Our initiatives will include reducingdependence on outside suppliers, determining specific methodologies andprocesses for meeting customer needs, conducting in-house training sessions,and leveraging business partnerships to increase professional servicesopportunities. There is no assurance that the restructuring will improve thesales and profitability of our professional services.

***The success of ourbusiness depends on the continuing development, maintenance and operation ofour information technology systems. If we fail to maintain and upgrade ourinformation technology systems to meet the demands of our customers and protectour information technology systems against risks that we cannot control, ourbusiness may be adversely affected.***

We compete for customers based in part on theflexibility and sophistication of our information technology systems. Thefailure of the hardware or software that supports these systems, the loss ofdata contained in the systems or the inability to access or interact with ourwebsite or connect with our customers electronically, could significantlydisrupt our operations, prevent customers from placing orders with us or causeus to lose customers. If our information technology systems are unable tohandle additional volume as our business and scope of professional servicesgrow, our service levels and operating efficiency will likely decline. Inaddition, we expect that our customers will continue to demand 

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increasingly sophisticatedinformation technology systems from us. If we fail to hire or retain qualifiedpersons to implement, maintain and protect our information technology systems,or if we fail to upgrade or replace our information technology systems tohandle increased volumes and levels of complexity and meet the increaseddemands of our customers, our business may be adversely affected.

Our information technology systems are dependent uponglobal communications providers, web browsers, telephone systems and otheraspects of the Internet infrastructure which are vulnerable to a variety ofthreats including computer viruses and natural disasters. There can be no guaranteethat the steps we have taken to protect against those threats will be effective.Furthermore, although we have redundant systems at a separate location to backup our primary application systems, there can be no assurance that theseredundant systems will operate properly if and when required. Any disruption toor infiltration of our information technology systems could significantly harmour business and profitability.

***If we are unable toprotect our intellectual property rights or if third parties assert we are inviolation of their intellectual property rights, we could be prevented fromselling our products, the time and attention of management could be divertedfrom operating the business and our ability to attract new customers and retaincurrent customers could be hampered, any of which could have a material adverseeffect on our financial condition and results of operation.***

We have a patent portfolio of issued and pendingpatent applications both domestically and abroad, principally relating to thedesign of mobile point-of-activity and mobile point-of-care workstations, and aproprietary power solution for these workstations and wearable computers. Wehave also developed other proprietary solutions, including form-factor PCtechnologies designed specifically for low power consumption, handheldpoint-of-sale devices and several customized software applications. We protectour proprietary information and technology through licensing agreements,third-party nondisclosure agreements and other contractual provisions, as wellas through patent, trademark, copyright and trade secret laws in the U.S. andsimilar laws in other countries. There can be no assurance that theseprotections will be available in all cases or will be adequate to prevent ourcompetitors from copying, reverse engineering or otherwise obtaining and usingour technology, proprietary rights or products.

There can be no assurance that our competitors willnot independently develop technologies that are substantially equivalent orsuperior to our technology or design around our proprietary rights. In eachcase, our ability to compete and to receive licensing revenues could besignificantly impaired. To prevent substantial unauthorized use of ourintellectual property rights, it may be necessary to prosecute actions forinfringement and/or misappropriation of our proprietary rights against thirdparties. Any such action could result in significant costs and diversion of ourresources and management’s attention, and there can be no assurance that wewill be successful in such action. In addition, third parties may seek tochallenge, invalidate or circumvent our patents, trademarks, copyrights andtrade secrets, or applications for any of the foregoing. Furthermore, the lawsof certain countries in which our products are or may be licensed do notprotect our proprietary rights to the same extent as the laws of the U.S.

Third parties may assert claims of infringement ofintellectual property rights against us or against our partners for which wemay be liable under certain indemnification arrangements. Due to the rapid paceof technological change in our industry, much of our business and many of ourproducts rely on proprietary technologies of third parties, and we may not beable to obtain, or continue to obtain, licenses from such third parties onreasonable terms. The failure to obtain a license on commercially reasonableterms or the entry of an injunction that impairs our ability to market certainproducts or services could have a material adverse affect on our business,profitability or financial condition. Any litigation regarding patent and otherintellectual property rights could have a material adverse effect on ourbusiness and our ability to compete.

We may also be subject to claims from customers forindemnification. Any resulting litigation, regardless of its resolution, couldresult in substantial costs and diversion of resources. If it were 

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determined that ourproducts infringe upon the intellectual property rights of others, we wouldneed to obtain licenses from these parties or reengineer our products in orderto avoid infringement. We might not be able to obtain the necessary licenses onacceptable terms or at all, or to reengineer our products successfully. Moreover,if we are sued for infringement and lose the suit, we could be required to paysubstantial damages or be enjoined from licensing or using the infringingproducts or technology. Any of the foregoing could cause us to incursignificant costs and prevent us from selling our products.

***Our products arecomplex and may contain undetected and unexpected defects, errors or failures.***

Substantial product defects could result in productrecalls, repairs, warranties or an increased amount of product returns, loss ofmarket acceptance and damage to our reputation, all of which could increase ourcosts, cause us to lose sales and have a material adverse effect on ourprofitability. Product defects might also result in claims against us by ourcustomers or others. In addition, the occurrence of any defects or errors inthese products could result in: failure to achieve market acceptance and lossof market share, cancellation of orders, difficulty in collecting accountsreceivable, increased service and warranty costs in excess of our estimates,diversion of resources, and increased insurance costs and other losses to ourbusiness or to end-users.

Incompatibilities, defects or bugs may not be detecteduntil our customers begin to install the products or thereafter. We may need tomodify the design of our new or improved products if they haveincompatibilities, defects or bugs, which could result in significantexpenditures as we seek to remedy the problems, delays in the purchase of theproducts or canceled orders.

***Armed hostilities,terrorism, natural disasters, or public health issues could harm our business.***

Armed hostilities, terrorism, natural disasters, orpublic health issues, whether in the U.S. or abroad, could cause damage ordisruption to us, our suppliers or customers, or could create political oreconomic instability, any of which could harm our business. Any such attackscould, among other things, cause further instability in financial markets andcould directly, or indirectly through reduced demand, negatively affect ourfacilities and operations or those of our customers or suppliers.

***We depend onretaining our existing senior management team and recruiting additional seniormanagers in order to be successful, and the loss or failure to recruit keyexecutives could materially and adversely affect our business.***

Our current and future performance depends, insignificant part, upon recruiting and retaining exceptional senior managers,whose knowledge, leadership and technical expertise would be difficult toreplace. Our success also depends in part upon the ability of our executives towork effectively together and with the rest of our employees to continue todevelop our technology and manage the operation and growth of our business. Theunplanned loss of the services of one or more of our executives could have anadverse effect on our business and profitability. We also must continue todevelop and retain a strong core group of senior executives if we are torealize our goal of growing our business and sustaining profitability. Wecannot assure you that we will be successful in our efforts.

***Our business issubject to the budget cycles of our customers.***

Our business is subject to the budget cycles of ourcustomers in various vertical markets such as healthcare, transportation and retail.This may cause significant quarterly fluctuations in our financial results. Generally,sales are sequentially down in the first quarter from the fourth quarter,higher in the second quarter, flat or slightly higher or lower in the thirdquarter, and strongest in the fourth quarter.

***Our products aresubject to certain government regulations and noncompliance with, or a changein, those regulations could have a material adverse effect on our profitabilityand financial condition.***

Our products are subject to regulations by federal,state and local agencies in the U.S. and agencies in certain foreign countrieswhere our products are manufactured or sold. There can be no assurance of 

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continued compliance ifthese regulations were to change. Regulatory changes may require us to makemodifications to certain of our products in order for us to continue to be ableto manufacture and market our products, which would result in unanticipatedcosts and delays. Noncompliance with respect to these regulations, or delaysresulting from modifications in order to come into compliance, could have amaterial adverse effect on our profitability and financial condition.

***Ourgrowth objectives depend on our ability to successfully manage potentialinternational expansion.***

We intend to expand our geographic presence to globalmarkets, including Europe, Asia, and other emerging centers of healthcare andcommercial activity. This expansion will require significant managementattention and financial resources. We currently have limited experience inmarketing and distributing our products internationally and in developingversions of products that comply with local standards. We may also not be ableto maintain or increase international market demand for our products. Internationaloperations are subject to other inherent risks, including foreign governmentregulation of technology or unexpected changes in regulatory and customsrequirements, difficulty and delays in accounts receivable collection,difficulties and costs of staffing and managing foreign operations, reducedprotection for intellectual property rights, foreign currency exchange ratefluctuations, and taxation consequences.

***The management andformer stockholders of InfoLogix Systems Corporation beneficially own a substantialnumber of shares of our common stock, which give them significant control overcertain major decisions.***

As of December 31,2006, the management and former stockholders of InfoLogix Systems Corporationbeneficially own, in the aggregate, approximately 53.0% of our outstandingcommon stock. This figure does not reflect the increased percentages thatmanagement would own after exercise of warrants that were issued in connectionwith the merger or may own in the event of any exercises of options that have beengranted under our employee incentive plans.  The interests of our existing stockholders andmanagement may differ from the interests of other stockholders. As a result,our current stockholders and management will have significant control over allcorporate actions requiring stockholder approval, irrespective of how our otherstockholders may vote, including the following actions:

·       elector defeat the election of our directors;

·       amendor prevent amendment of our certificate of incorporation or bylaws;

·       effector prevent a merger, sale of assets or other corporate transaction; and

·       controlthe outcome of any other matter submitted to the stockholders for vote.

The stock ownership of our current stockholders andmanagement may discourage a potential acquirer from making a tender offer orotherwise attempting to obtain control of us, which in turn could reduce ourstock price or prevent our stockholders from realizing a premium over themarket price of our stock.

***We recently becamesubject to the reporting requirements of the Securities Exchange Act of 1934,as amended, which can be expensive.***

We recently became a public reporting company and,accordingly, we are subject to the information and reporting requirements ofthe Exchange Act and other federal securities laws, including compliance withthe Sarbanes-Oxley Act. The costs of preparing and filing annual, quarterly andperiodic reports, proxy statements and other information required by the SEC(including legal and accounting fees) and furnishing audited reports tostockholders will cause our expenses to be higher than they would be if we werea privately-held company. In addition, we will incur substantial expenses inconnection with the preparation of a registration statement for the resale ofour common stock purchased by investors in the private placement.

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It can be time consuming,difficult and costly for us to develop and implement the internal controls andreporting procedures required by the Sarbanes-Oxley Act. We may need to hireadditional financial reporting, internal controls and other finance personnelin order to develop and implement appropriate internal controls and reportingprocedures. If we are unable to comply with the internal controls requirementsof the Sarbanes-Oxley Act, we may not be able to obtain the independentaccountant certifications required by the Sarbanes-Oxley Act.

**Risks Relating toour Indebtedness**

***The covenants inour credit facility may restrict our operations, which could inhibit ourability to execute our growth strategy and have a negative effect on ourresults of operations.***

We have entered into a loan and security agreementwith Sovereign Bank that provides the Company with an $8.5 million line ofcredit as well as two term loans with principal amounts of $1.5 million and$1.0 million, respectively. The line of credit must be repaid on March 15,2009. The term loans are repayable in equal consecutive monthly installmentswith a final balloon payment due on March 15, 2009. The loan and securityagreement contains restrictions and covenants and requires us to maintainspecified financial ratios and tests. For example, the loan and securityagreement restricts our ability to, among other things, incur additionalindebtedness, acquire other companies or the assets of other companies and paydividends without their consent. If we fail to meet or satisfy any of therestrictions, covenants, financial ratios or financial tests, we would be indefault under the loan and security agreement. The credit facility is securedby all of the assets of the Company and its subsidiaries, as well as a pledgeof the common stock of InfoLogix Systems Corporation (which is the entitythrough which we conduct substantially all of our operations). An event ofdefault under the loan and security agreement would give the lender the rightto declare all amounts outstanding under the credit facility due and payableand enforce its rights to foreclose on the collateral securing the loans.

The restrictions contained in the loan and securityagreement could inhibit our ability to obtain financing and engage in otherbusiness activities that are important to our business and our growth strategy,which could inhibit our ability to grow our business and increase our revenues.

***Our indebtednesscould adversely impact our financial condition.***

As of December 31,2006, we had approximately $15.9 million of total indebtedness, includingshort-term debt and approximately $6 million under our credit facility. We mayincrease the amount of our indebtedness in the future, which could have animportant impact on our stockholders. An increase in our indebtedness could:

·       causeus to violate certain provisions contained in our credit facility;

·       makeus more vulnerable to economic downturns and limit our flexibility to plan foror react to changes in business and economic conditions;

·       limitour ability to withstand competitive pressures through increases in our cost ofcapital; and

·       harmour ability to obtain additional debt or equity financing in the future.

If any of the foregoingwere to occur, our ability to execute our growth strategy would be impaired andour results of operations could be harmed.

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**Risks Relating toour Common Stock**

***ApplicableSEC rules governing the trading of “penny stocks” may limit the liquidityof our common stock which may affect its trading price.***

Our common stock is quoted on the Over-the-CounterBulletin Board, and may trade below $5.00 per share; in which case, our commonstock would be considered a “penny stock” and subject to SEC rules andregulations that impose limitations upon the manner in which our shares may bepublicly traded. These regulations require the delivery, before any transactioninvolving a penny stock, of a disclosure schedule explaining the penny stockmarket and the associated risks. Under these regulations, certain brokers whorecommend such securities to persons other than established customers orcertain accredited investors must make a special written suitabilitydetermination regarding such a purchaser and receive such purchaser’s writtenagreement to a transaction before a sale. These regulations could have theeffect of limiting the trading activity of our common stock and reducing theliquidity of an investment in our common stock. Therefore, our stockholders mayfind it difficult to obtain accurate quotations of our common stock and/or tosell their shares.

***The market price ofour common stock is likely to be highly volatile and subject to widefluctuations.***

The market price ofour common stock is likely to be highly volatile and could be subject to widefluctuations in response to a number of factors that are beyond our control,including:

·       announcementsof new products or services by our competitors;

·       quarterlyvariations in our revenues and operating expenses;

·       announcementsof technological innovations or new products or professional services by us;and

·       salesof common stock by our founders or other selling stockholders.

***There may be alimited public market for our securities and we may fail to qualify for theNASDAQ Stock Market LLC or other listing.***

Although we intend to apply for listing of our commonstock on The NASDAQ Stock Market LLC, there can be no assurance if and wheninitial listing criteria will be met or if such application will be granted orthat the trading of our common stock will be sustained. If our common stockfails to qualify for initial or continued inclusion in The NASDAQ Stock MarketLLC system or for initial or continued listing on a registered stock exchange,trading, if any, in our common stock would then continue to be conducted on theOver-the-Counter Bulletin Board or in what are commonly referred to as “pinksheets.”  As a result, our stockholdersmay find it more difficult to dispose of, or to obtain accurate quotations as tothe market value of our common stock, and our common stock would becomesubstantially less attractive for margin loans, for investment by financialinstitutions, as consideration in future capital raising transactions or otherpurposes. An active public market for shares of our common stock may notdevelop, or if one should develop, it may not be sustained. Therefore, ourstockholders may not be able to find purchasers for their shares of our commonstock.

