**Table
            of Contents**





**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-QSB**




QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (D)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934




**For
      the Quarterly Period Ended September 30, 2006**




Commission
      File No. 000-30486




**ACTIVECORE
      TECHNOLOGIES, INC** **.**


(Exact
      Name of Registrant as specified in its charter)




**NEVADA**
            
            **65-6998896**(State
                or Other Jurisdiction of
            
            (I.R.S.
                Employer Identification No.)Incorporation
                or Organization)




**156
      Front Street West, Suite 210, Toronto, Ontario, Canada M5J
      2L6**


(Address
      of principal Executive Offices)




**(416)
      252-6200**


(Registrant’s
      Telephone Number, Including Area Code)







Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the preceding 12 months (or for such shorter
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirements for the past 90 days.


Yesx
            Noo




State
      the
      number of shares outstanding of each of the issuer’s classes of common equities
      as of the latest practicable date: as of September 30, 2006, there were
      114,568,086 outstanding shares of the issuer’s common stock., $0.001par
      value.




Transitional
      Small Business Disclosure Format (Check one):


Yes
                  o
              No
                  x







**Table
        of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**




**FORM
      10-QSB**





**TABLE
      OF CONTENTS**





**Page**PART
                I FINANCIAL INFORMATION
            
            3ITEM
                1. CONDENSED CONSOLIDATED FINANCIAL
                STATEMENTS
            
            3ITEM
                2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION
            
            20ITEM
                3. CONTROLS AND PROCEDURES
            
            30PART
                II OTHER INFORMATION
            
            32ITEM
                1. LEGAL PROCEEDINGS
            
            32PART
                2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS
            
            34ITEM
                3. DEFAULTS UPON SENIOR SECURITIES
            
            34ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
                HOLDERS
            
            34ITEM
                5. SUBSEQUENT EVENTS
            
            34ITEM
                6. EXHIBITS AND REPORTS ON FORM
                8-K
            
            35SIGNATURES
            
            36OFFICER’S
                CERTIFICATE PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF
                2002
            
            37OFFICER’S
                CERTIFICATE PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF
                2002
            
            38CERTIFICATION
                PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
                906 OF
                THE SARBANES-OXLEY ACT OF 2002
            
            39CERTIFICATION
                PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
                906 OF
                THE SARBANES-OXLEY ACT OF 2002
            
            40




-2-
 **Table
          of Contents**




**PART
      I**




**FINANCIAL
      INFORMATION**




**Item
      1. Consolidated Financial Statements**




**ActiveCore
      Technologies, Inc. As of September 30, 2006**




**INDEX
      TO FINANCIAL STATEMENTS**




Page
            4
            Condensed
                Consolidated Balance Sheets as of September 30, 2006 (Unaudited)
                and
                December 31, 2005Page
            5
            Condensed
                Consolidated Statements of Operations and Comprehensive Loss for
                the Three
                and Nine Months Ended September 30, 2006 and 2005
                (Unaudited)Page
            6
            Condensed
                Consolidated Statement of Stockholders' Equity (Deficiency) for the
                Nine Months Ended September 30, 2006 (Unaudited)Pages
            7
                -
                8
            Condensed
                Consolidated Statements of Cash Flows for the Nine Months Ended September
                30, 2006 and 2005 (Unaudited)Pages
            9
                -
                19
            Notes
                to Condensed Consolidated Financial Statements as of September 30,
                2006
                (Unaudited)




-3-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**





**ASSETS**September
                30, 2006 (Unaudited)
            
            December
                31, 2005**CURRENT
                ASSETS**Cash
            
            $
            94,007
            
            $
            109,789Accounts
                receivable, net
            
            
            93,353
            
            
            3,496,221Taxes
                recoverable
            
            
            131,902
            
            
            128,095Deferred
                consulting and financing expense
            
            
            225,390
            
            
            352,750Prepaid
                expenses and other current assets
            
            
            101,165
            
            
            130,252Due
                from related parties
            
            
            202,510
            
            
            —Current
                assets from discontinued operations
            
            
            —
            
            
            209,326Total
                Current Assets
            
            
            848,327
            
            
            4,426,433**CAPITAL
                ASSETS**
            
            
            148,873
            
            
            335,663**OTHER
                ASSETS**Goodwill
                and other intangible assets, net
            
            
            495,201
            
            
            5,100,982Deferred
                consulting and financing expense
            
            
            17,851
            
            
            125,505Other
                assets from discontinued operations
            
            
            —
            
            
            69,343Total
                Other Assets
            
            
            513,052
            
            
            5,295,830**TOTAL
                ASSETS**
            
            $
            1,510,252
            
            $
            10,057,926**LIABILITIES
                AND STOCKHOLDERS’ EQUITY (DEFICIENCY)****CURRENT
                LIABILITIES**Line
                of credit
            
            $
            1,388,698
            
            $
            1,274,486Accounts
                payable
            
            
            2,830,354
            
            
            2,141,769Accrued
                liabilities
            
            
            1,146,715
            
            
            1,050,872Taxes
                payable
            
            
            410,942
            
            
            484,008Leases
                payable, current portion
            
            
            20,265
            
            
            18,788Long-term
                debt, current portion
            
            
            350,484
            
            
            117,576Deferred
                tax liability
            
            
            —
            
            
            340,736Due
                to related parties
            
            
            169,238
            
            
            11,863Other
                current liabilities
            
            
            —
            
            
            42,794Current
                liabilities from discontinued operations
            
            
            —
            
            
            345,929Total
                Current Liabilities
            
            
            6,316,696
            
            
            5,828,821**LONG-TERM
                LIABILITIES**Long-term
                debt
            
            
            261,007
            
            
            231,939Leases
                payable, long-term portion
            
            
            22,698
            
            
            21,485Redeemable
                prefered shares
            
            
            281,250
            
            
            375,000Total
                Long-Term Liabilities
            
            
            564,955
            
            
            628,424**TOTAL
                LIABILITIES**
            
            
            6,881,651
            
            
            6,457,245**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS’
                EQUITY **(DEFICIENCY)****Preferred
                stock, $.001 par value 50,000,000 shares authorized, 0 shares issued
                and
                outstanding
            
            
            —
            
            
            —Common
                stock, $0.01 par value, 500,000,000 shares authorized, 114,568,086,
                and
                79,242,114 shares issued and outstanding as of September 30, 2006
                and
                December 31, 2005, respectively
            
            
            1,145,680
            
            
            792,422Common
                stock to be issued
            
            
            241,042
            
            
            311,025Additional
                paid-in capital
            
            
            45,056,733
            
            
            43,137,898Accumulated
                deficit
            
            
            (51,208,845
            )
            
            (40,736,105
            )Accumulated
                other comprehensive income (loss)
            
            
            (398,144
            )
            
            312,441Treasury
                stock
            
            
            (25,478
            )
            
            (112,000
            )Deferred
                compensation
            
            
            (182,387
            )
            
            (105,000
            )Total
                Stockholders' Equity (Deficiency)
            
            
            (5,371,399
            )
            
            3,600,681**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            1,510,252
            
            $
            10,057,926 See
      accompanying notes to condensed consolidated financial statements.




-4-
 **Table
            of Contents**


**ACTIVECORE
      TECHNOLOGIES, INC.**


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


**(Unaudited)**




For
                the Three Months Ended
              September
                30, 2006
            
            For
                the Three Months Ended
              September
                30, 2005
            
            For
                the Nine Months Ended
              September
                30, 2006
            
            For
                the Nine Months Ended
              September
                30, 2005**REVENUES**
            
            $
            572,043
            
            $
            2,708,373
            
            $
            3,609,484
            
            $
            4,665,541**COST
                OF SALES**Direct
                wages
            
            
            150,415
            
            
            1,593,180
            
            
            2,880,495
            
            
            2,850,559Amortization
                of licensing agreements and other costs
            
            
            68,465
            
            
            121,215
            
            
            184,467
            
            
            224,618Total
                Cost of Sales
            
            
            218,880
            
            
            1,714,395
            
            
            3,064,962
            
            
            3,075,177**GROSS
                PROFIT**
            
            
            353,163
            
            
            993,978
            
            
            544,522
            
            
            1,590,364**OPERATING
                EXPENSES**Salaries
                and wages
            