***We do not expect topay dividends for the foreseeable future.***

We currently intend to retain any future earnings tosupport the development and expansion of our business and do not anticipatepaying cash dividends in the foreseeable future. Any payment of futuredividends will be at the discretion of our board of directors after taking intoaccount various factors, including but not limited to our financial condition,operating results, cash needs, growth plans and the terms of any creditagreements that we may be a party to at the time. Accordingly, our stockholdersmust rely on sales of their common stock after price appreciation, which maynever occur, as the only way to realize their investment. Investors seekingcash dividends should not purchase our common stock.

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***Failureto achieve and maintain effective internal controls could have a materialadverse effect on our business, operating results and stock price.***

Effective internalcontrols, particularly those related to revenue recognition, are necessary forus to produce reliable financial reports and are important in helping preventfinancial fraud. If we are unable to achieve and maintain adequate internalcontrols, our business and operating results could be harmed. We are alsobeginning to evaluate how to document and test our internal control proceduresto satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of2002 and the related rules of the Securities and Exchange Commission,which require, among other things, our management to assess annually theeffectiveness of our internal controls over financial reporting beginning withour Form 10-K for the year ended December 31, 2007 and ourregistered public accounting firm to issue a report on that assessmentbeginning with our Form 10-K for the year ended December 31,2008. During the course of this documentation and testing, we may identifydeficiencies that we may be unable to remediate before the requisite deadlinefor those reports. If our management or our registered public accounting firmwere to conclude in their reports that our internal control over financialreporting was inadequate, our stockholders could lose confidence in ourreported financial information and the trading price of our stock could dropsignificantly.

***Provisions in our organizational documents and underDelaware law may delay or prevent attempts by our stockholders to change ourmanagement and hinder efforts to acquire a controlling interest in us.***

Certain provisions of ourbylaws are intended to strengthen the Board’s position in the event of ahostile takeover attempt. These provisions have the effect of providing ourboard of directors with the sole power to fill vacancies on our board ofdirectors and providing that stockholders may only call a special meeting bythe request, in writing, of stockholders owning individually or together tenpercent or more of the entire capital stock of the corporation issued andoutstanding and entitled to vote.

In addition, Section 203of the Delaware General Corporation Law prohibits a publicly held Delawarecorporation from engaging in a business combination with an interestedstockholder, generally a person which together with its affiliates owns orwithin the last three years has owned 15% of our voting stock, for a period ofthree years after the date of the transaction in which the person became aninterested stockholder, unless the business combination is approved in aprescribed manner. Accordingly, Section 203 may discourage, delay orprevent a change in control of our company.

**Item1B. Unresolved Staff Comments**

Notapplicable.

**Item2. Properties**

Our headquarters arelocated in Hatboro, Pennsylvania in approximately 25,240 square feet of leased space. Thisfacility accommodates our executive office, customer support, warehouse,development and shipping operations. The term of the lease commenced on October 8,2004 with an initial term of 85 months and an option to extend the lease termfor up to one additional period of five years. The initial annual base rent isapproximately $167,000. The base rent is increased 2% annually effective on theannual anniversary of the lease commencement date each year. We are alsoresponsible for payments of common area operating expenses for the premises.

**Item3. Legal Proceedings**

We are not a party to anylegal proceedings, the adverse outcome of which, individually or in theaggregate, management believes would have a material adverse effect on ourbusiness, financial condition or results of operations.

**Item 4. Submission of Matters to a Vote of SecurityHolders**

**None**

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**PART II**

**Item 5.**                        Marketfor the Company’s Common Equity, Related Stockholder Matters, and IssuerPurchases of Equity Securities

*MarketInformation*

Ourcommon stock is quoted on the Over-the-Counter Bulletin Board under the symbol “IFLG”.The table below sets forth the high and low bid prices of our common stock on the Over-the-Counter Bulletin Board during 2006:

| ** **     | ** ** | **High**   | ** ** | **Low**    | ** ** |
|----------------|------------|------------|------------|------------|------------|
| **2006**       | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter  |       | $          | N/A        |       | $          | N/A |   |
| Second Quarter |       | 1.57       |       | .02        |       |
| Third Quarter  |       | .63        |       | .16        |       |
| Fourth Quarter |       | 8.75       |       | .17        |       |
|                |            |            |            |            |            |  |  |

 

Thequotations set forth in the table above reflect inter-dealer prices, withoutretail mark-up, mark-down or commission and may not necessarily representactual transactions. Our common stock was not quoted on the Over-the-CounterBulletin Board during 2005 or the first quarter of 2006.

*Holdersof Common Stock*

As of March 21, 2007,we had approximately 134 holders of record of common stock and 23,595,663shares of common stock outstanding.

*Dividends*

We have not paid cashdividends and do not anticipate paying cash dividends in the foreseeablefuture. The declaration and payment of dividends is restricted in accordancewith covenants related to our $8.5 million asset-based credit facility withSovereign Bank which we initially entered into in March 2006 and whichexpires in March 2009. The restriction on dividends will remain during theterm of the loan agreement. We expect to utilize any future earnings to financeour operations. The actual amount of any dividends that may be paid in thefuture will be subject to the discretion of our board of directors and willdepend on our operations, financial and business requirements and otherfactors.

*EquityCompensation Plans*

The following table summarizes our equity compensation plansas of December 31, 2006:

| **Plan category**                                 | ** ** | ** ** | ** ** | **Number of shares to be  issued upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of shares  remaining available  for future issuance  under equity compensation plans** | ** ** |
|--------------------------------------------------------|------------|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans approved by stockholders     |       |       | 2,112,000  |                                                                                                                                             |       |                                                                                                             | $          | 2.00                                                                                                                               |       |   |   | 1,748,000 |   |   |
| Equity compensation plans not approved by stockholders |       |       | 2,650,000  | (1)                                                                                                                                              |       |                                                                                                             | $          | 2.00                                                                                                                               |       |   |   | — |   |   |
| Total                                                  |       |       | 4,762,000  |                                                                                                                                             |       |                                                                                                             | $          | 2.00                                                                                                                               |       |   |   | 1,748,000 |   |   |

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(1)          Fora description of the terms of the warrants pursuant to which these shares areissuable, please see “Note O—Stock Based Compensation Expense” to the company’sfinancial statements included in this report.

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**Item 6.**                        SelectedFinancial Data

Thefollowing table presents selected financial data for the last five years of theoperation of our business. This information should be read in conjunction withthe Consolidated Financial Statements and Notes thereto in Item 8 and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” inItem 7. The selected financial data for fiscal years 2002, 2003, 2004, 2005 and2006 have been derived from the Company’s financial statements which have beenaudited by independent auditors. The proforma data is derived from New AgeTranslation, Inc.’s (the predecessor to InfoLogix, Inc.) unauditedfinancial statements for the nine month period ended August 31, 2006, andInfoLogix’s audited financial statements for the year ended December 31,2006.
|                                        | ** ** | **Fiscal Year**                                                          | ** ** |
|----------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **2002**                                                                      | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                             | ** ** | **(audited)  (in thousands, except per share data)** | ** ** |
| **STATEMENT OF OPERATIONS DATA:**      |       |                                                                          |       |   |   |   |   |   |   |   |   |
| Revenues                               |       | $                                                                             | 25,061     |   | $ | 28,391 |   | $ | 46,115 |   | $ | 55,472 |   | $ | 60,786 |   |
| Cost of revenues                       |       | 20,072                                                                        |       | 22,263 |   | 34,793 |   | 42,605 |   | 45,837 |   |
| Gross profit                           |       | 4,989                                                                         |       | 6,128 |   | 11,322 |   | 12,867 |   | 14,950 |   |
| Operating income (loss)                |       | 542                                                                           |       | (457 | ) | 1,146 |   | 1,206 |   | (2,948 | ) |
| Income (loss) before income taxes      |       | 439                                                                           |       | (672 | ) | 864 |   | 681 |   | (3,556 | ) |
| **PRO  FORMA DATA (unaudited):**       |       |                                                                          |       |   |   |   |   |   |   |   |   |
| Provision for income taxes (1)         |       | 171                                                                           |       | (262 | ) | 372 |   | 313 |   | (1,399 | ) |
| Net income (loss)                      |       | 268                                                                           |       | (410 | ) | 492 |   | 368 |   | (2,157 | ) |
| Net income (loss) per common share (2) |       | 0.01                                                                          |       | (.02 | ) | 0.02 |   | 0.02 |   | (0.09 | ) |
| Common shares outstanding              |       | 23,596                                                                        |       | 23,596 |   | 23,596 |   | 23,596 |   | 23,596 |   |
| **OTHER  DATA:**                       |       |                                                                          |       |   |   |   |   |   |   |   |   |
| Dividends (3)                          |       | $                                                                             | 120        |   | $ | 363 |   | $ | 20 |   | $ | 170 |   | $ | 740 |   |

 
|                                  | ** ** | **As of December 31,** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|
| ** **                       | ** ** | **2002**                              | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **(audited)**                         | ** ** |
| **BALANCE SHEET DATA:**          |       |                                  |       |   |   |   |   |   |   |   |   |
| Total assets                     |       | 9,114                                 |       | 8,985 |   | 12,171 |   | 15,167 |   | 31,813 |   |
| Long-term debt                   |       | 743                                   |       | 730 |   | 921 |   | 533 |   | 1,325 |   |
| Total stockholders’  equity |       | 426                                   |       | (609 | ) | 235 |   | 745 |   | 15,888 |   |

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(1)          Un-audited pro-forma taxprovision as if the Company was a taxable entity for each of the five years inthe period ended December 31.

(2)          Un-audited pro-formaearnings per share calculation. See Note A of the Notes to the ConsolidatedFinancial Statements for information concerning the calculation of net incomeor loss per common share.

(3)          Relatedonly to amounts paid to stockholders with respect to taxes payable due to theCompany filing its Federal and state income tax returns as a Sub-Chapter SCorporation. Prior to the Merger discussed in Note B of the Notes to theConsolidated Financial Statements, any income tax liability from its operationswas payable directly by its shareholders.

**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operation

The following discussion and analysis ofour financial condition and results of operations is intended to assist you inunderstanding our financial condition and results of operations. Thisdiscussion and 

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analysis shouldbe read in conjunction with our financial statements and the notes theretoincluded elsewhere in this report. Many of the amounts and percentagespresented in this discussion and analysis have been rounded for convenience ofpresentation.

**Overview**

We provide mobile workforce technology solutions tocustomers in the healthcare and commercial sectors in North America. Ourbusiness is organized to provide consulting, business software applications,managed services, mobile workstations, devices and other hardware products, andwireless communications infrastructure. Our professional services and productsutilize proprietary software and RFID technologies that enhance workflow andcustomer care using real-time information. We deliver our products andprofessional services to customers utilizing mobile applications that run onhandheld computers, cell phones, tablet computing devices and mobile workstations,and that operate with existing enterprise software solutions.

OPT Acquisition LLC is awholly owned subsidiary of InfoLogix. OPT Acquisition LLC provides proprietarylearning technologies for business-to-business applications. EmbeddedTechnologies, LLC was acquired by us on February 11, 2004. EmbeddedTechnologies, LLC provides mobile computing solutions through the use ofwearable computers. We consolidate OPT Acquisition LLC and EmbeddedTechnologies, LLC for financial reporting purposes.

**Characteristics ofour revenue and expenses**

We generate our revenue through the resale of wirelessand mobile hardware and systems, including computers, peripherals, and relatedproducts under which the revenue is recognized. Sales revenue on product is recognized when both the title and risk ofloss transfer to the customer, generally upon shipment. We also generaterevenue from the sale of extended warranties on certain components. Revenuefrom the sale of component warranties is recognized upon execution of the warrantyagreement. There is no associated warranty risk as we have contracted with athird party to fully assume all risks and obligations. We also generatedrevenue from professional services, primarily on a project basis, under which revenue from the sale of our proprietarylearning technologies is recognized upon acceptance of our deliverables byclients.

Payments received in advance of services performed arerecorded as deferred revenue. Certain contract payment terms may result incustomer billing occurring at a pace slower than revenue recognition. Theresulting revenue recognized in excess of amounts billed and project cost isincluded in prepaid expenses and other assets on our balance sheet.

Cost of revenue primarily consists of all expensesthat are directly attributable to our business units and include the costsassociated with the purchase, for resale, of wireless and mobile hardware andsystems, including computers, peripherals, and related products. Fluctuationsin our gross margin may occur due to changes in our ability to obtain discountson product sales or our ability to negotiate higher margins on sales contractswith large customers.

Sales and marketingexpenses primarily consist of the salaries, benefits, travel and other costs ofour sales and marketing teams, as well as marketing initiatives and businessdevelopment expenses. General and administrative expenses primarily consist ofthe costs attributable to the support of our operations, such as: costs relatedto information systems, salaries, expenses and office space costs for executivemanagement, inside sales, warehousing, technical support, financial accounting,purchasing, administrative and human resources personnel, insurance, recruitingfees, legal, accounting and other professional services.

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**Critical AccountingEstimates and Policies**

Our consolidated financialstatements are prepared in conformity with accounting principles generallyaccepted in the United States of America (GAAP), which requires us to makeestimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting periods. Critical accountingpolicies are those that require the application of management’s most difficult,subjective, or complex judgments, often because of the need to make estimatesabout the effect of matters that are inherently uncertain and that may changein subsequent periods. In preparing the consolidated financial statements, managementhas made estimates and assumptions that affect the reported amounts of assetsand liabilities at the date of the financial statements, and the reportedamounts of revenues and expenses during the reporting periods. In preparing thefinancial statements, management has utilized available information, includingour past history, industry standards and the current economic environment,among other factors, in forming its estimates and judgments, giving dueconsideration to materiality. Actual results may differ from these estimates.In addition, other companies may utilize different estimates, which may impactthe comparability of our results of operations to those of companies in similarbusinesses. We believe that of our significant accounting policies, thefollowing may involve a higher degree of judgment and estimation.

*Principles ofconsolidation*

The consolidated financialstatements include the accounts of the Company and its wholly-ownedsubsidiaries, OPT Acquisition, LLC and Embedded Technologies, LLC. Allsignificant intercompany balances and transactions have been eliminated inconsolidation.

*Inventory*

Inventory is stated at the lower of cost or market. Costis determined using the first in, first out method.

The Company periodicallyreviews its inventories and makes provisions as necessary for estimatedobsolescence and slow-moving goods. The amount of such markdown is equal to thedifference between cost of inventory and the estimated market value based uponassumptions about future demands, selling prices and market conditions.

*Impairment oflong-lived assets*

The Company assesses thepotential impairment of long-lived assets whenever events or changes incircumstances indicate that the carrying value may not be recoverable. An  asset’s value  is  impaired if  management’s estimate  of the aggregate  future cash flows,  undiscounted and without interest  charges, to be  generated by the asset are less than thecarrying value of the asset. Such cash flows consider factors such as expectedfuture operating income and historical trends, as well as the effects of demandand competition. To the  extent  impairment has  occurred,  the loss  is measured  as the excess of the  carrying  amount of the asset over the estimated fairvalue of the asset. Such estimates require the use of judgment and numeroussubjective assumptions, which, if actual experience varies, could result inmaterial differences in the requirements for impairment charges.

*Intangible assets*

The Company accounts forits intangible assets in accordance with Statement of Financial AccountingStandards (SFAS) 142, *Goodwill and OtherIntangible Assets*. Thecosts of successful registrations for patents are amortized over the estimateduseful lives of the assets, which is generally three years, using thestraight-line method. The costs of unsuccessful registrations are charged toexpense. Acquired technology is recorded at its fair value at the date ofacquisition and amortized over the estimated useful lives of the 

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assets, which is generally five years, using thestraight-line method. Developed technology is also amortized using thestraight-line method, generally over five years. License fees are amortizedover the license period using the straight-line method.

*Softwarecapitalization*

The Company capitalizescertain costs related to the acquisition and development of software andamortizes these costs using the straight-line method over the estimated usefullife of the software which is three to five years. In accordance with SFAS 86, *Accounting for the Costs of Computer Software to be Sold, Leased orOtherwise Marketed*, the Company expenses as incurred those costsincurred prior to achieving technological feasibility.

*Revenue recognition*

Revenue consists primarily of sales of wireless products.Sales revenue is recognized when both the title and risk of loss transfer tothe customer, generally upon shipment. The Company also realizes revenue fromthe sale of component warranties on their wireless mobile products as well asfrom the sale of proprietary learning technologies. Warranty revenue isrecognized upon execution of the warranty agreement. There is no associatedwarranty risk as the Company has contracted with another party to fully assumeall risks and obligations. Revenue from the sale of proprietary learningtechnologies is recognized upon delivery and acceptance by the customer.

*Income taxes*

The Company accounts forincome taxes in accordance with SFAS 109, *Accountingfor Income Taxes*. Under SFAS 109, deferred tax assets and liabilitiesare determined based on the differences between the financial statementcarrying amounts and the tax bases of existing assets and liabilities, and aremeasured at the prevailing enacted tax rates that will be in effect when thesedifferences are settled or realized. SFAS 109 also requires that deferredtax assets be reduced by a valuation allowance if it is more likely than notthat some portion or all of the deferred tax asset will not be realized.

*Stock basedcompensation*

Effective January 1,2006, the Company adopted the provisions of SFAS 123(R), *Share-Based Payment*, under the modified prospective method.SFAS 123(R) eliminates accounting for share-based compensationtransactions using the intrinsic value method prescribed under APBOpinion 25, *Accounting for Stock Issued to Employees*,and requires instead that such transactions be accounted for using afair-value-based method. Under the modified prospective method, the Company isrequired to recognize compensation cost for share-based payments to employeesbased on their grant-date fair value from the beginning of the fiscal period inwhich the recognition provisions are first applied. For periods prior toadoption, the financial statements are unchanged, and the pro forma disclosurespreviously required by SFAS 123, as amended by SFAS 148, willcontinue to be required under SFAS 123(R) to the extent those amountsdiffer from those in the statement of operations.

*Non-employee stockbased compensation*

The cost of stock based compensation awards issued tonon-employees for services are recorded at either the fair value of theservices rendered or the instruments issued in exchange for such services,whichever is more readily determinable, using the measurement date guidelinesenumerated in Emerging Issues Task Force (“EITF”) 96-18, *Accounting for Equity Instruments That Are Issued to Other ThanEmployees for Acquiring, or in Conjunction with Selling, Goods or Services*.

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**Results ofOperations**

***Year ended December 31, 2006 Compared with theYear Ended December 31, 2005***

Revenues were $60.8 million for the year ended December 31,2006, compared to $55.5 million for the year ended December 31, 2005, anincrease of $5.3 million or 9.6%. The increase in revenue was partially due tothe continued expansion of sales of our mobile point-of-care solutions inhealthcare and our e-Learning services, and partially offset by adecrease in the overall number of third-party wireless hardware implementationsin our commercial business.

Our cost of sales was $45.8 million for the yearended December 31, 2006, compared to $42.6 million for the year endedDecember 31, 2005, an increase of $3.2 million or 7.6%. Our grossprofit was $14.9 million for the year ended December 31, 2006,compared to $12.9 million for the year ended December 31, 2005, anincrease of approximately $2.0 million or 16.2%, resulting in a grossmargin of 24.6% in 2006, up from 23.2% in 2005. The increase in our grossmargin is the result of increased sales of our more profitable mobileworkstation hardware, offset by a decrease in the sale of third-party hardware.

Our selling, general and administrative expenses were$17.9 million for the year ended December 31, 2006, compared with $11.7million for the year ended December 31, 2005, an increase of $6.2 millionor 53.5%. These expenses increased in 2006 as the result of approximately $0.8million related to the reverse merger (including one-time bonuses paid toexecutives as the result of the reverse merger and financing transactions), and$2.8 million of FAS 123R compensation expenses incurred as the result ofissuing warrants to executives related to bonuses earned from completion of thereverse merger and financing transactions, warrants issued to certain advisorsto the Company as the result of the merger, and incentive stock options grantedto employees.

Our net interest expense, which is derived from ourcredit line and term loan and stockholders’ loans, and off-set by interestearned on cash and cash equivalents was $0.6 million for the year ended December 31,2006, compared to $0.5 million for the year ended December 31, 2005, anincrease of $0.1 million or 15.9%. Net interest expense increased as aresult of greater amounts outstanding under our asset-based line of creditfacility and increasing our term loans. Interest expense was partially offsetby interest income in 2006 as the result of an increase in cash due to thepreviously discussed financing transaction.

Our depreciation and amortization expense increased to$1.3 million for the year ended December 31, 2006 from $1.0 million forthe year ended December 31, 2005, an increase of $0.3 million or 26.3% asthe result of a greater number of demonstration units deployed to our expandedsales force.

Our net loss was $1.9 million for the year ended December 31,2006, compared with net income of $0.6 million for the year ended December 31,2005, a decrease of approximately $2.5 million. Net income declined primarilydue to the merger, one-time bonuses paid to executives as a result of themerger and financing transactions, and FAS 123R compensation expenses incurredas the result of issuing warrants to executives related to bonuses due as theresult of the reverse merger and private placement transactions, warrantsissued to certain advisors to the Company as the result of the merger, andincentive stock options granted to employees.

In the year ended December 31, 2006 and through November 29,2006, our operating subsidiary InfoLogix Systems Corporation elected to betaxed under the provisions of Sub-Chapter S of the Internal Revenue Codewhereby our individual stockholders reported their share of the corporateincome on their personal federal and state income tax returns. For the yearsended December 31, 2006 and 2005, we distributed $0.7 million and $0.2million respectively to our stockholders for the payment of taxes. As a resultof the merger, InfoLogix Systems Corporation Sub-Chapter S Corporation statuswas terminated on November 30, 2006. In accordance with SFAS 109, when theCompany changes its tax status from a nontaxable corporation to a taxablecorporation, deferred tax assets and liabilities are recognized for 

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timing differences at thedate that a nontaxable enterprise becomes a taxable enterprise. As a result,the Company recorded a net deferred tax asset of $151,760 with the offset beingrecorded as an income tax benefit in the statement of operations for the yearended December 31, 2006.

As of December 31,2006, the Company had net operating losses (“NOL”) of approximately $608,000which will be available to offset future taxable income. Included in the NOL’snoted above are losses of $65,000 generated by New Age Translation, Inc.,the predecessor to InfoLogix, Inc., which are subject to restrictionsunder Internal Revenue Code Section 382, due to the change in ownership inthat entity. Therefore, the Company has recorded a valuation allowance againstthe net operating losses generated by New Age Translation, Inc. If notused, the NOL’s will expire beginning in the year 2025. The Company’s state NOL’swill also be subject to expiration in varying years starting in 2013 through 2026.

***Year ended December 31, 2005 Compared with theYear Ended December 31, 2004***

Revenues were $55.5 million for the year ended December 31,2005, compared to $46.1 million for the year ended December 31, 2004, anincrease of $9.4 million or 20.3%. The increase in revenue was partially due toone large wireless system implementation in our commercial business and thecontinued expansion of existing customer relationships as well as newcustomers, particularly in our healthcare business.

Our cost of sales was $42.6 million for the year endedDecember 31, 2005, compared to $34.8 million for the year ended December 31,2004, an increase of $7.8 million or 22.5%. Cost of sales increased as ourrevenues increased, resulting in costs of sales 1.4% higher as a percentage ofrevenue compared to the same period in 2004 due to sales of less profitablehardware.

Our gross profit was $12.9 million for the year ended December 31,2005, compared to $11.3 million for the year ended December 31, 2004, anincrease of $1.5 million or 13.6%.

Our selling and delivery expenses were $6.9 millionfor the year ended December 31, 2005, compared with $6.1 million for theyear ended December 31, 2004, an increase of $0.8 million or 13.1%. Theseexpenses increased in 2005 primarily due to increased sales commissions relatedto higher sales volumes in the period.

Our general and administrative expenses were $4.8million for the year ended December 31, 2005, compared with $4.1 millionfor the year ended December 31, 2004, an increase of $0.7 million or 17.1%.These expenses increased in 2005 as a result of increased rent expenseresulting from a new office facility lease entered into in 2005, an increase infees incurred for legal services and increases in our insurance costs.

Our interest expense, which is derived from our creditline and term loan and stockholders’ loans, was $0.5 million for the year endedDecember 31, 2005, compared to $0.3 million for the year ended December 31,2004, an increase of $0.2 million or 85.9%. Interest expense increased in 2005compared to 2004 as a result of expanding our former asset-based line of creditfacility with Silicon Valley Bank.

Our depreciation and amortization expense increased to$1.0 million for the year ended December 31, 2005 compared to $0.7 millionfor the year ended December 31, 2004, an increase of $0.3 million or 49%.

Our net income was $0.7 million for the year ended December 31,2005, compared with $0.9 million for the year ended December 31,2004, a decrease of $0.2 million or 21.2%. The decrease in our net incomeresulted primarily from lower gross profits in the comparable periods.

In the years ended December 31,2005 and 2004, we elected to be taxed under the provisions of Subchapter S ofthe Internal Revenue Code whereby our individual stockholders reported theirshare of the Company’s corporate income on their personal federal and stateincome tax returns. For the year ended December 31, 2005, we distributed$0.2 million to our stockholders for the payment of taxes in 

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respectof income generated by the Company and for the year ended December 31,2004, we distributed $20,000 to our stockholders for the payment of taxes inrespect of income generated by the Company.

***Liquidity and Capital Resources***

At December 31, 2006, we had cash and cashequivalents of approximately $12.9 million, compared to approximately $0.4million at December 31, 2005. We have used, and plan to use, such cash forgeneral corporate purposes, including working capital as well as acquisitions.Net cash used in operating activities for the period was $2.5 million,primarily the result of net losses from operations. Net cash used in investingactivities was $1.4 million, primarily used to acquire demonstration and officeequipment. Net cash provided by financing activities was $16.3 million for theyear ended December 31, 2006, primarily due to the completion of the saleof 8,500,000 shares of our common stock for an aggregate of $17,000,000, thenet increase from borrowings under our asset-based line of credit, the proceedsfrom a term loan from our senior secured lender, offset by the repayment ofunsecured notes to stockholders, principal payments under the terms of oursenior-secured note and, and the distribution of approximately $0.7 millionto stockholders in respect of taxes payable by them as a result of InfoLogixSystems Corporation’s election to be taxed as an S corporation.

As of December 31,2006, our significant contractual obligations were as follows: 
|                                  | ** ** | **Payments due by period** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations** | ** ** | ** **                                | ** ** | **Total** | ** ** | **Less than  1 Year** | ** ** | **1–3 Years** | ** ** | **3–5 Years** | ** ** | **More than  5 Years** | ** ** |
| Long-term debt  obligations      |       | $                                         | 2,027,778  |   | $ | 833,333 |   | $ | 1,194,445 |   | 0 |   |   | 0 |   |   |
| Capital lease  obligations       |       | $                                         | 247,351    |   | $ | 116,973 |   | $ | 130,378 |   | 0 |   |   | 0 |   |   |
| Operating lease  obligations     |       | $                                         | 1,161,293  |   | $ | 223,122 |   | $ | 696,624 |   | $ | 241,547 |   |   | 0 |   |   |
|                                  |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

We believe that ouravailable funds and the availability under our asset-based line of credit willbe sufficient to meet our capital requirements over the next 12 months;however, we may seek to raise additional funds through the sale of equity ordebt securities or obtaining additional credit facilities. The sale ofadditional equity securities or issuance of equity securities in futureacquisitions would result in dilution to our stockholders and the incurrence ofdebt would result in an increase in our interest expense. However, there can beno assurance that we will be able to sell additional equity or debt securities,or be able to obtain financing on acceptable terms, if at all.

***Line of Credit and Term Loan***

In March 2006, weexecuted a Loan and Security Agreement with a bank. Under the terms of theagreement and subsequent amendments, the bank provided us with an $8.5 millionline of credit and two term loans amounting to $1.5 million and $1.0 million,respectively. The proceeds from the loans were used to pay off existing loans andto provide working capital. The loans are collateralized by all of the tangibleand intangible assets of InfoLogix Systems Corporation, as well as a pledge ofall of the common stock of InfoLogix Systems Corporation. At December 31,2006, the outstanding balance of the line of credit is $6.0 million, and$2.0 million on the two term loans. The loan and security agreementcontains certain financial covenants with which we must comply including:  minimum annual and quarterly net incometests, a fixed-charge coverage ratio, and maximum annual capital expenditures. AtDecember 31, 2006, we were not in compliance with all of these covenants;however, on March 23, 2007 we entered into an amendment to the Loan andSecurity Agreement which waived the non-compliance with these covenants. Theamendment also lowered the quarterly net income covenant to a cumulativebalance of $0 through September 30, 2007, and adjusted the fixed chargecoverage ratio to 1.0 to 1.0 at December 31, 2007 and 1.2 to 1.0 as of theend of each fiscal quarter thereafter.

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***Inflation***

To date, the effects ofinflation on our financial results have not been significant; however, wecannot be certain that inflation will not affect us materially in the future.

***Off Balance Sheet Arrangements***

We do not currently haveany off-balance sheet arrangements.

**Recent accountingpronouncements:**

In September 2006, the SEC issued SAB 108, *Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements* (SAB 108). SAB108 provides interpretive guidance on how the effects of the carryover orreversal of prior year misstatements should be considered in quantifying acurrent year misstatement. The pronouncement prescribes an approach whereby theeffect of all unrecorded identified errors should be considered on all of thefinancial statements rather than just either the effect on the balance sheet orthe income statement. The Company adopted the provisions of SAB 108 as of December 31,2006. The adoption of SAB 108 did not have a material impact on the Company’sconsolidated financial statements.