            
            343,912
            
            
            515,702
            
            
            1,410,242
            
            
            937,411Consulting
                fees
            
            
            122,288
            
            
            131,096
            
            
            423,745
            
            
            511,126Research
                and development
            
            
            55,000
            
            
            55,000
            
            
            165,000
            
            
            165,000Legal
                and accounting
            
            
            142,229
            
            
            281,182
            
            
            512,941
            
            
            628,745General
                and administrative
            
            
            993,383
            
            
            289,288
            
            
            1,599,569
            
            
            996,239Financial
                advisory fees
            
            
            13,023
            
            
            16,043
            
            
            138,049
            
            
            65,679Depreciation
                & amortization of intangible assets
            
            
            108,845
            
            
            84,045
            
            
            328,909
            
            
            300,472**Total
                Operating Expenses**
            
            
            1,778,680
            
            
            1,372,356
            
            
            4,578,455
            
            
            3,604,672**LOSS
                FROM OPERATIONS**
            
            
            (1,425,517
            )
            
            (378,378
            )
            
            (4,033,933
            )
            
            (2,014,308
            )**OTHER
                INCOME (EXPENSE)**Gain/
                (loss) on settlement of debt
            
            
            110,463
            
            
            (74,463
            )
            
            —
            
            
            (74,463
            )Interest
                expense, net
            
            
            (156,582
            )
            
            (74,070
            )
            
            (534,485
            )
            
            (189,974
            )Foreign
                exchange gain/ (loss)
            
            
            2,156
            
            
            31,367
            
            
            (65,270
            )
            
            (5,928
            )Total
                Other Expense, net
            
            
            (43,963
            )
            
            (117,166
            )
            
            (599,755
            )
            
            (270,365
            )**LOSS
                FROM CONTINUING OPERATIONS**
            
            
            (1,469,480
            )
            
            (495,544
            )
            
            (4,633,688
            )
            
            (2,284,673
            )Loss
                from discontinued operations - net
            
            
            (6,029,526
            )
            
            (15,165
            )
            
            (5,819,552
            )
            
            (461,466
            )Loss
                before income taxes
            
            
            (7,499,006
            )
            
            (510,709
            )
            
            (10,453,20
            )
            
            (2,746,139
            )Income
                tax benefit
            
            
            9,000
            
            
            18,600
            
            
            27,000
            
            
            18,600**NET
                LOSS**
            
            
            (7,490,006
            )
            
            (492,109
            )
            
            (10,426,240
            )
            
            (2,727,539
            )Preferred
                stock dividends
            
            
            11,250
            
            
            12,500
            
            
            46,500
            
            
            36,092**NET
                LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS**
            
            $
            (7,501,256
            )
            $
            (504,609
            )
            $
            (10,472,7
            )
            $
            (2,763,631
            )**OTHER
                  COMPREHENSIVE LOSS**Foreign
                currency translation
            
            
            (57,746
            )
            
            (511,109
            )
            
            (710,585
            )
            
            (517,748
            )**COMPREHENSIVE LOSS**
            
            $
            (7,559,0002
            )
            $
            (1,015,718
            )
            $
            (11,183,325
            )
            $
            (3,281,379
            )**LOSS
                PER COMMON SHARE FROM CONTINUING OPERATIONS-BASIC AND
                DILUTED**
            
            $
            (0.02
            )
            $
            (0.01
            )
            $
            (0.05
            )
            $
            (0.04
            )**GAIN
                (LOSS) PER COMMON SHARE FROM DISCONTINUED OPERATIONS - BASIC AND
                DILUTED**
            
            $
            (0.06
            )
            $
            0.00
            
            $
            0.09
            
            $
            0.01**NET
                LOSS PER COMMON SHARE - BASIC AND DILUTED**
            
            $
            (0.08
            )
            $
            (0.01
            )
            $
            (0.12
            )
            $
            (0.05
            )**WEIGHTED
                AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND
                DILUTED**
            
            
            **96,592,820**
            
            
            **61,313,668**
            
            
            **90,105,638**
            
            
            **55,918,440**


See
      accompanying notes to condensed consolidated financial statements.


-5-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY **(DEFICIENCY)****


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2006**


**(UNAUDITED)**




**Common**
            
            **Common
                Stock**
            
            **Common
                Stock**
              **to
                be Issued**
            
            **Treasury**
            
            **Additional
                Paid-in**
            
            **Accumulated**
            
            **Accumulated
                Other**
              **Comprehensive******
            
            **Deferred****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Stock**
            
            **Capital**
            
            **Deficit**
            
            **Income
                (Loss)**
            
            **Compensation**
            
            **Total****Balance,
                December 31, 2005**
            
            
            **79,242,114**
            
            **$**
            **792,422**
            
            
            **5,173,105**
            
            **$**
            **311,025**
            
            **$**
            (112,000
            )
            **$**
            **43,137,898**
            
            **$**
            (40,736,105
            )
            **$**
            **312,441**
            
            **$**
            (105,000
            )
            
            **3,600,681**Stock
                issued for financing services
            
            
            250,000
            
            
            2,500
            
            
            —
            
            
            —
            
            
            —
            
            
            45,000
            
            
            —
            
            
            —
            
            
            —
            
            
            47,500Stock
                Issued upon conversion of preferred shares
            
            
            4,166,667
            
            
            41,667
            
            
            (4,166,667
            )
            
            (291,667
            )
            
            —
            
            
            250,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stock
                issued for employment and director services
            
            
            6,772,500
            
            
            67,725
            
            
            —
            
            
            —
            
            
            —
            
            
            574,550
            
            
            —
            
            
            —
            
            
            (612,275
            )
            
            30,000Stock
                issued for consulting services
            
            
            3,791,521
            
            
            37,915
            
            
            —
            
            
            —
            
            
            86,522
            
            
            141,785
            
            
            —
            
            
            —
            
            
            —
            
            
            266,222Stock
                issued for settlement of debt
            
            
            960,925
            
            
            9,607
            
            
            —
            
            
            —
            
            
            —
            
            
            125,393
            
            
            —
            
            
            —
            
            
            —
            
            
            135,000Stock
                to be issued for settlement of debt
            
            
            ,6,575,180
            
            
            65,752
            
            
            
            
            
            
            
            
            —
            
            
            328,759
            
            
            —
            
            
            —
            
            
            —
            
            
            394,511Stock
                to be issued in private placements
            
            
            11,781,998
            
            
            117,820
            
            
            5567,613
            
            
            179,184
            
            
            —
            
            
            412,370
            
            
            —
            
            
            —
            
            
            —
            
            
            709,374Redemption
                of prefered shares
            
            
            760,114
            
            
            7,601
            
            
            —
            
            
            31,250
            
            
            —
            
            
            30,324
            
            
            —
            
            
            —
            
            
            —
            
            
            69,175Prefered
                stock dividend
            
            
            267,067
            
            
            2,671
            
            
            —
            
            
            11,250
            
            
            —
            
            
            10,653
            
            
            (46,500
            )
            
            —
            
            
            —
            
            
            (21,926
            )Deferred
                cost recognized
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            452,388
            
            
            452,388Net
                loss for period
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (10,426,240
            )
            
            —
            
            
            —
            
            
            (10,426,240
            )Foreign
                currency translation adjustment
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (710,585
            )
            
            —
            
            
            (710,585
            )**Balance,
                September30, 2006**
            
            
            **114,568,088**
            
            **$**
            **1,145,680**
            
            
            **6,574,051**
            
            **$**
            **241,042**
            
            **$**
            (25,478
            )
            **$**
            **45,056,732**
            
            **$**
            (51,208,845
            )
            **$**
            (398,144
            )
            **$**
            (264,887
            )
            **$**
            **(5,371,400**
            **)**


See
      accompanying notes to condensed consolidated financial statements.


-6-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**




For
                the Nine
              Months
                Ended September 30, 2006
            
            For
                the Nine
              Months
                Ended September 30, 2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (10,426,240
            )
            $
            (2,727,539
            )Adjustments
                to reconcile net loss from operations to net cash used in operating
                activities:Depreciation
            
            
            232,850
            
            
            108,113Amortization
                of intangible assets
            
            
            96,059
            
            
            330,638Amortization
                of deferred consulting fees
            
            
            289,122
            
            
            398,366Deferred
                taxes
            
            
            (340,736
            )
            
            —Bad
                debt expense
            
            
            —
            
            
            —Loss from
                disposition of discontinued operations
            
            
            5,819,552
            
            
            16,434Gain on
                extinguishment of debt
            
            
            110,463
            
            
            74,463Amortization
                of deferred compensation
            
            
            534,888Changes
                in operating assets and liabilities, net of effects of
                acquisitions:Decrease in
                accounts receivables
            
            
            2,023,565
            
            
            219,989(Increase)
                decrease in prepaid expenses and other current assets
            
            
            29,974
            
            
            (154,748
            )Decrease
                in other receivables
            
            
            —
            
            
            22,237Increase
                (decrease) in accounts payable
            
            
            292,337
            
            
            (926,523
            )Increase
                (decrease) in accrued liabilities
            
            
            50,454
            
            
            874,020(Decrease)
                increase in taxes payable
            
            
            (58,120
            )
            
            111,933(Decrease)
                increase in other current liabilities
            
            
            (100,923
            )
            
            108,978Discontinuned
                operations
            
            
            232,627
            
            
            —Net
                Cash Used In Operating Activities
            
            
            (1,214,128
            )
            
            (1,543,639
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchases
                of capital assets
            
            
            (126,312
            )
            
            (66,154
            )Proceeds
                from sale of investments
            
            
            226,752
            
            
            250,000Acquisition
                of Cratos Technology Solutions, Inc.
            
            
            —
            
            
            (143,249
            )Acquisition
                of Disclosure Plus
            
            
            —
            
            
            (160,000
            )Net
                Cash Provided By (Used In) Investing Activities
            
            
            100,440
            
            
            (119,403
            )




-7-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**




For
                the Nine
              Months
                Ended September 30, 2006
            
            For
                the Nine
              Months
                Ended September 30, 2005CASH
                FLOWS FROM FINANCING ACTIVITIES:Net
                proceeds from line of credit
            
            $
            136,224
            
            $
            1,678,184Proceeds
                from loan payable
            
            
            215,028
            
            
            —Proceeds
                from common shares to be issued
            
            
            851,875
            
            
            —Advance
                of notes payable
            
            
            —
            
            
            (35,407
            )Proceeds
                received from related parties
            
            
            (45,135
            )
            
            23,628Preferred
                stock dividend
            
            
            (46,500
            )
            
            (48,280
            )Proceeds
                from issuance of common stock
            
            
            —
            
            
            51,217Payments
                on leases
            
            
            (17,218
            )
            
            (29,081
            )Net
                Cash Provided By Financing Activities
            
            
            1,094,274
            
            
            1,6460,261FOREIGN
                EXCHANGE GAIN
            
            
            3,632
            
            
            1,150DECREASE
                IN CASH
            
            
            (15,782
            )
            
            (21,364
            )CASH
                - BEGINNING OF PERIOD
            
            
            109,789
            
            
            53,736CASH
                - END OF PERIOD
            
            $
            94,007
            
            $
            32,105Non-Cash
                Transactions:Issuance
                of common shares related to acquisition of Disclosureplus
            
            $
            —
            
            $
            176,000Issuance
                of common shares related to acquisition of Cratos Technology
                Solutions
            
            $
            —
            
            $
            1,947,787Issuance
                of common shares to vendor
            
            $
            —
            
            $
            467,779Common
                shares to be issued for conversion of preferred shares
            
            $
            291,667
            
            $
            —Issuance
                of common shares for employment/director services
            
            $
            539,888
            
            $
            —Issuance
                of common shares for consulting services
            
            $
            266,222
            
            $
            —Issuance
                of common shares for settlement of other liabilities
            
            $
            135,000
            
            $
            —Issuance
                of common shares for financing services
            
            $
            47,500
            
            $
            —Issuance
                of common shares for conversion of prefered shares and
                prefered share dividends
            
            $
            93,750
            
            $
            —Common
                shares to be issued for settlement of debt
            
            $
            394,511
            
            $
            —Note
                received from sale of MDI
            
            $
            161,948
            
            $
            —


See
      accompanying notes to condensed consolidated financial statements.


-8-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**


**(Unaudited)**






**NOTE
                1**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION**




***Basis
      of Presentation and Going Concern***




The
      accompanying unaudited interim condensed consolidated financial statements
      have
      been prepared pursuant to the rules and regulations for reporting on Form
      10-QSB. Accordingly, certain information and disclosures required by generally
      accepted accounting principles "GAAP" for complete financial statements are
      not
      included herein. The interim statements should be read in conjunction with
      the
      financial statements and notes thereto included in the Company’s latest Annual
      Report on Form 10-KSB. The results for the three and nine month periods may
      not
      be indicative of the results for the entire year. The condensed consolidated
      balance sheet information as of December 31, 2005 was derived from the audited
      consolidated financial statements included in the Company's Annual Report on
      Form 10-KSB. These interim condensed financial statements should be read in
      conjunction with that report.




Certain
      prior period amounts have been reclassified to conform to the current period's
      presentation.




Interim
      statements are subject to possible adjustments in connection with the annual
      audit of the Company’s accounts for the year ended 2006. In the Company’s
      opinion, all adjustments necessary for a fair presentation of these interim
      statements have been included and are of a normal and recurring nature.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. The Company had a net loss of
      $10,472,740 and incurred negative cash flows from operations of $1,140,128
      for
      the nine months ended September 30, 2006 and has a working capital deficiency
      of
      $5,468,369 and an accumulated deficit of $51,208,845 at September 30, 2006.
      These matters raise substantial doubt about its ability to continue as a going
      concern. The condensed consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty. The
      Company’s ability to continue as a going concern is dependent on its ability to
      raise additional debt and equity financing and to implement its business plan
      to
      market and sell its various enterprise software and services. At the current
      time, management anticipates that it will be able to address its need for
      financing through the execution of private placements of the Company’s shares to
      both related and unrelated parties.


-9-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**


**(Unaudited)**






**NOTE
                1**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION -
                (Continued)**





***Recent
      Accounting Pronouncements***





In
      December 2004 the FASB issued SFAS No. 123 (revised 2004), Shares - Based
      Payment, (“SFAS No. 123(R)”), which amends, “Accounting for Stock Based
      Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued
      to
      Employees. SFAS No. 123(R) requires compensation expense to be recognized for
      all share based payments made to employees based on the fair value of the award
      at the date of grant, eliminating the intrinsic value alternative allowed by
      SFAS No. 123. Generally, the approach to determining fair value under the
      original pronouncement has not changed. However, there are revisions to the
      accounting guidelines established, such as accounting for forfeitures that
      will
      change our accounting for stock-based awards in the future.




SFAS
      No.
      123(R) was adopted in the annual period beginning January 1, 2006. The statement
      requires companies to adopt the modified prospective method, which results
      in the recognition of compensation expense using SFAS 123(R) for all share-based
      awards granted after the effective date and the recognition of compensation
      expense using SFAS 123 for all previously granted share - based awards that
      remain unvested at the effective date.




The
      Company has evaluated SFAS 123(R) and has determined that incorporating it
      as
      part of its adoption of SFAS 123(R) did not have a material impact on its
      condensed consolidated financial statements. The Company does not currently
      have
      a stock option plan.





FASB
      Statement of Financial Accounting Standards (SFAS) No. 157, *Fair
      Value Measurements,* issued
      in
      September 2006 *,* establishes a formal framework for measuring fair value under GAAP. It defines
      and codifies the many definitions of fair value included among various other
      authoritative literature, clarifies and, in some instances, expands on the
      guidance for implementing fair value measurements, and increases the level
      of
      disclosure required for fair value measurements. Although SFAS No. 157 applies
      to and amends the provisions of existing FASB and AICPA pronouncements, it
      does
      not, of itself, require any new fair value measurements, nor does it establish
      valuation standards. SFAS No. 157 applies to all other accounting pronouncements
      requiring or permitting fair value measurements, except for; SFAS No. 123(R),
      share-based payment and related pronouncements, the practicability exceptions
      to
      fair value determinations allowed by various other authoritative pronouncements,
      and AICPA Statements of Position 97-2 and 98-9 that deal with software revenue
      recognition. This statement is effective for financial statements issued for
      fiscal years beginning after November 15, 2007, and interim periods within
      those
      fiscal years.


-10-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**


**(Unaudited)**






***Use
      of Estimates***


The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and the disclosure of
      contingent assets and liabilities at the dates of the financial statements
      and
      the reported amounts of revenues and expenses during the reporting periods.
      Actual amounts could differ significantly from these estimates.




***Fair
      Value of Financial Instruments***


The
      fair
      value of a financial instrument is the amount at which the instrument could
      be
      exchanged in a current transaction between willing parties other than in a
      forced sale or liquidation.




The
      carrying amounts of the Company’s financial instruments, including cash,
      accounts receivable, other receivables accounts payable, due to related parties,
      accrued liabilities, taxes payable and other current liabilities approximate
      fair value because of their short maturities. The carrying amount of the
      Company’s lines of credit approximates fair value because the interest rates of
      the lines of credit are based on floating rates identified by reference to
      market rates. The carrying amounts of the Company’s loans and notes payable
      approximate the fair value of such instruments based upon management’s best
      estimate of interest rates that would be available to the Company for similar
      debt obligations.