In June, 2006, the FASB issued Interpretation No. 48,*Accounting for Uncertainty in Income Taxes—aninterpretation of FASB Statement No. 109* (FIN 48), whichclarifies the accounting for uncertainty in tax positions. FIN 48 requiresrecognition and disclosure in the financial statements of the impact of a taxposition, if that position is more likely than not of being sustained on audit,based on the technical merits of the position. The provisions are effective forthe Company beginning in the first quarter of 2007 with the cumulative effect,if any, of the change in accounting principle recorded as an adjustment to theopening balance of retained earnings. The Company is currently evaluating theimpact of adopting FIN 48 on its consolidated financial statements.

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*.SFAS 157 defines fair value, establishes a framework for measuring fairvalue and expands disclosures about fair value measurements. SFAS 157 iseffective for financial statements issued for fiscal years beginning after November 15,2007 and interim periods within those fiscal years. The Company is currentlyevaluating the impact that SFAS 157 will have on its consolidated financialstatements.

**Item 7A.**                Quantitativeand Qualitative Disclosures About Market Risk.

The primary objective of our investment activities isto preserve principal. Our funds are currently held in checking accounts andmoney market funds which do not subject us to risk of a loss of principal dueto changes in prevailing interest rates and in a portfolio of cash and cashequivalents that include investments in investment-grade securities, such ascommercial paper, money market funds, government debt securities andcertificates of deposit with maturities of less than nine months. Some of thesesecurities may be subject to market risk due to changes in prevailing interestrates, which may cause fluctuations in market value.

The fair value of our cash and short-term investmentportfolio at December 31, 2006, approximated its carrying value due to theshort-term maturities of these investments. The potential decrease in fairvalue resulting from a hypothetical 10% increase in interest rates at year-endfor our investment portfolio is not material.

The fair value of our long-term debt at December 31,2006, including current maturities, was approximately $2.0 million. Ourlong-term debt is set at the prime rate plus 1.0% (9.25% at December 31,2006).

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**Item 8.**                        FinancialStatements and Supplementary Data

**INFOLOGIX, INC.**

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS**

| Report of Independent Registered Public Accounting  Firm                                                         |   | 39 |   |
|------------------------------------------------------------------------------------------------------------------|--------|----|--------|
| Consolidated Balance Sheets as of December 31,  2006 and 2005                                               |   | 40 |   |
| Consolidated Statements of Operations for the Years  Ended  December 31, 2006, 2005 and 2004                |   | 41 |   |
| Consolidated Statements of Stockholders’ Equity for  the Years Ended  December 31, 2006, 2005 and 2004 |   | 42 |   |
| Consolidated Statements of Cash Flows for the Years  Ended  December 31, 2006, 2005 and 2004                |   | 43 |   |
| Notes to Consolidated Financial Statements                                                                       |   | 44 |   |

 

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**Report ofIndependent Registered Public Accounting Firm**

**The Board of DirectorsInfoLogix, Inc Hatboro, Pennsylvania**

We have audited the accompanying consolidated balancesheets of **InfoLogix Inc.**(the“Company”) as of December 31, 2006 and 2005 and the consolidatedstatements of operations and stockholders’ equity and cash flows****for each of the three years in the period endedDecember 31, 2006. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our audit includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no suchopinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the consolidatedfinancial position of **InfoLogix Inc.**asof December 31, 2006 and 2005 and the consolidated results of itsoperations and cash flows for each of the three years in the period endedDecember 31, 2006 in conformity with accounting principles generallyaccepted in the United States of America. Also, in our opinion, the financialstatement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, presents fairly, in all materialrespects, the information set forth therein.

|                                 | ASHER &  COMPANY, Ltd. |
|---------------------------------|---------------------------------|
|                            |                            |
| **Philadelphia,  Pennsylvania** | ** **                      |
| **March 23,  2006**        | ** **                      |

 

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**INFOLOGIX, INC.**CONSOLIDATED BALANCE SHEETS

| **ASSETS**                                                                                                                                                                         | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| Currents assets:                                                                                                                                                                   |       |                            |       |                            |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                          |       |                            | $          | 12,882,044                      |       |   |   | $ | 447,901 |   |   |
| Accounts and other receivables (net of allowance for  doubtful accounts in the amount of $120,000 and $100,000 as of  December 31, 2006 and 2005, respectively)               |       |                            | 11,797,265 |                            |       |   | 10,223,024 |   |   |
| Inventory, net                                                                                                                                                                     |       |                            | 2,227,201  |                            |       |   | 1,912,018 |   |   |
| Prepaid expenses and other assets                                                                                                                                                  |       |                            | 906,793    |                            |       |   | 334,450 |   |   |
| Deferred tax assets—short-term                                                                                                                                                |       |                            | 311,478    |                            |       |   | — |   |   |
| Total current assets                                                                                                                                                               |       |                            | 28,124,781 |                            |       |   | 12,917,393 |   |   |
| Property and  equipment, net                                                                                                                                                       |       |                            | 1,440,338  |                            |       |   | 1,338,842 |   |   |
| Intangible  assets, net                                                                                                                                                            |       |                            | 871,976    |                            |       |   | 910,782 |   |   |
| Deferred tax  assets—long-term                                                                                                                                                |       |                            | 1,375,486  |                            |       |   | — |   |   |
| Total assets                                                                                                                                                                       |       |                            | $          | 31,812,581                      |       |   |   | $ | 15,167,017 |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                          |       |                            |       |                            |       |   |   |   |   |
| Current  liabilities:                                                                                                                                                              |       |                            |       |                            |       |   |   |   |   |
| Accounts payable                                                                                                                                                                   |       |                            | $          | 6,584,489                       |       |   |   | $ | 7,135,956 |   |   |
| Line of credit                                                                                                                                                                     |       |                            | 5,954,672  |                            |       |   | 4,443,327 |   |   |
| Current portion of notes payable—bank                                                                                                                                         |       |                            | 833,333    |                            |       |   | 285,714 |   |   |
| Current portion of notes payable—stockholders                                                                                                                                 |       |                            | —     |                            |       |   | 800,000 |   |   |
| Current portion of capital lease obligations                                                                                                                                       |       |                            | 116,973    |                            |       |   | 116,973 |   |   |
| Sales tax payable                                                                                                                                                                  |       |                            | 342,064    |                            |       |   | 271,390 |   |   |
| Accrued expenses                                                                                                                                                                   |       |                            | 767,967    |                            |       |   | 649,043 |   |   |
| Deferred revenue                                                                                                                                                                   |       |                            | —     |                            |       |   | 186,397 |   |   |
| Total current liabilities                                                                                                                                                          |       |                            | 14,599,498 |                            |       |   | 13,888,800 |   |   |
| Notes  payable—bank, net of current maturities                                                                                                                                |       |                            | 1,194,445  |                            |       |   | 285,714 |   |   |
| Capital lease  obligations, net of current maturities                                                                                                                              |       |                            | 130,378    |                            |       |   | 247,351 |   |   |
| Total liabilities                                                                                                                                                                  |       |                            | 15,924,321 |                            |       |   | 14,421,865 |   |   |
| Commitments and  contingencies                                                                                                                                                     |       |                            |       |                            |       |   |   |   |   |
| Stockholders’ equity:                                                                                                                                                         |       |                            |       |                            |       |   |   |   |   |
| Preferred stock,  par value $.00001; authorized 10,000,000 shares; none issued or outstanding                                                                                      |       |                            | —     |                            |       |   | — |   |   |
| Capital stock,  par value $0.0001; authorized 100,000,000 shares; issued and outstanding 23,595,663  shares and 12,500,000 shares at December 31, 2006 and 2005, respectively |       |                            | 236        |                            |       |   | 125 |   |   |
| Additional paid  in capital                                                                                                                                                        |       |                            | 17,802,373 |                            |       |   | 49,875 |   |   |
| Retained earnings                                                                                                                                                                  |       |                            | (1,914,349 | )                               |       |   | 695,152 |   |   |
| Total stockholders’ equity                                                                                                                                                    |       |                            | 15,888,260 |                            |       |   | 745,152 |   |   |
| Total liabilities  and stockholders’ equity                                                                                                                                   |       |                            | $          | 31,812,581                      |       |   |   | $ | 15,167,017 |   |   |

 

The accompanying notes are an integral part of these financial statements

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**INFOLOGIX, INC.**CONSOLIDATED STATEMENTS OF OPERATIONS

| ** **                                    | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Revenues                                      |       | $                           | 60,786,377 |                        | $          | 55,472,056                  |       | $ | 46,114,627 |   |
| Cost of sales                                 |       | 45,836,514                  |       | 42,605,150                  |       | 34,792,507                  |       |
| Gross profit                                  |       | 14,949,863                  |       | 12,866,906                  |       | 11,322,120                  |       |
| Selling, general  and administrative expenses |       | 17,897,567                  |       | 11,661,138                  |       | 10,176,068                  |       |
| Operating (loss)  income                      |       | (2,947,704                  | )          | 1,205,768                   |       | 1,146,052                   |       |
| Interest expense                              |       | (664,534                    | )          | (525,205                    | )          | (282,495                    | )          |
| Interest income                               |       | 55,788                      |       | —                      |       | —                      |       |
| Income (loss)  before income tax benefit      |       | (3,556,450                  | )          | 680,563                     |       | 863,557                     |       |
| Income tax  benefit                           |       | 1,686,964                   |       | —                      |       | —                      |       |
| Net (loss) income                             |       | $                           | (1,869,486 | )                           | $          | 680,563                     |       | $ | 863,557 |   |
| (Loss) earnings per  share:                   |       |                        |       |                        |       |                        |       |
| Basic                                         |       | $                           | (0.14      | )                           | $          | 0.05                        |       | $ | 0.07 |   |
| Diluted                                       |       | $                           | (0.14      | )                           | $          | 0.05                        |       | $ | 0.07 |   |
| Weighed average shares  outstanding:          |       |                        |       |                        |       |                        |       |
| Basic and diluted                             |       | 13,503,170                  |       | 12,500,000                  |       | 12,500,000                  |       |

 

The accompanying notes are an integral part of these financial statements

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**INFOLOGIX, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

| ** **                                           | ** ** | ** **  | ** ** | ** ** | ** ** | **Additional**   | ** ** | **Retained**  | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|-------------|------------|------------|------------|------------------|------------|---------------|------------|------------|------------|
| ** **                                           | ** ** | **Capital** | ** ** | ** ** | ** ** | **Paid in** | ** ** | **Earnings**  | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **Stock**   | ** ** | **Shares** | ** ** | **Capital**      | ** ** | **(deficit)** | ** ** | **Total**  | ** ** |
| Balance at  December 31, 2003                   |       |        | $          | 125        |       |             | 12,500,000 |          | $          | 49,875     |       | $ | (658,968 | ) | $ | (608,968 | ) |
| Net income                                           |       |        |       |       |       |             |       |          |       | 863,557    |       | 863,557 |   |
| Dividends paid to  Stockholders                      |       |        |       |       |       |             |       |          |       | (19,873    | )          | (19,873 | ) |
| Balance at  December 31, 2004                   |       |        | 125        |       |       | 12,500,000       |       | 49,875        |       | 184,716    |       | 234,716 |   |
| Net income                                           |       |        |       |       |       |             |       |          |       | 680,563    |       | 680,563 |   |
| Dividends paid to  Stockholders                      |       |        |       |       |       |             |       |          |       | (170,127   | )          | (170,127 | ) |
| Balance at  December 31, 2005                   |       |        | 125        |       |       | 12,500,000       |       | 49,875        |       | 695,152    |       | 745,152 |   |
| Issuance of stock  in connection with reverse merger |       |        | 26         |       |       | 2,595,663        |       |          |       |       |       | 26 |   |
| Issuance of  common shares for cash                  |       |        | 85         |       |       | 8,500,000        |       | 14,979,064    |       |       |       | 14,979,149 |   |
| Stock based  compensation expense                    |       |        |       |       |       |             |       | 2,253,421     |       |       |       | 2,253,421 |   |
| Issuance of  warrants for services                   |       |        |       |       |       |             |       | 520,013       |       |       |       | 520,013 |   |
| Dividends paid to  Stockholders                      |       |        |       |       |       |             |       |          |       | (740,015   | )          | (740,015 | ) |
| Net (loss)                                           |       |        |       |       |       |             |       |          |       | (1,869,486 | )          | (1,869,486 | ) |
| Balance at  December 31, 2006                   |       |        | $          | 236        |       |             | 23,595,663 |          | $          | 17,802,373 |       | $ | (1,914,349 | ) | $ | 15,888,260 |   |

 

The accompanying notes are an integral part of these financial statements.

42

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**INFOLOGIX, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS**
|                                                                     | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Operating activities:                                               |       |                        |       |                        |       |                        |       |
| Net income (loss)                                                   |       | $                           | (1,869,486 | )                           | $          | 680,563                     |       | $ | 863,557 |   |
| Adjustments to  reconcile net income (loss) to operating cash flow: |       |                        |       |                        |       |                        |       |
| Depreciation and amortization                                       |       | 1,319,845                   |       | 1,044,903                   |       | 701,277                     |       |
| Allowance for doubtful accounts receivable                          |       | 20,000                      |       | —                      |       | 100,000                     |       |
| Inventory obsolescence                                              |       | 123,965                     |       | 35,000                      |       | (65,000                     | )          |
| Loss on impairment                                                  |       | —                      |       | —                      |       | 304,094                     |       |
| Stock based compensation                                            |       | 2,773,434                   |       | —                      |       | —                      |       |
| Deferred income tax benefit                                         |       | (1,686,964                  | )          | —                      |       | —                      |       |
| Changes in:                                                         |       |                        |       |                        |       |                        |       |
| Accounts receivable                                                 |       | (1,594,241                  | )          | (2,875,262                  | )          | (2,455,574                  | )          |
| Inventory                                                           |       | (439,148                    | )          | (91,578                     | )          | (460,131                    | )          |
| Prepaid expenses                                                    |       | (572,343                    | )          | 280,357                     |       | (404,593                    | )          |
| Accounts payable                                                    |       | (551,467                    | )          | 1,580,749                   |       | 1,508,868                   |       |
| Sales tax payable                                                   |       | 70,674                      |       | 113,975                     |       | (71,554                     | )          |
| Accrued expenses                                                    |       | 118,924                     |       | (294,211                    | )          | 566,978                     |       |
| Deferred revenue                                                    |       | (186,397                    | )          | 146,322                     |       | (305,602                    | )          |
| Net cash provided by (used in) operating activities                 |       | (2,473,204                  | )          | 620,818                     |       | 282,320                     |       |
| Investing  activities:                                              |       |                        |       |                        |       |                        |       |
| Acquisition of property and equipment                               |       | (959,487                    | )          | (790,068                    | )          | (791,162                    | )          |
| Acquisition of intangible assets                                    |       | (423,048                    | )          | (498,991                    | )          | (440,341                    | )          |
| Net cash used in investing activities                               |       | (1,382,535                  | )          | (1,289,059                  | )          | (1,231,503                  | )          |
| Financing  activities:                                              |       |                        |       |                        |       |                        |       |
| Proceeds from long-term debt                                        |       | 2,500,000                   |       | 917,892                     |       | 1,000,000                   |       |
| Repayment of long-term debt                                         |       | (1,160,597                  | )          | (389,282                    | )          | (1,389,744                  | )          |
| Net borrowings from line of credit                                  |       | 1,511,345                   |       | 409,888                     |       | 1,033,439                   |       |
| Repayment of notes payable—stockholders                        |       | (800,000                    | )          | —                      |       | —                      |       |
| Common stock issued for cash, net of offering costs                 |       | 14,979,149                  |       | —                      |       | —                      |       |
| Dividends paid to stockholders                                      |       | (740,015                    | )          | (170,127                    | )          | (19,873                     | )          |
| Net cash provided by financing activities                           |       | 16,289,882                  |       | 768,371                     |       | 623,822                     |       |
| Net change in  cash and cash equivalents                            |       | 12,434,143                  |       | 100,130                     |       | (325,361                    | )          |
| Cash and cash  equivalents at beginning of year                     |       | 447,901                     |       | 347,771                     | ** ** | 673,132                     | ** ** |
| Cash and cash  equivalents at end of year                           |       | $                           | 12,882,044 |                        | $          | 447,901                     |       | $ | 347,771 |   |
| SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION:                  |       |                        |       |                        |       |                        |       |
| Cash paid for interest                                              |       | $                           | 664,543    |                        | $          | 555,251                     |       | $ | 282,495 |   |
| SUPPLEMENTAL  DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:          |       |                        |       |                        |       |                        |       |
| Capital lease obligation incurred for new equipment                 |       |                        |       | $                           | 439,000    |                        |       |   |

 

The accompanying notes are an integral part of these financial statements.