***Net
      (Loss) Per Share***


Basic (loss) per
      share are computed by dividing net income (loss) by the weighted average number
      of common shares outstanding during the period. Diluted earnings per share
      are
      computed by dividing net income by the shares used in the calculation of basic
      net income per share plus the dilutive effect of common share equivalents,
      such
      as stock options, using the treasury stock method. Common share equivalents
      are
      excluded from the computation of diluted net income (loss) per share if their
      effect is anti-dilutive. Common share equivalents totaling 6,554,976 shares
      of
      common stock have not been included in the calculation of diluted loss per
      share
      for the periods presented as their effect would be anti-dilutive.


-11-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**


**(Unaudited)**






**NOTE
                2**
            **DISCONTINUED
                OPERATIONS**





During
      2005, the Company disposed of Twincentric Limited, which was one of the
      components of its business which constituted a discontinued operation. In June
      2006, the Company disposed of its MDI business, which also represented a
      component of the Company’s business and which also constituted a discontinued
      operation. In August of 2006, the Company disposed of its DisclosurePLUS
      business which also represented a component of the Company’s business and which
      also constituted a discontinued operation. In July of 2006, the Company disposed
      of the two active Cratos “Lift and Shift” contracts due to large losses in this
      portion of the Cratos business and in Septembert of 2006, the Company ceased
      work on a large contract in the credit card side of the Cratos business due
      to
      very thin gross margins and the vendor’s practice of not paying their accounts
      within the contracted time frames. The practice of constant late payments by
      this vendor put extreme pressure on the cash flow required to sustain this
      portion of the Cratos business and eventually caused key members of the staff
      to
      resign, due to late and in some cases non payment of their consulting invoices,
      and the bank line of credit to be called, these two facts effectively crippled
      the “Card” portion of the Cratos business and we were unable to continue
      operations. The Company considers Cratos to be a discontinued operation which
      also represented a component of the Company’s business. The Company entered into
      an agreement with one of the former Cratos consultants to service the “Card”
contract so that it did not default on its obligation to the client even though
      the client did not pay many of their outstanding invoices.





The
      loss
      on the Company’s condensed consolidated statements of operations for the three
      and nine months ended September 30, 2006 and 2005 is summarized as
      follows:





3
                Months Ended September 30, 2006
            
            3
                Months Ended September 30, 2005
            
            9
                Months Ended September 30, 2006
            
            9
                Months Ended September 30, 2005**Twincentric**Loss
                from discontinued operations
            
            $
            —
            
            $
            1,269
            )
            $
            —
            
            $
            (445,032
            )**MDI**Gain
                on disposition
            
            
            
            
            
            —
            
            
            263,541
            
            
            —Gain
                (loss) from discontinued operations
            
            
            —
            
            
            46,130
            
            
            (53,567
            )
            
            16,617—
            
            
            46,130
            
            
            209,974
            
            
            16,617Gain
                (loss) from discontinued operations net
            
            $
            —
            
            $
            (187,857
            )
            $
            209,974
            
            $
            (188,986
            )




The
      net
      loss on the Company’s consolidated statements of operations for the three and
      nine months ended September 30, 2005 for Twincentric is summarized as
      follows:





9
                Months Ended September 30, 2005
            
            3
                Months Ended September 30, 2005Revenue
            
            $
            527,398
            
            $
            50,767Salaries
                and wages
            
            
            552,531
            
            
            47,385Legal
                and accounting
            
            
            —
            
            
            —General
                and administrative
            
            
            410,097
            
            
            1,811Interest
                expense
            
            
            9,802
            
            
            302972,430
            
            
            49,498Net
                loss
            
            $
            (445,032
            )
            $
            1,269




-12-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**


**(Unaudited)**






The
      net
      income (loss) on the Company’s consolidated statements of operations for the
      three and nine months ended September 30, 2006 and 2005 for MDI is summarized
      as
      follows:





9
                Months Ended September 30, 2006
            
            9
                Months Ended September 30, 2005
            
            3
                Months Ended September 30, 2006
            
            3
                Months Ended September 30, 2005Revenue
            
            $
            376,716
            
            $
            642,740
            
            $
            —
            
            $
            230,144Direct
                wages
            
            
            256,485
            
            
            379,214
            
            
            —
            
            
            99,612Amortization
                of licensing agreements and other costs
            
            
            50,000
            
            
            68,750
            
            
            —
            
            
            22,917Salaries
                and wages
            
            
            97,377
            
            
            96,249
            
            
            —
            
            
            32,880Legal
                and accounting
            
            
            10,776
            
            
            21,388
            
            
            —
            
            
            5,844General
                and administrative
            
            
            8,948
            
            
            44,588
            
            
            —
            
            
            8,328Interest
                expense
            
            
            6,789
            
            
            15,934
            
            
            —
            
            
            14,433430,375
            
            
            626,123
            
            
            —
            
            
            184,014Net
                income (loss)
            
            $
            (53,659
            )
            $
            16,617
            
            $
            —
            
            $
            46,130





The
      gain
      on disposition of MDI is comprised as follows:




Cash
                and note receivable consideration
            
            $
            388,700Less:Tangible
                net assets
            
            
            102,242Intangible
                net assets
            
            
            22,917125,159Gain
                on disposition
            
            
            263,541





The
      net
      income on the Company’s condensed consolidated statements of operations for the
      three and nine months ended September 30, 2006 and 2005 for Disclosure Plus
      is
      summarized as follows:





9
                Months Ended September 30, 2006
            
            9
                Months Ended September 30, 2005
            
            3
                Months Ended September 30, 2006
            
            3
                Months Ended September 30, 2005Revenue
            
            $
            85,556
            
            $
            61,387
            
            $
            23,250
            
            $
            25,938Direct
                wages
            
            
            26,705
            
            
            16,381
            
            
            6,975
            
            
            6,958Amortization
                of licensing agreements and other costs
            
            
            —
            
            
            —
            
            
            —
            
            
            —Salaries
                and wages
            
            
            20,448
            
            
            7,411
            
            
            3,494
            
            
            1,663Legal
                and accounting
            
            
            4,946
            
            
            —
            
            
            1,429
            
            
            —General
                and administrative
            
            
            30,554
            
            
            30,217
            
            
            9,715
            
            
            13,142Interest
                expense
            
            
            293
            
            
            126
            
            
            87
            
            
            7382,946
            
            
            54,135
            
            
            21,700
            
            
            21,836Net
                income
            
            $
            2,610
            
            $
            7,252
            
            $
            1,550
            
            $
            4,102





The
      loss
      on disposition of Disclosure Plus is comprised as follows:




Cash
            
            $
            (5,966
            )Tangible
                net assets
            
            
            (94,432
            )Intangible
                net assets
            
            
            414,327Loss
                on disposition
            
            $
            (313,929
            )





The
      net
      income (loss) on the Company’s condensed consolidated statements of operations
      for the three and nine months ended September 30, 2006 and 2005 for Cratos
      is
      summarized as follows:




9
                  Months Ended September 30, 2006
              
              9
                  Months Ended September 30, 2005
              
              3
                  Months Ended September 30, 2006
              
              3
                  Months Ended September 30, 2005Revenue
              
              $
              2,798,017
              
              $
              6,011,286
              
              $
              117,996
              
              $
              2,329,289Cost
                  of sales
              
              
              2,607,117
              
              
              4,479,134
              
              
              6,500
              
              
              1,614,590Operating
                  expenses
              
              
              894,134
              
              
              271,473
              
              
              126,719
              
              
              490,8243,501,251
              
              
              4,750,607
              
              
              133,219
              
              
              2,105,414Net
                  income (loss)
              
              $
              (703,234
              )
              $
              1,260,679
              
              $
              (15,223
              )
              $
              223,875





The
      loss
      on cessation of activities is comprised as follows:




Impairment
                of fixed assets
            
            $
            112,869Impairment
                of tangible net assets
            
            
            1,322,104Impairment
                of intangible net assets
            
            
            4,934,941Loss
                on disposition
            
            $
            (6,369,914
            )




**NOTE
                3**
            **ACCOUNTS
                RECEIVABLE**




The
      components of accounts receivable, net, as of September 30, 2006 and December
      31, 2005 consist of:




2006
            
            2005Trade
                receivables
            
            $
            146,520
            
            $
            3,597,724Allowance
                for doubtful accounts
            
            
            (53,167
            )
            
            (101,503
            )Accounts
                receivable, net
            
            $
            93,353
            
            $
            3,496,221




As
      of
      September 30, 2006 trade receivables consist primarily of customer receivables
      of the C COMM business. Receivables for all other businesses that have been
      discontinued have been written off. An ongoing attempt will be made to collect
      some of these receivables and in the case of the receivables related to the
      “Card” division of Cratos the Company is currently reviewing its legal
      options.


-13-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**


**(Unaudited)**






**NOTE
                4**
            **LONG-TERM
                DEBT**




Long-term
      debt consists of the following:




September
                30, 2006
            
            December
                31, 2005Short
                term loans (1)
            
            $
            17,188
            
            $
            21,272Bank
                term loan, seven year term with monthly equal principal payments,
                bearing
                interest at the Canadian prime plus 3% (2)
            
            
            138,747
            
            
            152,805Bank
                term loan, three year term with monthly equal principal payments,
                bearing
                interest at the Canadian prime plus 1% (3)
            
            
            136,798
            
            
            175,438Term
                loan, two year term with equal monthly payments, bearing interest
                at 20%
                (4)
            
            
            318,758
            
            
            -611,491
            
            
            349,515Less
                current portion
            
            
            350,484
            
            
            117,576Long
                term portion
            
            $
            261,007
            
            $
            231,939





(1)
            During
                2004 and 2005, various related parties loaned the Company, on a short
                term
                basis, funds to assist with working capital. Certain of these loans
                were
                converted into equity during 2005. The balances outstanding at December
                31, 2005 and September 30, 2006 are due on demand and bear no
                interest.(2)
            On
                August 17, 2004 one of the Company’s Canadian subsidiaries obtained a term
                loan with a Canadian Chartered Bank in the amount of (CAD) $220,000.
                Under
                the terms of the agreement, the loan is repayable over a seven year
                term
                with principal and interest payments due monthly. Interest on the
                borrowings is the bank’s prime rate plus 3%, which as of September 30,
                2006 was 9%. This subsidiary’s assets have been pledged as security for
                this term loan.




(3)
            During
                2005 one of the Company’s Canadian subsidiaries obtained a term loan with
                a Canadian Chartered Bank in the amount of (CAD) $250,000. Under
                the terms
                of the agreement, the loan is repayable over a three year term with
                principal and interest payments due monthly. Interest on the borrowings
                is
                at prime plus 1% which as of September 30, 2006 was 7%. This subsidiary’s
                assets have been pledged as security for this term
                loan.




(4)
            During
                2006, the Company entered into a two year term loan with an unrelated
                party. The loan is repayable in equal monthly payments and the interest
                rate on the loan is 20%. In conjunction with this loan, the Company
                issued
                the lender 250,000 common shares of the Company, and placed 5,000,000
                common shares into escrow as security for the lender. Also see Note
                10.




-14-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF**  **SEPTEMBER
      30, 2006**


**(Unaudited)**






Future
      maturities of the Company’s debt as of September 30, 2006 are as follows for
      each of the twelve months periods ending September 30 of the respective
      years:




2007
            
            $
            350,4842008
            
            
            178,7002009
            
            
            28,2202010
            
            
            28,220Thereafter
            
            
            25,867$
            611,491




**NOTE
                5**
            **DUE
                TO RELATED PARTIES**




The
      Company's officers and directors have loaned various amounts to the Company
      and
      its subsidiaries to meet operating cash flow requirements. The amounts due
      to
      related parties are non-interest bearing and have no specific repayment terms.
      The balances due them were $169,238 and $11,863 as of September 30, 2006 and
      December 31 2005, respectively, and are classified as current liabilities in
      the
      accompanying condensed consolidated balance sheets.





The
      Company has a master services agreement in place with Global Sterling Payment
      Systems Ltd. (“GSPS”), a related party. This agreement provides for the Company
      to provide services to GSPS and its wholly owned subsidiary, ePocket Inc. During
      the three and nine month periods ended September 30, 2006 respectively, the
      Company provided services to GSPS totaling 176,883 and $202,510, and these
      amounts are included in revenue in the Company’s consolidated statements of
      operations. No services were provided by the Company to GSPS for either the
      three or nine month period ended September 30, 2005


With
      the
      discontinuance of the Cratos operation the MSA that was put in place to service
      GSPS will no longer be in effect. With the planned acquisition of GSPS to be
      completed by year end this would have become a mute point.


-15-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**


**(Unaudited)**






**NOTE
                7**
            **REDEEMABLE
                PREFERRED SHARES**





The
      Company has outstanding series C preferred shares which are mandatorily
      redeemable over 16 quarters through September 30, 2008. The initial value of
      these shares was $500,000, and the quarterly redemption values are $31,250.
      These preferred shares have been recorded as debt on the Company’s condensed
      consolidated balance sheets on the basis that these shares are manditorily
      redeemable by the Company. After a redemption of $93,750 during the nine months
      ended September 30, 2006, $281,250 of these Series C preferred shares remain
      outstanding and were yet to be redeemed. The balances were $1,500,000 as of
      September 30, 2006 and $1,253,474 as of December 31, 2005.




**NOTE
                8**
            **LINE
                OF CREDIT**




In
      conjunction with the close of the Cratos acquisition, in May 2005 the Company
      secured a line of credit with a one year term and annual renewals with a
      Canadian chartered bank. This line of credit allows for maximum borrowings
      of
      $1.5 million CAD and bears interest at the rate of prime plus 1%. Security
      for
      this facility is comprised of a general security agreement over all of the
      assets of the Company’s subsidiary which entered into this facility, as well as
      personal guarantees by two of the Company’s senior executives. Borrowings under
      this facility may not exceed 85% of specified receivables as defined in the
      respective credit agreement. As of September 30, 2006, no amounts were available
      under the Company’s line of credit. As of September 30, 2006, the interest rate
      on this facility was Canadianprime plus 2.5% on the Canadian dollar balance
      and
      U.S prime rate plus 2.5% on the U.S. balance.





Included
      in the line of credit are several overdraft facilities maintained by certain
      subsidiaries of the Company.





As
      of
      November 20, 2006 the bank has demanded repayment of the loan. During the month
      of December 2006 the Board of Directors will review a bank sponsored
      forebearance agreement and decide on an appropriate course of action as this
      loan is not guaranteed by the parent Company. This loan was called when the
      Cratos division could no longer service it, due to consistently late payments
      in
      the “Card” portion of the business and excessive losses in the “Lift and Shift”
portion of the Cratos business.




**NOTE
                9**
            **COMMITMENTS
                AND CONTINGENCIES**





**TPG
      Capital Corporation**




On
      March
      17, 2000, the Company entered into a consulting agreement with TPG Capital
      Corporation regarding an inactive reporting shell company that the Company
      acquired. The consulting agreement provides that one year after the execution
      of
      the agreement, (“reset date”), 350,000 common shares issued by the Company under
      the agreement would be increased or decreased based upon the average closing
      bid
      for the Company’s stock 30 days prior to the reset date, so the value of the
      shares issued will equal $500,000.




In
      December, 2005 an arbitrator determined that the Company was obligated to pay
      TPG Capital Corporation $448,000 to be issued in either common stock which
      was
      to be registered by June, 2006 or in cash. The Company recorded an expense
      of
      this amount in its consolidated statement of operations for the year ended
      December 31, 2005 and such amount is included in accrued liabilities at December
      31, 2005 and September 30, 2006.




**Orchestral
      Corporation**




On
      June
      13, 2002, the Company canceled its “Power Audit” software distribution agreement
      with Orchestral (the “licensor”). In November 2002, the licensor commenced a
      proceeding in Ontario, Canada against the Company which was discontinued while
      the parties discussed a settlement. That proceeding alleged that the Company
      had
      infringed upon the copyright that the licensor maintained, and further that
      the
      Company had breached the distribution contract claiming damages of CAD
      $4,000,000. The licensor also claimed punitive and exemplary damages in the
      amount of CAD $1,000,000. When a settlement was not concluded, Orchestral
      commenced a second, identical action in August, 2003. The Company retained
      legal
      counsel to defend itself on the basis that there is no merit to the case and
      even if there was merit, the time frame in which to bring an action under the
      distribution agreement has expired.


-16-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**


**(Unaudited)**




Orchestral
      commenced an Application before the Ontario courts to enforce a settlement
      which
      it alleged was reached with the Company during the negotiations between its
      first and second lawsuits. The court ordered that a settlement was enforceable
      and that $226,824 was owed by the Company to the licensor. The Company appealed
      this decision and in January 2006 the initial judgment was upheld.