43

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTEA—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

***Nature of business***

InfoLogix, Inc. (the “Company”)provides mobile workforce technology solutions by enabling real time datacommunications anywhere in an enterprise. The Company provides wireless networkdesign, hardware, software, consulting, system integration and networkmanagement solutions.

***Principles of consolidation***

The consolidated financialstatements include the accounts of the Company and its wholly-ownedsubsidiaries, OPT Acquisition LLC and Embedded Technologies, LLC. Allsignificant inter-company balances and transactions have been eliminated inconsolidation.

***Cash and cash equivalents***

For purposes of the cashflow statements, the Company considers all highly liquid investments withoriginal maturities of three months or less to be cash equivalents.

***Fair value of financial instruments***

The Company used the following methods and assumptionsin estimating the fair value disclosures for financial instruments:

Cash and cash equivalents: The carrying valueapproximates fair value due to the current maturity of these instruments.

Long- and short-termdebt:  The carrying value of the debt isconsidered to approximate fair value because the underlying interest ratesapproximate market rates at the balance sheet date.

***Concentrations of credit risk***

Financial instruments that subject the Company tocredit risk consist of cash equivalents and accounts receivable.

The Company’s policy is to limit the amount of creditexposure to any one financial institution, and place investments with financialinstitutions evaluated as being creditworthy, or in short-term money marketfunds which are exposed to minimal interest rate and credit risk. The Companymaintains its cash primarily in investment accounts within large financialinstitutions. The Federal Deposit Insurance Corporation insures these balancesup to $100,000 per bank. The Company has not experienced any losses on its bankdeposits and management believes these deposits do not expose the Company toany significant credit risk.

The Company grants credit, generally withoutcollateral, to its customers, which are primarily in the healthcare andcommercial markets. Consequently, the Company is subject to potential creditrisk related to changes in economic conditions within those markets. However,management believes that its billing and collection policies are adequate tominimize the potential credit risk.

The Company has a policy of reserving foruncollectible accounts based on its best estimate of the amount of probablecredit losses in its existing accounts receivable. The Company periodicallyreviews its accounts receivable to determine whether an allowance is necessarybased on an analysis of past due 

44

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTEA—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

accountsand other factors that may indicate that the realization of an account may bein doubt including historical experience and current economic and marketconditions. Account balances deemed to be uncollectible are charged to theallowance after all means of collection have been exhausted and the potentialfor recovery is considered remote.

***Inventory***

Inventory is stated at the lower of cost or market. Costis determined using the first in, first out method.

The Company periodicallyreviews its inventories and makes provisions as necessary for estimatedobsolescence and slow-moving goods. The amount of such markdown is equal to thedifference between cost of inventory and the estimated market value based uponassumptions about future demands, selling prices and market conditions.

***Property and equipment***

Propertyand equipment are recorded at cost less accumulated depreciation. Depreciationis computed over the lesser of the estimated useful lives or the lease term ofthe related assets using the straight line method. Maintenance and repairs thatneither add materially to the value of the asset nor appreciably prolong itsuseful life are charged to expense as incurred. Gains or losses on the disposalof property and equipment are included in the determination of income. Usefullives of property and equipment are as follows:
| Demonstration and evaluation  equipment |   | 3 years      |   |
|-----------------------------------------|--------|--------------|--------|
| Equipment                               |   | 3 to 5 years |   |
| Furniture and  fixtures                 |   | 5 years      |   |
| Leasehold improvements                  |   | 5 years      |   |

 

***Impairment of long-lived assets***

The Company assesses thepotential impairment of long-lived assets whenever events or changes incircumstances indicate that the carrying value may not be recoverable. An  asset’s value  is  impaired if  management’s estimate  of the aggregate  future cash flows,  undiscounted and without interest  charges, to be  generated by the asset are less than thecarrying value of the asset. Such cash flows consider factors such as expectedfuture operating income and historical trends, as well as the effects of demandand competition. To the  extent  impairment has  occurred,  the loss  is measured  as the excess of the  carrying  amount of the asset over the estimated fairvalue of the asset. Such estimates require the use of judgment and numeroussubjective assumptions, which, if actual experience varies, could result inmaterial differences in the requirements for impairment charges.

***Intangible assets***

The Company accounts for its intangible assets inaccordance with Statement of Financial Accounting Standards (SFAS) 142,Goodwill and Other Intangible Assets. The costs of successful registrations forpatents are amortized over the estimated useful lives of the assets, which isgenerally three years, using the straight-line method. The costs ofunsuccessful registrations are charged to expense. Acquired technology 

45

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTEA—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

isrecorded at its fair value at the date of acquisition and amortized over theestimated useful lives of the assets, which is generally five years, using thestraight-line method. Developed technology is also amortized using thestraight-line method, generally over five years. License fees are amortizedover the license period using the straight-line method.

***Software capitalization***

The Company capitalizescertain costs related to the acquisition and development of software andamortizes these costs using the straight-line method over the estimated usefullife of the software which is three to five years. In accordance with SFAS 86, *Accounting for the Costs of Compute Software to be Sold, Leased orOtherwise Marketed*, the Company expenses as incurred those costsincurred prior to achieving technological feasibility.

***Revenue recognition***

Revenue consists primarilyof sales of wireless products. Sales revenue is recognized when both the titleand risk of loss transfer to the customer, generally upon shipment. The Companyalso realizes revenue from the sale of component warranties on their wirelessmobile products as well as from the sale of proprietary learning technologies. Warrantyrevenue is recognized upon execution of the warranty agreement. There is noassociated warranty risk as the Company has contracted with another party tofully assume all risks and obligations. Revenue from the sale of proprietarylearning technologies is recognized upon delivery and acceptance by thecustomer.

***Advertising costs***

Advertising costs are expensed when incurred andapproximated $367,000, $117,000 and $133,000 for the years ended December 31,2006, 2005 and 2004, respectively

In accordance withEmerging Issues Task Force (EITF) 02-16, *Accountingby a Customer (Including a Reseller) for Certain Consideration Received from aVendor*, certain cooperative advertising reimbursements are netted againstspecific, identifiable costs incurred in connection with the selling of thevendor’s product. Cooperative advertising reimbursement of approximately$92,000, $167,000, and $55,000 for the years ended December 31, 2006, 2005and 2004, respectively, were recorded as a reduction of advertising expensewith the net amount included in selling, general and administrative expense inthe consolidated statement of operations.

***Income taxes***

The Company accounts forincome taxes in accordance with SFAS 109, *Accounting for IncomeTaxes*. Under SFAS 109, deferred tax assets and liabilities aredetermined based on the differences between the financial statement carryingamounts and the tax bases of existing assets and liabilities, and are measuredat the prevailing enacted tax rates that will be in effect when thesedifferences are settled or realized. SFAS 109 also requires that deferred taxassets be reduced by a valuation allowance if it is more likely than not thatsome portion or all of the deferred tax asset will not be realized.

46

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTEA—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

***Stock based compensation***

Effective January 1,2006, the Company adopted the provisions of SFAS 123(R), *Share-BasedPayment*, under the modified prospective method. SFAS 123(R) eliminatesaccounting for share-based compensation transactions using the intrinsic valuemethod prescribed under APB Opinion No. 25, *Accountingfor Stock Issued to Employees*, and requires instead that suchtransactions be accounted for using a fair-value-based method. Under themodified prospective method, the Company is required to recognize compensationcost for share-based payments to employees based on their grant-date fair valuefrom the beginning of the fiscal period in which the recognition provisions arefirst applied. For periods prior to adoption, the financial statements areunchanged, and the pro forma disclosures previously required by SFAS 123, asamended by SFAS 148, will continue to be required under SFAS 123(R) to theextent those amounts differ from those in the statement of operations.

***Non-employee stock based compensation***

The cost of stock basedcompensation awards issued to non-employees for services are recorded at eitherthe fair value of the services rendered or the instruments issued in exchangefor such services, whichever is more readily determinable, using themeasurement date guidelines enumerated in EITF 96-18, *Accounting for Equity Instruments That Are Issued to Other ThanEmployees for Acquiring, or in Conjunction with Selling, Goods or Services*.

***Earnings per share***

The Company has adoptedthe provisions of SFAS 128, *Earnings per Share*.Basic earnings per share is computed by dividing income or loss available tocommon stockholders by the weighted average number of common shares outstandingduring the period. SFAS 128 also requires a dual presentation of basic anddiluted earnings per share on the face of the statement of operations for allcompanies with complex capital structures. Diluted earnings per share reflectsthe amount of  earnings  for the  period  available to each  share  of common  stock outstanding duringthe reporting period, while giving effect to all dilutive potential  common shares that were  outstanding during the period,  such as commonshare equivalents that could  result fromthe  potential  exercise into common stock. The computation of diluted  earningsper share does not assume  exercise ofsecurities  that  would have an  anti-dilutive  effect on per share  amounts (*i.e.*,  increasing earnings  per share or  reducing loss per  share). Thedilutive  effect of outstanding  options are reflected in dilutive  earnings per share by the  application of the treasury stock methodwhich  recognizes the use of  proceeds that could be  obtained  upon exercise of options and warrants in  computing  diluted earnings  per share. It assumesthat any proceeds would be used to purchase common stock at the average marketprice during the period. Options will have a dilutive effect only when theaverage market price of the common stock during the period exceeds the exerciseprice of the options.

***Use of estimates***

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the reporting period. 

47

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTEA—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

Significantestimates are required in accounting for inventory costing, asset valuationsand amortization. Actual results could differ from those estimates.

***Variable interest entities***

In January 2003, theFinancial Accounting Standards Board (FASB) issued Interpretation No. 46(FIN 46), *Consolidation of Variable Interest Entities*.FIN 46 addresses consolidation by business enterprises of variable interestentities, which are entities that either (a) do no have equity investorswith vesting rights or (b) have equity investors that do not providesufficient financial resources for the entity to support its activities. In December 2003,the FASB published FIN 46 (revised December 31, 2003), *Consolidation of Variable Interest Entities* (FIN 46R). FIN46R, among other things, deferred the effective date of implementation forcertain entities. The Company adopted FIN 46R in 2004. Adoption of FIN 46R hadno impact on the Company’s consolidated financial statements.

***Recent accounting pronouncements***

In September 2006, the SEC issued SAB 108, *Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements*. SAB 108 providesinterpretive guidance on how the effects of the carryover or reversal of prioryear misstatements should be considered in quantifying a current yearmisstatement. The pronouncement prescribes an approach whereby the effect ofall unrecorded identified errors should be considered on all of the financialstatements rather than just either the effect on the balance sheet or theincome statement. The Company adopted the provisions of SAB 108 as of December 31,2006. The adoption of SAB 108 did not have a material impact on the Company’s consolidatedfinancial statements.

In June, 2006, the FASB issued FIN 48, *Accounting for Uncertainty in Income Taxes—an interpretation of FASBStatement No. 109* (FIN 48), which clarifies the accounting foruncertainty in tax positions. FIN 48 requires recognition and disclosure in thefinancial statements of the impact of a tax position, if that position is morelikely than not of being sustained on audit, based on the technical merits ofthe position. The provisions are effective for the Company beginning in thefirst quarter of 2007 with the cumulative effect, if any, of the change inaccounting principle recorded as an adjustment to the opening balance ofretained earnings. The Company is currently evaluating the impact of adoptingFIN 48 on its consolidated financial statements.

In September 2006,the FASB issued SFAS 157, *Fair Value Measurements*.SFAS 157 defines fair value, establishes a framework for measuring fair valueand expands disclosures about fair value measurements. SFAS 157 is effectivefor financial statements issued for fiscal years beginning after November 15,2007 and interim periods within those fiscal years. The Company is currentlyevaluating the impact that SFAS 157 will have on its consolidated financialstatements.

**NOTE B—MERGER AND OTHERACQUISITIONS**

On November 22, 2006, New Age Translation, Inc.,a Nevada corporation (“New Age-NV”) was merged with and into New AgeTranslation, Inc., a Delaware corporation (“New Age-DE”), for the solepurpose of changing the state of incorporation from Nevada to Delaware pursuantto a Certificate of Ownership and Merger dated November 22, 2006 andapproval by the stockholders on November 22, 2006. Under the terms of theCertificate of Ownership, each share of New Age-NV was exchanged for 

48

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTEB—MERGER AND OTHER ACQUISITIONS (Continued)**

3.18877518427542 shares ofNew Age-DE, or an aggregate of 18,539,539 shares. On November 22, 2006,15,943,876 shares of common stock of New Age-DE were cancelled and 2,595,663shares of common stock of New Age-DE remained outstanding.

On November 29, 2006, New Age-DE entered into anAgreement and Plan of Merger (the “Merger Agreement”) with InfoLogix, Inc.,a privately held Delaware corporation (“InfoLogix”), and INFLX AcquisitionCorp., a newly formed wholly-owned Delaware subsidiary of New Age-DE (“MergerSub”), pursuant to which Merger Sub merged with and into InfoLogix (the “Merger”)on November 29, 2006. As a result, InfoLogix is now a wholly ownedsubsidiary of New Age-DE. In connection with the Merger, New Age-DE changed itsname to “InfoLogix, Inc.” and InfoLogix changed it name to “InfoLogixSystems Corporation.”