During
      the nine month period ended September 30, 2006, the Company reached a settlement
      with Orchestral in which it agreed to pay Orchestral the $226,824 which the
      court had previously ordered payable, along with interest from the date of
      that
      judgment totaling $57,224. The interest was recorded in the Company’s condensed
      consolidated statement of operations for the nine month period ended September
      30, 2006. Additionally, Orchestral agreed to accept the Company’s common stock
      in consideration for settlement of this debt. The conversion price for the
      common stock was a 20% discount to the price of the Company’s common stock for
      the trailing 20 trading day prior to settlement. This settlement resulted in
      a
      loss of $110,463, which has been recorded in the Company’s consolidated
      statement of operations for the nine month period ended September 30, 2006.
      The
      common stock to be issued by the Company pursuant to this settlement agreement
      has been recorded in common stock to be issued in the Company’s condensed
      consolidated balance sheet at September 30, 2006. As of September 30, 2006
      the
      common stock (6,575,180) shares has been issued and is awaiting
      registration.




**Cesar
      Correia and InfoLink Technologies Ltd.**




From
      December 2003 to April 2004, the Company was engaged in discussions with certain
      major shareholders of Infolink Technologies Limited with regard to the potential
      acquisition of Infolink Technologies Ltd., a public company listed on the
      Toronto Stock Exchange venture board under the symbol “IFL”. During the course
      of discussions, an offer to purchase was rebuffed by Cesar Correia, the former
      Chairman of the Board, President and CEO, and 34% shareholder of Infolink.
      At
      the time, Mr. Correia was told that the Company would purchase another
      competitor to Infolink, C Comm Network Corporation. In May of 2004, the Company
      purchased C Comm. In July of 2004, an unrelated minority shareholder of Infolink
      commenced an action in Ontario alleging that Mr. Correia has mismanaged Infolink
      and amongst other things that he had inappropriately obtained funds from
      Infolink and converted them to his own purposes. The day prior to the court
      hearing with regard to the minority shareholder action against Infolink,
      Infolink Technology commenced a proceeding in the same Ontario court against
      the
      Company alleging unfair competition as a result of an alleged improper
      acquisition of confidential information from Infolink and numerous other causes
      of action. The Company has not yet had to file a defence to any of Infolink’s
      claims against the Company. Meanwhile, the court appointed a monitor and
      investigator to look into the allegations against Mr. Correia. The court
      appointed monitor and investigator issued an interim report in October 2004
      which found that several of the allegations against Mr. Correia were
      substantiated. Mr. Correia was removed from the position of Chairman, President
      and CEO of Infolink and is now an employee of Infolink. The Company believes
      that Infolink as a corporate entity will not proceed with any action against
      the
      Company as the Company believes that the action was commenced as a defensive
      move by Mr. Correia and, now that he has been removed from management of
      Infolink, there is little basis for the action to continue.





**E.A.W
      Group Inc., Consulting and Referral Services Inc,Neale Business Consulting
      Inc.,
      Andrew Wickett and Debbie Gracie-Smith**





On
      November 15, 2006 a legal proceeding was initiated in the Ontario Superior
      Court
      by E.A.W Group Inc., Consulting and Referral Services Inc., Neale Business
      Consulting Inc., Andrew Wickett and Debbie Gracie-Smith. The plaintiffs (Andrew
      Wickett and Debbie Gracie-Smith) claim damages of 2.5 million Canadian dollars
      for breach of the Share Purchase Agreement and Registration Rights Agreement.
      The plaintiff (E.A.W Group) claims damages of $19,871.42 CAD for unpaid salary
      and $52,672.03 CAD for unpaid commissions. The plaintiff (Consulting and
      Referral Services Inc.) claims damages of $11,591.66 CAD for unpaid salary
      and
      $52,672.03 CAD for unpaid commissions. The plaintiff (Neale Business Consulting
      Inc.) claims damages of $24,892.00 CAD for unpaid consulting services.





The
      Company will vigorously defend against this proceeding on the grounds that
      the
      plaintiffs were in charge of the Cratos organization and their actions caused
      great harm to both Cratos and the parent Company.





The
      Company believes that this case has no merit. The Company will vigorously defend
      this action.


-17-
 **Table
          of Contents**


**ACTIVECORE
        TECHNOLOGIES, INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
        OF SEPTEMBER 30, 2006**
 **(Unaudited)**
  **NOTE
                  10**
              **ACQUISITIONS**
  **Cratos
        Technology Solutions, Inc.**
 
 In
        May,
        2005, the Company completed the acquisition of Cratos Technology Solutions
        Inc.,
        an Ontario corporation ("Cratos"), pursuant to a Share Purchase Agreement.
        Under
        the terms of the Share Purchase Agreement, the Registrant acquired from Andrew
        Wickett ("Wickett") and Debbie Gracie-Smith ("Gracie-Smith") all of the stock
        of
        Cratos in exchange for total consideration of approximately $2.1 million,
        comprised of cash, a promissory note due August 2005, and common stock of
        the
        Company. Cratos is a solutions-oriented organization specializing in
        international banking and financial transaction processing. The majority
        of
        Cratos' customers specialize in major credit card products and Loyalty-based
        products. The Company accounted for this acquisition using the purchase method
        of accounting in accordance with the provisions of SFAS No. 141, and began
        consolidating the results of Cratos from the acquisition date
        forward.
 
 Under
        the
        terms of the Share Purchase Agreement, the Company issued 9,021,030 shares
        (the
        "Purchaser Shares") of its common stock and paid cash in the amount of $79,560,
        and issued promissory notes in the amount of $79,560. The Company valued
        the
        common stock issued in accordance with this transaction based on a simple
        average of the closing share price of the Company for two days prior and
        subsequent to this transaction being announced. On this basis, the common
        stock
        issued in connection with this transaction was valued at $1,947,787. The
        share
        consideration was exchanged on May 6, 2005.
 
 The
        Company also issued 3,921,633 shares of its common stock to a supplier in
        consideration for discharging a pre-acquisition liability to that supplier
        as
        well as (i) the supplier entering into renewed agreements with Cratos, and
        (ii)
        the supplier terminating any existing security agreements between such party
        and
        Cratos as well as discharge any registered security and agree to subordinate
        any
        future security to that of any senior lender of the Company. These shares
        were
        valued using their fair market value as of the date they were delivered,
        and no
        gain or loss was recorded on this transaction.
 
 The
        purchase price allocation set forth below represents management’s best estimate
        of the allocation of the purchase price and the fair value of net assets
        acquired. The valuation of the acquired intangible assets and the assessment
        of
        their expected useful lives are based on a assessment undertaken by management.
  The
        following table summarizes the estimated fair values of the assets acquired
        and
        liabilities assumed as of the date of the Cratos acquisition:
 
 Current
                  assets
              
              $
              1,285,606Long
                  term assets
              
              
              125,392Customer
                  assets
              
              
              1,023,380Goodwill
              
              
              2,970,619Total
                  assets acquired
              
              
              5,404,997Total
                  liabilities assumed
              
              
              (3,298,090
              )Net
                  assets acquired
              
              $
              2,106,907
  -18-
 **Table
              of Contents**
  **ACTIVECORE
          TECHNOLOGIES, INC.**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **AS
          OF SEPTEMBER 30, 2006**
 **(Unaudited)**
  The
        customer assets of $1,023,380 have been assigned a life of five years. The
        useful lives assigned represent management’s estimates and changes may occur
        from these estimates and these changes may be material. The Company also
        recorded a deferred tax liability of approximately $368,000 in respect of
        the
        temporary difference associated with this intangible asset.
  The
        portion of the purchase price allocated to goodwill was assigned to the
        Company’s Systems Integration and modernization reporting segment. Goodwill
        recorded in this transaction in not deductible for tax purposes.
  **DisclosurePlus
        Inc.**
 
 On
        February 25, 2005, the Company acquired all the outstanding common stock
        of
        DisclosurePlus Inc. (“DP”) a privately held Canadian corporation which provides
        publicly traded corporations with the foundation and tools to enhance the
        scope
        of corporate disclosure on-line with a standardized regulatory compliant
        web-based solution. Consideration for this acquisition represented 1,200,000
        shares of the Company’s restricted common stock valued at $264,000 in addition
        to $125,000 payable in cash. The Company also acquired intellectual property
        relating to the DP business in a concurrent transaction. The consideration
        above
        represents the total consideration for this entire acquisition. The value
        allocated to the common share consideration and was based on the weighted
        average share price of the Company’s common shares for the two trading days
        before, the day of, and the two days after the day the Company entered into
        the
        terms of the acquisition agreement. The Company accounted for this acquisition
        using the purchase method of accounting in accordance with the provisions
        of
        SFAS No. 141, and accordingly, DP’s operating results have been included in the
        Company’s consolidated statement of operations from February 25, 2005. The
        Company assumed net tangible liabilities of $29,000, though the transaction
        provided the Company with intellectual property, customers, and a set of
        employees who had operated this business prior to the acquisition. Goodwill
        recorded in connection with this business combination is not deductible for
        tax
        purposes.
 