Pursuant to the terms and conditions of the MergerAgreement, each share of InfoLogix common stock issued and outstandingimmediately prior to the closing of the Merger was converted into the right toreceive 25,000 shares of New Age-DE common stock. As a result, 12,500,000shares of New Age common stock were issued to the shareholders of InfoLogix. Immediatelyafter closing of the Merger on November 29, 2006, there were 15,095,663shares of New Age-DE common stock issued and outstanding, approximately 82.8%of which shares are currently held by the former stockholders of InfoLogix.

On November 29, 2006, concurrent with the Merger,the Company closed on a private placement of 8,500,000 shares of its commonstock to accredited investors. The shares were sold for an aggregate purchaseprice of $17,000,000 before costs associated with the private placement of$2,020,825.  The private placement wasexempt from registration under the Securities Act of 1933 as amended. See noteN for additional information.

The Merger was accounted for under the purchase methodof accounting as a reverse acquisition in accordance with accounting principlesgenerally accepted in the United States of America. Under this method ofaccounting, New Age-DE was treated as the “acquired” company for financialreporting purposes. In accordance with guidance applicable to thesecircumstances, this merger was considered to be a capital transaction insubstance. Accordingly, for accounting purposes, the Merger was treated as theequivalent of InfoLogix issuing stock for the net monetary assets of NewAge-DE, accompanied by a recapitalization. All historical share and per shareamounts have been retroactively adjusted to give effect to the reverseacquisition of InfoLogix and related recapitalization.

In February 2004, theCompany acquired certain assets in a transaction accounted for using thepurchase method. The aggregate purchase price of $200,000 was allocatedentirely to patented technology based on their estimated fair values at thedate of acquisition.

**NOTE C—INVENTORY**

Inventoryconsists of the following:

| ** **                                              | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Finished goods                                          |       |                        | $          | 2,426,166                   |       |   |   | $ | 1,987,018 |   |   |
| Less: allowance  for slow moving and obsolete inventory |       |                        | (198,965   | )                           |       |   | (75,000 | ) | * * |
|                                                    |       |                        | $          | 2,227,201                   |       |   |   | $ | 1,912,018 |   |   |

 

49

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTE D—PROPERTY ANDEQUIPMENT**

Propertyand equipment consists of the following:
|                                         | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Demonstration and  evaluation equipment |       | $                           | 2,477,581  |                        | $          | 1,914,116 |   |
| Equipment                               |       | 973,664                     |       | 577,641                     |       |
| Furniture and  fixtures                 |       | 295,425                     |       | 295,425                     |       |
| Leasehold  improvements                 |       | 40,587                      |       | 40,587                      |       |
|                                    |       | 3,787,257                   |       | 2,827,769                   |       |
| Less: accumulated  depreciation         |       | (2,346,919                  | )          | (1,488,927                  | )          |
|                                    |       | $                           | 1,440,338  |                        | $          | 1,338,842 |   |

 

Depreciation expense was$857,992, $736,503, and $504,177 for the years ended December 31, 2006,2005 and 2004, respectively.

**NOTE E—INTANGIBLE ASSETS**

Intangibleassets consist of the following:
|                                 | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Patents                         |       |                        | $          | 639,881                     |       |   |   | $ | 639,881 |   |   |
| Less: accumulated  amortization |       |                        | (576,921   | )                           |       |   | (421,876 | ) |   |
|                            |       |                        | 62,960     |                        |       |   | 218,005 |   |   |
| Computer software               |       |                        | 411,765    |                        |       |   | 153,716 |   |   |
| Less: accumulated  amortization |       |                        | (79,558    | )                           |       |   | (7,643 | ) |   |
|                            |       |                        | 332,207    |                        |       |   | 146,073 |   |   |
| Developed  technology           |       |                        | 457,525    |                        |       |   | 457,525 |   |   |
| Less: accumulated  amortization |       |                        | (390,716   | )                           |       |   | (225,821 | ) |   |
|                            |       |                        | 66,809     |                        |       |   | 231,704 |   |   |
| License fees                    |       |                        | 515,000    |                        |       |   | 350,000 |   |   |
| Less: accumulated  amortization |       |                        | (105,000   | )                           |       |   | (35,000 | ) |   |
|                            |       |                        | 410,000    |                        |       |   | 315,000 |   |   |
| Total net intangible  assets    |       |                        | $          | 871,976                     |       |   |   | $ | 910,782 |   |   |

 

Developed technology relates primarily to wearablecomputer and cart technology which is not patented. Amortization expenserelated to intangible assets was $461,855, $308,400, and $197,100 for the yearsended December 31, 2006, 2005 and 2004, respectively.

50

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTEE—INTANGIBLE ASSETS (Continued)**

Amortization expensesubsequent to the year ended December 31, 2006 is as follows:
| Years ended December 31: | ** ** | ** ** | ** ** | **Amount** | ** ** |
|-----------------------------------------|------------|------------|------------|------------|------------|
| 2007                                    |       | $          | 358,444    |       |
| 2008                                    |       | 255,352    |       |
| 2009                                    |       | 148,260    |       |
| 2010                                    |       | 60,420     |       |
| 2011                                    |       | 33,000     |       |
|                                         |            |            |            |            |            |  |

 

**NOTE F—DEBT**

In March 2006, theCompany executed a Loan and Security Agreement with a bank. Under the terms ofthe agreement and subsequent amendments, the Bank provided the Company with an$8,500,000 line of credit and two term loans amounting to $1,500,000 and $1,000,000,respectively. The proceeds from the loans were used to pay off existing loansand to provide working capital. The loans are collateralized by all of thetangible and intangible assets of the Company. The bank has imposed financialcovenants related to the loans based on annual and quarterly net income,fixed-charge coverage, and annual capital expenditures. At December 31,2006, the Company was not in compliance with the covenants, however, on March 23,2007 the Company entered into an amendment to the Loan and Security Agreementwhich waived the non-compliance with these covenants. The amendment alsolowered the quarterly net income covenant to a cumulative balance of $0 throughSeptember 30, 2007, and adjusted the fixed charge coverage ratio to 1.0 to1.0 at December 31, 2007 and 1.2 to 1.0 as of the end of each fiscalquarter thereafter.

***Lines of credit***

At December 31, 2006, the outstanding balance ofthe line of credit is $5,954,672. Outstanding borrowings against this line ofcredit bear interest at 1.25% above the prime rate under the credit facility(9.50% at December 31, 2006). The loan and security agreement containscertain financial covenants with which the Company must comply including:minimum annual and quarterly net income tests, fixed-charge coverage ratio, andmaximum annual capital expenditures. At December 31, 2006, the Company wasnot in compliance with the covenants, however, on March 23, 2007 theCompany entered into an amendment to the Loan and Security Agreement whichwaived the non-compliance with these covenants. The amendment also lowered thequarterly net income covenant to a cumulative balance of $0 through September 30,2007, and adjusted the fixed charge coverage ratio to 1.0 to 1.0 at December 31,2007 and 1.2 to 1.0 as of the end of each fiscal quarter thereafter.

At December 31, 2005,the Company had a $6,000,000 line of credit with a commercial bank. At December 31,2005 the Company owed $4,443,327 on the line of credit. Outstanding borrowingsagainst the line of credit bore interest at 2% above the prime rate (9.25% at December 31,2005). The line was repaid in March 2006.

51

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTEF—DEBT (Continued)**

***Notes payable***

Notespayable consist of the following:
|                                                                                                                                                                                                                                                     | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Notes payable,  stockholders, unsecured loans. The notes were repaid in August 2006.  Interest was payable monthly ranging from 6–10%.                                                                                                    |       |                        | $          | —                      |       |   |   | $ | 800,000 |   |   |
| Note payable, bank.  Interest was payable at the prime rate plus 2.5% (9.75% at December 31,  2005). The note was repaid in March, 2006                                                                                                        |       |                        | —     |                        |       |   | 571,428 |   |   |
| Note payable, bank,  principal payable $41,667 monthly over thirty-five months commencing  March 2006 for the period ended December 31, 2006. Interest was  payable monthly at the prime rate plus 1.0% (9.25% at December 31, 2006) |       |                        | 1,083,333  |                        |       |   | — |   |   |
| Note payable, bank,  principal payable $27,778 monthly over thirty-five months commencing  December 2006. Interest was payable monthly at the prime rate plus 1.0%  (9.25% at December 31, 2006)                                          |       |                        | 944,445    |                        |       |   | — |   |   |
| Total                                                                                                                                                                                                                                               |       |                        | 2,027,778  |                        |       |   | 1,371,428 |   |   |
| Less: current maturities                                                                                                                                                                                                                            |       |                        | 833,333    |                        |       |   | 1,085,714 |   |   |
|                                                                                                                                                                                                                                                |       |                        | $          | 1,194,445                   |       |   |   | $ | 285,714 |   |   |

 

Aggregate maturities of notes payable are as followsat December 31, 2006:

| **Years ending December 31:** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                         |       | 833,333    |       |
| 2008                                         |       | 833,333    |       |
| 2009                                         |       | 361,111    |       |

 

***Letter of Credit***

In November 2006 theCompany issued a letter of credit to a vendor for $243,000 to support acustomer order for products. In December 2006 the Company made a paymentto the vendor for $81,543, and at December 31, 2006 the liability underthe letter of credit was $161,458.

**NOTE G—CAPITAL LEASEOBLIGATION**

Equipmentacquired under capital lease obligations is classified as property andequipment in the accompanying condensed consolidated financial statements andconsisted of the following:

| ** **                      | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Equipment                       |       |                        | $          | 439,031                     |       |   |   | $ | 439,031 |   |   |
| Less: accumulated  depreciation |       |                        | (188,945   | )                           |       |   | (66,921 | ) |   |
|                            |       |                        | $          | 250,086                     |       |   |   | $ | 372,110 |   |   |

 

52

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTE G—CAPITAL LEASEOBLIGATION (Continued)**

Thecapital lease obligations expire in 2009 and bear interest at 10.3% imputedbased on the lessor’s implicit rate of return. Future minimum capital leasepayments are as follows:

| ** **                                   | ** ** | **Amount** | ** ** |
|----------------------------------------------|------------|------------|------------|
| 2007                                         |       | 133,897    |       |
| 2008                                         |       | 133,897    |       |
| 2009                                         |       | 13,404     |       |
| Total                                        |       | $          | 281,198    |   |
| Less: amount  representing interest          |       | 33,847     |       |
| Net present value  of minimum lease payments |       | 247,351    |       |
| Less: current  portion                       |       | 116,973    |       |
|                                         |       | $          | 130,378    |   |

 

**NOTE H—LEASE COMMITMENTS**

The Company leases its facilities in Pennsylvania andMinnesota under agreements expiring between 2007 and 2011. Total rent expensefor all leases were approximately $265,000, $305,000, and $181,000 for theyears ended December 31, 2006, 2005, and 2004, respectively.

Futureminimum lease payments required under the operating leases in effect subsequentto December 31, 2006 are approximately as follows:

| ** ** | ** ** | **Amount** | ** ** |
|------------|------------|------------|------------|
| 2007       |       | $          | 223,100    |   |
| 2008       |       | 227,700    |       |
| 2009       |       | 232,200    |       |
| 2010       |       | 236,800    |       |
| 2011       |       | 241,500    |       |
|            |            |            |            |  |

 

**NOTE I—RELATED PARTYTRANSACTIONS**

***Notes payable—stockholders***

As described in Note F,the Company was indebted to certain stockholders for notes payable. Interestpaid to Stockholders approximated $70,800, $52,500 and $24,000 for the yearsended December 31, 2006, 2005, and 2004, respectively.

***Support services***

A stockholder of the Company owns another entity whichprovided the Company with shared occupancy, accounting, office andadministrative services for the years ended December 31, 2006, 2005 and2004 at costs of $0, $184,000, and $558,000, respectively.

Beginning in 2004, the Company has an agreement with astockholder’s company whereby the Company transferred its warranty risks forextended battery warranties sold. Payments under this agreement approximated$158,000, $152,000 and $73,000 for the years ended December 31, 2006, 2005and 2004, respectively. This same company also provides certain customers withtechnical support. Technical 

53

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTEI—RELATED PARTY TRANSACTIONS (Continued)**

support expenses wereapproximately $1,242,000, $460,000 and $528,000 for the years ended December 31,2006, 2005 and 2004, respectively.

Beginning in May 2006, the Company has anagreement with a stockholder’s company to provide the Company with consultingservices with respect to software development. Payments under this agreementapproximated $116,000 for the year ended December 31, 2006.

During the years ended December 31,2006, 2005 and 2004, a stockholder performed legal services for the Company atcosts approximating $36,000, $134,000 and $28,000, respectively.

***Due from related party***

There is approximately$104,000 due from a related party at December 31, 2006 for the sale ofcertain hardware products. Such amount is classified as accounts receivable inthe accompanying financial statements.

**NOTE J—EMPLOYEE BENEFITPLAN**

The Company has a definedcontribution plan covering substantially all employees. As allowed under Section 401(K) ofthe Internal Revenue Code, the plan provides tax deferred salary deductions foreligible employees. Company contributions are at the discretion of the board ofdirectors. The Company did not make a contribution to the plan for the yearsended December 31, 2006, 2005 or 2004.

**NOTE K—CONCENTRATIONS OFCREDIT RISK**

At December 31,2006 and 2005, the Company had significant customer accounts receivable asfollows:

| ** ** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------|------------|----------|------------|----------|------------|
| Company A  |       |     | 0          | %        |       |   | 23 | % |   |
| Company B  |       |     | 0          | %        |       |   | 17 | % |   |

 

For the years ended December 31, 2006, 2005 and2004, the Company had sales to significant customers as follows:

| ** ** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| Company A  |       |     | 13         | %        |       |     | 11         | % |   |   | 12 | % |   |
| Company B  |       |     | 0          | %        |       |     | 14         | % |   |   | 5 | % |   |

 

**NOTE L—COMMITMENTS ANDCONTINGENCIES**

***Litigation***

The Company is involved indisputes or legal actions arising in the ordinary course of business. Managementdoes not believe the outcome of such legal actions will have a material adverseeffect on the Company’s financial position, results of operations or cashflows.

54

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTEL—COMMITMENTS AND CONTINGENCIES (Continued)**

***Employment Agreements***

In July, 2006, the Companyentered into employment agreements with three executives of the Company. Theemployment contracts expire in December 2008. In addition to the paymentof total annual salaries of $925,000, in the aggregate, the employmentagreements allow for the granting of 900,000 options and 1,500,000 warrants topurchase the Company’s common stock at an exercise price of $2.00 per share;which the company granted on November 29, 2006. The agreements also callfor the payment of discretionary bonuses based upon revenue and net incometargets that are set by the compensation committee of the board of directors. SeeNote N for additional information.