 The
        purchase price allocation set forth below represents management’s best estimate
        of the allocation of the purchase price and the fair value of net assets
        acquired. The valuation of the acquired intangible assets and the assessment
        of
        their expected useful lives are based on an assessment undertaken by management.
 
 The
        Company has accounted for the purchased goodwill in accordance with the
        provisions of SFAS 142. The entire balance of goodwill recorded on this
        transaction has been allocated to the Company’s Corporate Disclosure and
        Messaging segment.
 
 The
        Company’s purchase price allocation recorded for the acquisition of DP is as
        follows:
  Technology
                  assets
              
              $
              250,000Goodwill
              
              
              168,000Total
                  assets acquired
              
              
              418,000Liabilities
                  assumed
              
              
              (29,000
              )Net
                  assets acquired
              
              $
              389,000
 
 **Pro
        forma results ?????**
  The
        following pro forma results of operations reflect the combined results of
        Activecore, and Cratos for the three and six month periods ended June 30,
        2006
        and 2005 as if the business combination occurred at the beginning of
        Activecore’s year. Pro forma financial information giving effect to the
        acquisition of DP has not been provided on the basis that its results of
        operations for the relevant periods would not be material to the
        Company.
  Three
                  Months Ended
                June
                  30, 2006
              
              Three
                  Months Ended
                June
                  30, 2005
              
              Six
                  Months Ended
                June
                  30, 2006
              
              Six
                  Months Ended
                June
                  30, 2005Revenue
              
              $
              1,582,317
              
              $
              2,734,094
              
              $
              3,037,441
              
              $
              4,182,386Net
                  loss
              
              $
              (1,470,177
              )
              $
              (1,397,710
              )
              $
              (2,786,234
              )
              $
              (2,157,546
              )Net
                  loss per share, basic and diluted
              
              $
              (0.02
              )
              $
              (0.02
              )
              $
              (0.03
              )
              $
              (0.04
              )Shares
                  used in basic and diluted loss per share calculation
              
              
              90,846,542
              
              
              59,846,795
              
              
              86,631,760
              
              
              57,910,163
  These
        pro forma results are not necessarily indicative of what would have occurred
        if
        the acquisitions had actually been completed as of the assumed dates and
        for the
        periods presented. The proforma effects of Disclosure Plus Inc are not material
        to the condensed consolidated financial statements.
  -19-
 **Table
              of Contents**


**ACTIVECORE
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**


**(Unaudited)**




**NOTE
                11**
            **COMMON
                AND PREFERRED SHARES**




**Common
      Shares**





On
      January 9, 2006, the Company used 1,081,521 shares of Treasury stock with a
      value of $86,522 to pay a third party for investor relations
      services.





On
      February 7, 2006, the Company issued 250,000 common shares to an unrelated
      party
      who provided the Company with a two-year term loan. The value of these shares
      was $47,500 and as of September 30, 2006 $37,605 is recorded in deferred
      consulting and financing charges.





On
      March
      7, 2006, the Company issued 4,166,667 common shares to the former holders of
      its
      entire Class A and B preferred shares. In 2005, these former preferred
      shareholders agreed with the Company to convert their preferred shares to common
      shares, and as of December 31, 2005 these shares were included in common stock
      to be issued.





On
      March
      28, 2006, the Company issued 3,822,500 common shares to numerous employees
      in
      exchange for employment services having a fair value of $359,775. As of
      September 30, 2006, $287,388 of this amount was expensed and $72,387 was
      included in deferred consulting and financing expense.





On
      March
      28, 2006, the Company issued 960,000 common shares to two consultants of the
      Company who will provide services during 2006. These shares have a fair value
      of
      $67,200. As of September 30, 2006, $31,600 of this amount had been expensed
      and
      $35,600 was included in deferred consulting and financing expense.





On
      March
      28, 2006, the Company issued 782,353 common shares to two employees in
      consideration for unpaid wages. The fair value of these common shares was
      $125,000.





On
      April
      3, 2006, the Company issued 1,250,000 common shares to several employees in
      exchange for employment services having a fair value of $147,500. As of
      September 30, 2006, this entire amount was included in deferred consulting
      and
      finance expense.





On
      April
      3, 2006, the Company issued 700,000 shares to two independent directors of
      the
      Company having a fair value of $105,000. As of September 30, 2006, $60,000
      of
      this amount had been expensed and $45,000 was included in deferred consulting
      and financing expense.





On
      April
      24, 2006, the Company issued 750,000 shares to a consultant of the Company
      having a fair value of $82,500. As of September 30, 2006, $55,000 of this amount
      had been expensed and $27,500 was included in deferred consulting and financing
      expense.





On
      April
      24, 2006, the Company issued 178,572 shares to the previous holders of the
      Company’s Class A and B preferred shares to settle some outstanding accrued
      dividend payments relating to the period prior to their conversion into common
      shares. These shares had a fair value of $10,000. This entire amount was applied
      to accrued interest expense on the Company’s consolidated balance
      sheet.





On
      April
      24, 2006, the Company issued 1,027,181 shares to the holder of the Company’s
      Class C preferred shares having a fair value of $93,750. Of this amount, $69,175
      related to the redemption of the preferred shares and the remaining $24,575
      related to mandatory dividends required on that class of shares.


On
        July
        10, 2006, 6,575,180 shares were issued to Orchestral Corporation in settlement
        of the “Power Audit” software distribution agreement. The stock had a value of
        $394,511.


On
      August
      9,2006, 1,000,000 shares were issued to an employee in payment for services.
      The
      stock had a value of $30,000 which was applied to accrued liabilities on the
      Company’s consolidated balance sheet.





On
      August
      9, 1,000,000 shares were issued to a supplier in payment for services. The
      stock
      had a value of $30,000 which was expensed to consulting fees.





During
      the third quarter, 11,781,998 shares were issued to third parties for a total
      value of $530,190 as part of a private placement.





For
      all
      stock issuances completed during the nine month period ended September 30,
      2006,
      fair value was determined using the closing value of the Company’s common shares
      on the date the shares were approved for issuance by the Company’s board of
      directors.


-20-
 **Table
          of Contents**




**ACTIVECORE
      TECHNOLOGIES, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**AS
      OF SEPTEMBER 30, 2006**


**(Unaudited)**






The
      Company is authorized to issue three series of preferred shares:




***Series
      A and B***





On
      September 14, 2004, the board of directors authorized the issuance of 8,333,333
      Series A and 4,167,667 Series B preferred shares which had a purchase price
      of
      $0.03 and $0.06, respectively totaling $500,000. With respect to the Series
      A
      shares, the Company may force conversion if the trading price of the Company’s
      common shares exceeds $2.00 for 30 days. With regard to the Series B shares,
      the
      Company may force conversion if the trading price of the Company’s common shares
      exceeds $4.00 for 30 days. These shares have a right of redemption whereby
      if the stock is not converted within 5 years, the Company, at its option, shall
      have the right to redeem all outstanding but unconverted shares of series A
      (same for B) Preferred Stock held by such person by paying to the holder thereof
      $0.30 (for B, $0.60) per share plus all accrued but unpaid dividends thereon,
      if
      any. These shares are not manditorily redeemable. The preferred shareholders
      will be paid a dividend at the rate of 10% per annum. On December 21, 2005
      the
      Company reached an agreement with the holders of the Series A and B shares
      to
      convert their entire holdings of these classes of shares into common shares
      of
      the Company. The conversion price in this transaction was higher than the market
      price of the Company’s commons shares on the conversion agreement date.
      Specifically, the carrying value of the preferred shares prior to conversion
      exceeded the fair value of the common stock consideration by $208,333. As a
      result, and consistent with Emerging Issues Task Force Topic D-42. The Effect
      on
      the Calculation of Earnings per Share for the Redemption or Induced Conversion
      of Preferred Stock, the Company has added back this excess in determining net
      loss available to common shareholders in its consolidated statement of
      operations. Additionally, the Company has recorded this excess as an increase
      to
      additional paid-in capital in its consolidated balance sheet, consistent with
      the guidance provided in Staff Accounting Bulletin 5 T. In order to satisfy
      this
      conversion agreement, subsequent to December 31, 2005 the Company issued common
      shares to the former shareholders of the Series A and B preferred shares
      totaling 4,166,667. These shares were included in common stock to be issued
      at
      December 31, 2005, and were subsequently issued during the quarter ended March
      31, 2006.