**NOTE M—INCOME TAXES**

Prior to the Merger discussed in Note B, the Companyfiled its Federal and state Income Tax Returns as a Sub-Chapter S Corporation. Therefore,any income tax liability from its operations was payable directly by itsshareholders. As a result of the Merger, the Company’s Sub-Chapter SCorporation status was terminated on November 30, 2006. In accordance withSFAS 109, when the Company changes its tax status from a nontaxable Sub-ChapterS Corporation to a taxable C Corporation, deferred tax assets and liabilitiesshall be recognized for timing differences at the date that a nontaxableenterprise becomes a taxable enterprise. As a result, the Company recorded anet deferred tax asset of $151,760 with the offset being recorded as an incometax benefit in the statement of operations for the year ended December 31,2006.

As of December 31, 2006, the Company has netoperating losses (“NOL”) of approximately $608,000 which will be available tooffset future taxable income. Included in the NOL’s are losses of $65,000generated by New Age Translation, Inc. which are subject to restrictionsunder Internal Revenue Code Section 382, due to change in ownership inthat entity. Therefore, the Company has recorded a valuation allowance againstthe net operating losses generated by New Age Translation, Inc. If notused, the NOL’s will expire beginning after 2024. The Company’s state NOL’swill also be subject to expiration in varying years starting in 2013 through 2026.

Theprovision for income taxes for the years ended December 31, 2006, 2005 and2004 is as follows:

| ** **                              | ** ** | **2006**   | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Current income  tax expense (benefit):  |       | —     |       |     | —     |     |       |   | — |   |   |
| Federal                                 |       | —     |       |     | —     |     |       |   | — |   |   |
| State                                   |       | —     |       |     | -          |     |       |   | - |   |   |
|                                    |       | —     |       |     | —     |     |       |   | — |   |   |
| Deferred income  tax expense (benefit): |       |       |       |     |       |     |       |   |   |   |   |
| Federal                                 |       | (1,452,070 | )          |     | —     |     |       |   | — |   |   |
| State                                   |       | (234,894   | )          |     | —     |     |       |   | — |   |   |
|                                    |       | (1,686,964 | )          |     | —     |     |       |   | — |   |   |
| Income tax  expense (benefit)           |       | (1,686,964 | )          |     | —     |     |       |   | — |   |   |

 

55

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTE M—INCOME TAXES(Continued)**

TheCompany’s deferred tax assets and liabilities are as follows:

| Net operating loss  carryforwards |   | $         | 240,134   |   |
|-----------------------------------|--------|-----------|-----------|--------|
| Allowance for  doubtful accounts  |   | 47,100    |      |
| Inventory reserve                 |   | 49,919    |      |
| Deferred tax  assets-current      |   | 337,153   |      |
| Property and  equipment           |   | 125,561   |      |
| Intangible assets                 |   | (86,604   | )         |
| Stock based  compensation         |   | 1,336,529 |      |
| Deferred tax  assets-long-term    |   | 1,375,486 |      |
| Total net  deferred tax assets    |   | 1,712,639 |      |
| Valuation  allowance              |   | (25,675   | )         |
|                              |   | $         | 1,686,964 |   |

 

A reconciliation of theUnited States statutory income tax rate to the effective income tax rate forthe twelve month period ended December 31, 2006 is as follows:

| Tax at the  Federal statutory rate                 |   | (1,427,570 | )      | 34.0 | %  |
|----------------------------------------------------|--------|------------|--------|------|----|
| State taxes                                        |   | (213,504   | )      | 5.1  | %  |
| Permanent differences                              |   | 196,564    |   | (4.7 | %) |
| Income taxable to  S Corp. period                  |   | (90,694    | )      | 2.2  | %  |
| Impact of change  from S to C Corporate tax status |   | (151,760   | )      | 3.6  | %  |
| Effective tax rate                                 |   | (1,686,964 | )      | 40.2 | %  |

 

The following un-auditedpro-forma tax provision was prepared as if the Company was a taxable entity foreach of the three years in the period ended December 31, 2006.

| ** **                                                     | ** ** | **Year Ended December 31** | ** ** |
|----------------------------------------------------------------|------------|-------------------------------------------|------------|
| **(Unaudited)**                                                | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                     | ** ** | **Amount**                                | ** ** | **Rate** | ** ** | **Amount** | ** ** | **Rate** | ** ** | **Amount** | ** ** | **Rate** | ** ** |
| Tax at the  Federal statutory rate                             |       | (1,427,570                                | )          | 34.0 | % | 231,391 |   | 34.0 | % | 293,609 |   | 34.0 | % |
| Permanent  differences                                         |       | 223,445                                   |       | (5.3 | %) | 37,928 |   | 5.6 | % | 29,820 |   | 3.5 | % |
| Federal tax provision                                          |       | (1,204,125                                | )          | 28.7 | % | 269,319 |   | 39.6 | % | 323,429 |   | 37.5 | % |
| State & local  tax provision (Net of Federal benefit) |       | (194,875                                  | )          | 4.6 | % | 43,681 |   | 6.4 | % | 48,571 |   | 5.6 | % |
| Total tax provision                                            |       | (1,399,000                                | )          | 33.3 | % | 313,000 |   | 46.0 | % | 372,000 |   | 43.1 | % |

 

56

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTE N—EQUITY**

On November 29, 2006, concurrent with the mergerdiscussed in Note B, the Company closed a private placement of 8,500,000 sharesof its common stock to accredited investors. The shares were sold for anaggregate purchase price of $17,000,000, before costs associated with theprivate placement of $2,020,825. The private placement was exempt fromregistration under the Securities Act of 1933 as amended (Securities Act), andRegulation D promulgated thereunder.

In connection with the private placement, the Companyentered into a registration rights agreement with investors in the privateplacement, and certain consultants and advisors to InfoLogix whereby it agreed,to the extent permissible, to file within 90 days after the closing of theprivate placement a shelf registration statement with the U.S. Securities andExchange Commission (SEC) covering the resale of (i) all shares of commonstock issued in connection with the private placement and certain othertransactions, and (ii) the shares of common stock underlying the warrantsissued to certain consultants and advisors. The Company is obligated tomaintain the effectiveness of the registration statement from its effectivedate through and until the first anniversary of the closing of the privateplacement, unless all securities registered under the registration statementhave been sold or are otherwise able to be sold pursuant to Rule 144(k) ofthe Securities Act. The Company also agreed to use its best efforts to have theregistration statement declared effective by the SEC as soon as possiblefollowing filing. However, there are no specific penalty provisions in connectionwith the registration rights agreement and therefore the investors in theprivate placement are not entitled to receive any extra benefit if theregistration does not occur.

The registration rightsagreement contains a “market standoff” provision pursuant to which, in thecontext of an underwritten public offering, investors in the private placementwill agree not to offer, sell, pledge or otherwise transfer or dispose of anyof our securities for a period not to exceed the earlier of (i) 180 days followingthe date of a final prospectus relating to such pubic offering or (ii) thefirst anniversary of the closing date of the private placement.

**NOTE O—STOCK BASEDCOMPENSATION EXPENSE**

In November, 2006, the Company’s board of directorsapproved the 2006 Equity Compensation Plan (Plan). In accordance with the plan,the board of directors may grant options to purchase shares of our common stockto our employees, officers, consultants and non-employee directors. The Planprovides for the issuance of options to purchase up to 3,860,000 shares of ourcommon stock. On November 29, 2006, the Company granted 617,000 incentivestock options to purchase common stock to employees at $2.00 per share. Inaddition, on November 29, 2006, the Company granted 1,495,000 nonqualifiedstock options to purchase the Company’s common stock to executive officers,directors and a consultant of the Company at $2.00 per share. The incentivestock options and the non-qualified options expire November 29, 2016.

The Plan also provides that employees, consultants andnon-employee directors are eligible to receive nonqualified stock options,while only employees are eligible to receive incentive stock options. Theincentive stock options offer employees certain tax advantages that are notavailable under nonqualified stock options. The board of directors, or acommittee thereof whose members are appointed by the Board, administers thePlan, and has discretion in setting the terms of options granted to employees,consultants and non-employee directors.

Upon the closing of the Merger and the privateplacement as discussed in Note N, the Company granted 2,650,000 warrants topurchase shares of the Company’s common stock at $2.00 per share to 

57

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTEO—STOCK BASED COMPENSATION EXPENSE (Continued)**

certain officers,directors and consultants to the Company. The warrants vest 100% on the grantdate and are exercisable 25% on the first anniversary and the remainder ratablyon a monthly basis over the following three years.

Under SFAS 123(R), the Company estimated the fairvalue of stock options and warrants granted using the Black-Scholes valuationmodel and straight-line amortization. This model utilizes the estimated fairvalue of common stock and requires that, at the date of grant, we use the expectedterm of the option, the expected volatility of the price of our common stock,risk free interest rates and expected dividend yield of our common stock. Thisfair value is then amortized on a straight-line basis over the requisiteservice periods of the awards, which is generally the vesting period. Employeeoptions typically vest with respect to 25% of the shares one year after theoptions’ grant date and the remainder ratably on an annual basis over thefollowing three years. Director options typically vest with respect to 50% ofthe shares six months after the options’ grant date and the remainder ratablyon a monthly basis over the following three years. Fully vested warrants weregranted to employees and non-employee consultants that become exercisableratably on a monthly basis over the following four year. These fully vestedwarrants were fully expensed as of December 31, 2006.

The fair value of optionsand warrants granted were estimated at the date of grant using the following assumptions:

| ** **                                                | ** ** | **Year ended  December 31,  2006** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------------|------------|
| **Employee and Non-employee Stock  Options and Warrants** |       |                                         |       |   |   |
| Expected life in  years                                   |       |                                         | 6.25       |   |   |
| Risk-free  interest rate                                  |       |                                         | 4.51       | % |   |
| Volatility                                                |       |                                         | 66.63      | % |   |
| Dividend yield                                            |       |                                         | —     |   |   |
| Fair value of grants                                      |       |                                         | $          | 1.47 |   |   |
|                                                           |            |                                              |            |  |  |  |

 

The expected term represents the period thatstock-based awards are expected to be outstanding, giving consideration to thecontractual terms of the stock-based awards, vesting schedules and expectationsof future employee behavior as influenced by changes to the terms of ourstock-based awards. For the year ended December 31, 2006, we have electedto use the simplified method of determining the expected term as permitted bySEC Staff Accounting Bulletin 107. The computation of expected volatility forthe year ended December 31, 2006 is based on the historical volatility ofcomparable companies from a representative peer group selected based onindustry and market capitalization data. As required by SFAS 123(R), managementestimates expected forfeitures and is recognizing compensation costs only forthose equity awards expected to vest.

For the year ended December 31, 2006, therecognized compensation cost for stock options and warrants granted toemployees was $2,253,421. At December 31, 2006, the total compensationcost related to stock options granted under SFAS 123(R) to employees anddirectors but not yet recognized was approximately $2,659,833, net of estimatedforfeitures of $323,777. This cost will be amortized on a straight-line basisover the vesting period, which is typically 4 years. For the year ended December 31,2006, the recognized compensation cost for warrants issued to consultants was$520,013. In addition, the 

58

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**INFOLOGIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

**NOTEO—STOCK BASED COMPENSATION EXPENSE (Continued)**

Companyrecorded an income tax benefit of $1,336,529 related to the granting of thenonqualified options and warrants. See Note M for additional information.

**NOTEP—SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)**

| **2006 Quarter Ended**                                            | ** ** | ** ** | ** ** | **Dec 31,** | ** ** | **Sep 30,** | ** ** | **Jun 30,** | ** ** | **Mar 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| Revenues                                                                    |       | $          | 16,439,964 |             | $          | 15,960,764       |       | $                | 15,331,675 |             | $          | 13,053,974 |   |
| Gross profit                                                                |       | 3,748,676  |       | 4,238,620        |       | 3,670,032        |       | 3,292,535        |       |
| Net (loss) income                                                           |       | (2,529,714 | )          | 169,674          |       | 398,258          |       | 92,295           |       |
| Basic net (loss)  income per share                                          |       | $          | (0.15      | )                | $          | 0.01             |       | $                | 0.03       |             | $          | 0.01 |   |
| Diluted net (loss)  income per share                                        |       | $          | (0.15      | )                | $          | 0.01             |       | $                | 0.03       |             | $          | 0.01 |   |
| Shares used in  computing basic net income(loss) per share (in thousands)   |       | 16,480     |       | 12,500           |       | 12,500           |       | 12,500           |       |
| Shares used in computing  diluted net income(loss) per share (in thousands) |       | 16,480     |       | 12,500           |       | 12,500           |       | 12,500           |       |

 

| **2005 Quarter Ended**                                            | ** ** | ** ** | ** ** | **Dec 31,** | ** ** | **Sep 30,** | ** ** | **Jun 30,** | ** ** | **Mar 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|------------------|------------|------------------|------------|------------------|------------|------------------|------------|
| Revenues                                                                    |       | $          | 16,121,982 |             | $          | 15,875,437       |       | $                | 12,878,506 |             | $          | 10,596,131 |   |
| Gross profit                                                                |       | 3,417,724  |       | 3,368,234        |       | 3,309,435        |       | 2,771,513        |       |
| Net (loss) income                                                           |       | 234,344    |       | 364,631          |       | 327,240          |       | (245,652         | )          |
| Basic net (loss)  income per share                                          |       | $          | 0.02       |             | $          | 0.03             |       | $                | 0.03       |             | $          | (0.02 | ) |
| Diluted net  (loss) income per share                                        |       | $          | 0.02       |             | $          | 0.03             |       | $                | 0.03       |             | $          | (002 | ) |
| S Shares used in  computing basic net income(loss) per share (in thousands) |       | 12,500     |       | 12,500           |       | 12,500           |       | 12,500           |       |
| Shares used in computing  diluted net income(loss) per share (in thousands) |       | 12,500     |       | 12,500           |       | 12,500           |       | 12,500           |       |

 

59

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**Item 9. Changes inand Disagreements with Accountants on Accounting and Financial Disclosure**

None

**Item 9A. Controlsand Procedures**

The Company maintains disclosure controls andprocedures that are designed to ensure that information required to be disclosedin the Company’s reports filed under the Securities Exchange Act of 1934, asamended (the “Exchange Act”), is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms and that such information is accumulated and communicated to the Company’smanagement, including its Chief Executive Officer and Chief Financial Officer,as appropriate, to allow for timely decisions regarding required disclosure. Indesigning and evaluating the disclosure controls and procedures, managementrecognizes that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, and management is required to apply its judgment inevaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 15d-15(b), the Company carried out anevaluation under the supervision and with the participation of the Company’smanagement, including the Company’s Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures as of December 31, 2006. Based on theforegoing, the Company’s Chief Executive Officer and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures were designedto ensure that the information the Company is required to disclose in itsreports under the Exchange Act is recorded, processed and reported in anaccurate manner and on a timely basis and the information that the Company isrequired to disclose in its Exchange Act reports is accumulated andcommunicated to management to permit timely decisions with respect to requireddisclosure.

This annual report doesnot include a report of management’s assessment regarding internal control overfinancial reporting or an attestation report of the Company’s registered publicaccounting firm due to a transition period established by the rules of theSecurities Exchange Commission for newly public companies.

**Item 9B. OtherInformation**

None.

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**PART III**

**Item 10. Directors,Executive Officers and Corporate Governance**

The information required by this item isincorporated by reference to, and will be contained in, our definitive proxystatement, which we anticipate will be filed no later than April 30, 2007,and thus we have omitted this information in accordance with GeneralInstruction G(3) to Form 10-K.

**Item 11. ExecutiveCompensation**

The information required by this item isincorporated by reference to, and will be contained in our definitive proxystatement, which we anticipate will be filed no later than April 30, 2007,and thus we have omitted this information in accordance with GeneralInstruction G(3) to Form 10-K.

**Item 12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters

The information required by this item isincorporated by reference to, and will be contained in, our definitive proxystatement, which we anticipate will be filed no later than April 30, 2007,and thus we have omitted this information in accordance with GeneralInstruction G(3) to Form 10-K.

**Item 13. CertainRelationships, Related Transactions, and Director Independence**

The information required by this item isincorporated by reference to, and will be contained in, our definitive proxystatement, which we anticipate will be filed no later than April 30, 2007,and thus we have omitted this information in accordance with GeneralInstruction G(3) to Form 10-K.

**Item 14. PrincipalAccountant Fees and Services**

The information required by this item isincorporated by reference to, and will be contained in, our definitive proxystatement, which we anticipate will be filed no later than April 30, 2007,and thus we have omitted this information in accordance with GeneralInstruction G(3) to Form 10-K.

**PART IV**

**Item 15. Exhibitsand Financial Statement Schedules**

*(a) FinancialStatements and Schedules*

The following financial statements and scheduleslisted below are included in this Form 10-K.

FinancialStatements (See Item 8)

Reportof Independent Registered Public Accounting Firm

ConsolidatedBalance Sheets as of December 31, 2006 and 2005

ConsolidatedStatements of Operations for the Years Ended December 31, 2006, 2005 and2004

ConsolidatedStatements of Stockholders’ Equity for the Years Ended December 31, 2006,2005, and 2004

ConsolidatedStatements of Cash Flows for the Years Ended December 31, 2006, 2005, and2004

Notesto Consolidated Financial Statements

FinancialStatement Schedules

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Schedule II-Valuation andQualifying Account

**INFOLOGIX, INC.**

**SCHEDULEII-VALUATION AND QUALIFYING ACCOUNT**

| ** **                         | ** ** | **Allowance for  Doubtful  Receivables and  Sales Returns** | ** ** | **Reserve for Excess  and Obsolete  Inventory** | ** ** |
|------------------------------------|------------|----------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| Balance at  December 31, 2003 |       |                                                                       | $          | 0                                                              |       |   |   | $ | 105,000 |   |   |
| Charges to operations              |       |                                                                       | 100,000    |                                                           |       |   | 0 |   |   |
| Deductions                         |       |                                                                       | 0          |                                                           |       |   | (65,000 | ) |   |
| Balance at December 31, 2004  |       |                                                                       | 100,000    |                                                           |       |   | 40,000 |   |   |
| Charges to operations              |       |                                                                       | 95,482     |                                                           |       |   | 35,000 |   |   |
| Deductions                         |       |                                                                       | (95,482    | )                                                              |       |   | 0 |   |   |
| Balance at December 31, 2005  |       |                                                                       | 100,000    |                                                           |       |   | 75,000 |   |   |
| Charges to operations              |       |                                                                       | 20,000     |                                                           |       |   | 123,965 |   |   |
| Deductions                         |       |                                                                       | 0          |                                                           |       |   | 0 |   |   |
| Balance at  December 31, 2006 |       |                                                                       | $          | 120,000                                                        |       |   |   | $ | 198,965 |   |   |

 

*(b)**         **Exhibits*
| Exhibit No. | ** ** | ** **                                                                                                                                                                                                                                                                              | ** ** | **Description** |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| 2.1              |       | Agreement and Plan of Merger between  New Age Translation, Inc., INFLX Acquisition Corp. and  InfoLogix, Inc. dated as of November 29, 2006 (incorporated herein  by reference to Exhibit 2.1 of our Current Report on Form 8-K  dated December 5, 2006). |
| 3.1              |       | Certificate of Incorporation of New Age  Translation, Inc. (incorporated herein by reference to Exhibit 3.1  of our Current Report on Form 8-K dated November 28, 2006).                                                                                            |
| 3.2              |       | Certificate of Amendment of New Age  Translation, Inc. changing corporate name to InfoLogix, Inc  (incorporated herein by reference to Exhibit 3.2 of our Current Report  on Form 8-K dated December 5, 2006).                                                      |
| 3.3              |       | By-laws of New Age  Translation, Inc. (incorporated herein by reference to Exhibit 3.2  of our Current Report on Form 8-K dated November 28, 2006).                                                                                                                 |
| 4.1              |       | Warrant dated as of November 29,  2006 between InfoLogix, Inc. and Warren V. Musser (incorporated herein  by reference to Exhibit 4.1 of our Current Report on Form 8-K  dated December 5, 2006).                                                              |
| 4.2              |       | Warrant dated as of November 29,  2006 between InfoLogix, Inc. and Michael M. Carter (incorporated herein  by reference to Exhibit 4.2 of our Current Report on Form 8-K  dated December 5, 2006).                                                             |
| 4.3              |       | Warrant dated as of November 29,  2006 between InfoLogix, Inc. and Karen Keating Mara (incorporated herein  by reference to Exhibit 4.3 of our Current Report on Form 8-K  dated December 5, 2006).                                                            |
| 4.4              |       | Warrant dated as of November 29,  2006 between InfoLogix, Inc. and David T. Gulian (incorporated herein by  reference to Exhibit 4.4 of our Current Report on Form 8-K  dated December 5, 2006).                                                               |

 

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| 4.5   |   | Warrant dated as of November 29,  2006 between InfoLogix, Inc. and Richard D. Hodge (incorporated herein  by reference to Exhibit 4.5 of our Current Report on Form 8-K  dated December 5, 2006).                                                                         |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.6   |   | Warrant dated as of November 29,  2006 between InfoLogix, Inc. and Craig A. Wilensky (incorporated herein  by reference to Exhibit 4.6 of our Current Report on Form 8-K  dated December 5, 2006).                                                                        |
| 4.7   |   | Warrant dated as of November 29,  2006 between InfoLogix, Inc. and Fairmount Partners LP (incorporated  herein by reference to Exhibit 4.7 of our Current Report on Form 8-K  dated December 5, 2006).                                                                    |
| 10.1  |   | Registration Rights Agreement dated as  of November 29, 2006 by and among InfoLogix, Inc. and the investors  set forth on the signature pages thereto (incorporated herein by  reference to Exhibit 10.1 of our Current Report on Form 8-K  dated December 5, 2006). |
| 10.2  |   | Employment Agreement dated as of  July 17, 2006 by and between David T. Gulian and InfoLogix, Inc.  (incorporated herein by reference to Exhibit 10.2 of our Current Report  on Form 8-K dated December 5, 2006).                                                         |
| 10.3  |   | Employment Agreement dated as of  September 18, 2006 by and between John A. Roberts and  InfoLogix, Inc. (incorporated herein by reference to Exhibit 10.3  of our Current Report on Form 8-K dated December 5, 2006).                                                    |
| 10.4  |   | Employment Agreement dated as of  July 17, 2006 by and between Richard D. Hodge and InfoLogix, Inc.  (incorporated herein by reference to Exhibit 10.4 of our Current Report  on Form 8-K dated December 5, 2006).                                                        |
| 10.5  |   | Employment Agreement dated as of  July 17, 2006 by and between Craig A. Wilensky and InfoLogix, Inc.  (incorporated herein by reference to Exhibit 10.5 of our Current Report  on Form 8-K dated December 5, 2006).                                                       |
| 10.6  |   | New Age Translation, Inc. 2006  Equity Compensation Plan (incorporated herein by reference to  Exhibit 10.1 of our Current Report on Form 8-K dated  November 28, 2006).                                                                                                       |
| 10.7  |   | Consulting Agreement effective as of  July 17, 2006 by and between Corrugated Service Corp. d/b/a Amtech and  InfoLogix, Inc (incorporated herein by reference to Exhibit 10.7 of our  Current Report on Form 8-K dated December 5, 2006).                                     |
| 10.8  |   | Services Agreement effective as of  July 17, 2006 by and between Futura Services, Inc. and InfoLogix,  Inc (incorporated herein by reference to Exhibit 10.8 of our Current  Report on Form 8-K dated December 5, 2006).                                                  |
| 10.9  |   | Amendment dated October 9, 2006 to  Services Agreement dated as of July 17, 2006 by and between Futura  Services, Inc. and InfoLogix, Inc (incorporated herein by reference to  Exhibit 10.9 of our Current Report on Form 8-K dated  December 5, 2006).             |
| 10.10 |   | Advisory Agreement dated as of  July 17, 2006 by and between Warren V. Musser and InfoLogix, Inc  (incorporated herein by reference to Exhibit 10.10 of our Current Report  on Form 8-K dated December 5, 2006).                                                               |
| 10.11 |   | Form of Lock-up Agreement between  the former stockholders of InfoLogix, Inc. and InfoLogix, Inc  (incorporated herein by reference to Exhibit 10.11 of our Current Report  on Form 8-K dated December 5, 2006).                                                          |

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| 10.12 |   | Loan and Security Agreement between  InfoLogix Inc., OPT Acquistion LLC, Embedded Technologies, LLC and Sovereign  Bank dated March 16, 2006 (incorporated herein by reference to  Exhibit 10.12 of our Current Report on Form 8-K dated  December 5, 2006). |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.13 |   | First Amendment to Loan and Security  Agreement between InfoLogix Inc., OPT Acquisition LLC, Embedded Technologies,  LLC and Sovereign Bank (incorporated herein by reference to  Exhibit 10.13 of our Current Report on Form 8-K dated  December 5, 2006).       |
| 10.14 |   | Second Amendment to Loan and Security  Agreement between InfoLogix Inc., OPT Acquisition LLC, Embedded Technologies,  LLC and Sovereign Bank (incorporated herein by reference to  Exhibit 10.14 of our Current Report on Form 8-K dated  December 5, 2006).      |
| 10.15 |   | Securities Pledge Agreement between New  Age Translation, Inc. and Sovereign Bank (incorporated herein by  reference to Exhibit 10.15 of our Current Report on Form 8-K  dated December 5, 2006).                                                            |
| 10.16 |   | Surety Agreement between New Age  Translation, Inc. and Sovereign Bank (incorporated herein by reference  to Exhibit 10.16 of our Current Report on Form 8-K dated  December 5, 2006).                                                                       |
| 10.17 |   | Third Amendment to Loan and Security  Agreement between InfoLogix Inc., OPT Acquisition LLC, Embedded Technologies,  LLC and Sovereign Bank.*                                                                                                                                    |
| 10.18 |   | Securities Pledge Agreement between  InfoLogix Systems Corporation and Sovereign Bank.*                                                                                                                                                                                          |
| 21    |   | Direct and Indirect Subsidiaries of the  Registrant.*                                                                                                                                                                                                                            |
| 31.1  |   | Certification pursuant to Exchange Act  Rules 13a-14(a)/15d-14(a), as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                             |
| 31.2  |   | Certification pursuant to Exchange Act  Rules 13a-14(a)/15d-14(a), as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                             |
| 32.1  |   | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.*                                                                                                                                             |
| 32.2  |   | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.*                                                                                                                                        |

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(*)          Filed herewith.

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**SIGNATURES**

Pursuantto the requirements of section 13 or 15(d) of the Securities Exchange Actof 1934, the Registrant has duly caused this report to be signed on its behalfby the undersigned; thereunto duly authorized, in Hatboro, Pennsylvania on March 29,2007.

|        | INFOLOGIX, INC. |
|--------|-----------------|
|   | By:             | /s/ DAVID T. GULIAN |
|   |            | David T. Gulian |
|   |            | *President and Chief Executive Officer* |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed by the following persons in the capacities indicated on March 29,2007.
|                        | **Signatures** | ** **                                       | ** ** | ** ** | **Title(s)** | ** ** |
|------------------------|----------------|--------------------------------------------------|------------|------------|--------------|------------|
| /s/ WARREN V.  MUSSER  |           | Chairman of the  Board of Directors              |
| Warren  V. Musser      |           |                                             |
| /s/ DAVID T.  GULIAN   |           | President, Chief  Executive Officer and Director |
| David  T. Gulian       |           | (Principal Executive  Officer)                   |
| /s/ JOHN A.  ROBERTS   |           | Chief Financial  Officer                         |
| John  A. Roberts       |           | (Principal Financial and  Accounting Officer)    |
| /s/ WAYNE D.  HOCH     |           | Director                                         |
| Wayne  D. Hoch         |           |                                             |
| /s/ RICHARD D.  HODGE  |           | Director                                         |
| Richard  D. Hodge      |           |                                             |
| /s/ THOMAS C.  LYNCH   |           | Director                                         |
| Thomas  C. Lynch       |           |                                             |
| /s/ THOMAS O.  MILLER  |           | Director                                         |
| Thomas  O. Miller      |           |                                             |
| /s/ JAKE  STEINFELD    |           | Director                                         |
| Jake  Steinfeld        |           |                                             |
| /s/ CRAIG A.  WILENSKY |           | Director                                         |
| Craig A. Wilensky      |           |                                             |
| /s/ RICHARD A. VERMEIL |           | Director                                         |
| Richard A. Vermeil     |           |                                             |

 

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| Exhibit Number | ** ** | ** ** | ** ** | ** **                                                                                                                                   | **Description** | ** ** |
|---------------------|------------|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|-----------------|------------|
|                | 10.17      |       |       | Third Amendment to Loan and Security  Agreement between InfoLogix Inc., OPT Acquisition LLC, Embedded Technologies,  LLC and Sovereign Bank. |
|                | 10.18      |       |       | Securities Pledge Agreement between  InfoLogix Systems Corporation and Sovereign Bank.                                                       |
|                | 21         |       |       | Direct and Indirect Subsidiaries of the  Registrant.                                                                                         |
|                | 31.1       |       |       | Certification pursuant to Exchange Act  Rules 13a-14(a)/15d-14(a), as adopted                                                           |
|                |       |       |       | pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                             |
|                | 31.2       |       |       | Certification pursuant to Exchange Act  Rules 13a-14(a)/15d-14(a), as adopted                                                           |
|                |       |       |       | pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                                             |
|                | 32.1       |       |       | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906                                              |
|                |       |       |       | of the Sarbanes-Oxley Act of 2002.                                                                                                           |
|                | 32.2       |       |       | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906                                              |
|                |       |       |       | of the Sarbanes-Oxley Act of 2002.                                                                                                           |
|                     |            |            |            |                                                                                                                                              |                 |            |  |  |

 

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