***Series
      C***


In
      2004,
      the Company and the International Brotherhood of Electrical Worker’s Union (See
      Note 7) agreed to settle the outstanding loan of $500,000 into Series C
      convertible preferred shares. The terms of the Series C preferred stock require
      the Company to redeem the preferred shares over 16 quarters, commencing on
      December 31, 2004. The Company shall have the option of paying the quarterly
      redemptions in the form of cash or common shares. Also the preferred shares
      will
      have a 12% annual dividend rate payable quarterly based on the number of
      preferred shares outstanding at the end of the quarter. As of June 30, 2006
      the
      Company has an obligation to issue common shares with a value of $31,250 in
      order to satisfy the terms of its Series C Preferred Stock and this amount
      has
      been recorded as common shares to be issued within Shareholders'
      Equity.







The
      Company completed a series of private placements from May 10, 2006 through
      June
      8, 2006.  The total amount raised through these placements was
      $401,300.  Total consideration due by the Company in exchange for these
      private placements is 8,917,778 common shares as well as 2,972,593 warrants
      to
      purchase common shares of the Company.  The common shares are expected to
      be issued in the quarter ending September 30, 2006.  The warrants all have
      a one-year term, with an exercise price of $0.06.


-21-
 **Table
          of Contents**




**Item
      2. Management’s Discussion And Analysis Or Plan Of
      Operation**




***Forward-Looking
      Statements and Associated Risks.***  *This
      Report contains forward-looking statements. Such forward-looking statements
      include statements regarding, among other things, (a) the Company’s projected
      sales and profitability, (b) the Company’s growth strategies,
      (c) anticipated trends in the Company’s industry, (d) the Company’s future
      financing plans, (e) the Company’s anticipated needs for working capital, (f)
      the benefits related to ownership of the Company’s common stock. Forward-looking
      statements, which involve assumptions and describe the Company’s future plans,
      strategies, and expectations, are generally identifiable by use of the words
      “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,”
“intend,” or “project” or the negative of these words or other variations on
      these words or comparable terminology. This information may involve known and
      unknown risks, uncertainties, and other factors that may cause the Company’s
      actual results, performance, or achievements to be materially different from
      the
      future results, performance, or achievements expressed or implied by any
      forward-looking statements. These statements may be found under “Management’s
      Discussion and Analysis or Plan of Operations” as well as in this Report
      generally. You should not place undue reliance on our forward-looking
      statements. Further, any forward-looking statement speaks only as of the date
      on
      which it is made and, except as otherwise required by law, we undertake no
      obligation to update any forward-looking statement to reflect events or
      circumstances after the date on which it is made or to reflect the occurrence
      of
      anticipated or unanticipated events or circumstances. New factors emerge from
      time to time that may cause our business not to develop as we expect, and it
      is
      not possible to predict all of them. Actual events or results may differ
      materially from those discussed in forward-looking statements as a result of
      various factors, including, without limitation, the risks outlined under
“Certain Business Risk Factors” and matters described in this Report generally.
      In light of these risks and uncertainties, there can be no assurance that the
      forward-looking statements contained in this Report will in fact occur as
      projected.*




**Overview**





ActiveCore
      Technologies, Inc. (“ActiveCore” or the “Company”) is a Nevada registered
      Company with its head office in Toronto, Canada, and operations in Canada and
      the United States. During the quarter ended September 30, 2006 the Company
      took
      the strategic decision to re-brand itself and become a pure play in the
      Electronic Payment Technology Industry. As part of this decision the Company
      entered into a Letter of Intent during the second quarter to acquire
      GSPS/ePocket and plans to close this acquisition in the fourth quarter of 2006.
      This was the first major step in achieving the Company’s planned re-branding and
      shifted the Company’s focus to the “Electonic Payment Technology Market”. During
      the second quarter the Company divested of the MDI subsidiary and in the third
      quarter the Company has continued to execute its new strategy by divesting
      itself of the DisclosurePlus subsidiary, ceasing the operation of the Cratos
      subsidiary and signing a Letter of Intent to divest itself of the C COMM Network
      subsidiary. By the end of the fourth quarter of 2006 the Company will have
      divested of all the subsidiaries that formed the “Smart Enterprise Suites”
business. The Company the Systems Integration and Migration (SIM) division
      and
      the Corporate Disclosure and Messaging (CDM) division it will retain two core
      products that were developed by those former divisions (ActiveCAST and
      ActiveLINK).




The
      Company’s products now encompass an outbound corporate marketing portal
      (ActiveCAST), an application and data integration engine (ActiveLINK) and a
      variety of payment products including the ePocket Digital Coins product set
      and
      other payment products that will be introduced over time. The Company will
      offer
      ActiveCAST as a Marketing product and/or service to its Merchants that use
      its
      Payment Technology products and will use the ActiveLINK product to simplify
      the
      implementation of new Merchants and integration to the Merchants existing
      systems. This rich product set gives ActiveCore the ability to sell and deliver
      either a full ASP solution or a Licensing solution based on the needs and
      capabilities of the Customer. ActiveCore’s products are designed to enable the
      Company’s clients to extend the functions of their current payment systems ,by
      using the Company’s product sets to offer a cost effective Micro Payment
      solution, Loyalty programs and a ePocket
      has developed the technology which delivers true electronic cash to the world
      for the first time, making purchases over the Internet completely secure and
      anonymous. ePocket enables banks to provide their customers with the ability
      to
      withdraw electronic cash in any currency from their regular deposit accounts,
      and send this electronic cash to merchants or other consumers in order to make
      payments. Cash created electronically is just like cash, except there are no
      coins, bills, or plastic cards. Just like cash, electronic cash does not require
      the identification of a payer. This provides privacy for consumers, and
      eliminates fraud and identity theft, making ePocket the most cost-effective
      payment solution for Internet commerce. ePocket payments cost merchants less
      than any other payment technologies and this extraordinary cost effectiveness
      enables merchants to profitably accept very small payments of just one or two
      dollars. In contrast to other payment schemes, consumers do not have to open
      additional accounts with a payment intermediary. Consumers do not have to give
      up any identity or credit information in order to accomplish a payment. This
      makes ePocket payments completely secure and provides complete privacy for
      consumers.


-22-
 **Table
          of Contents**




**Recent
      Developments**




During
      the quarter ended September 30, 2006, the Company signed a letter of intent
      to
      acquire all of the issued and outstanding ordinary shares of Global Sterling
      Payments Systems Ltd. (“GSPS”), a private U.K. company and a related party, in
      exchange for 100,000,000 common shares of the Company. The Company already
      owns
      a small minority interest of GSPS. GSPS is the parent company of ePocket, a
      wholly owned subsidiary. This acquisition is expected to close during the
      Company’s quarter ending December 31, 2006.





In
      anticipation of closing the GSPS acquisition, the Company made the determination
      that it would divest itself of its MDI business, which was no longer deemed
      to
      be strategic given the fact that the Company was in the process of rebranding
      itself as a pure-play payment organization. Consequently, the Company sold
      the
      business towards the end of the quarter ended June 30, 2006, for cash
      consideration of $388,700.





In
      anticipation of closing the GSPS acquisition, the Company made the determination
      that it would divest itself of its DisclosurePLUS business, which was no longer
      deemed to be strategic given the fact that the Company was in the process of
      re-branding itself as a pure-play payment organization. Consequently, the
      Company sold the business towards the end of August 2006, for debt forgiveness
      of $94,534.





In
      anticipation of closing the GSPS acquisition, the Company made the determination
      that it would divest itself of its “Lift andShift” business, which was no longer
      deemed to be strategic given the fact that the Company was in the process of
      re-branding itself as a pure-play payment organization. Consequently, the
      Company sold two active projects at the beginning of the 3rd quarter ended
      September 30, 2006, for debt forgiveness of $916,087.





In
      August
      of 2006 the Company was unable to collect receivables from a large client even
      though it had completed the work and was unable to pay a number of consultants
      who subsequently quit causing irreparable harm to the card payment portion
      of
      the Cratos business. In September the Company had to discontinue the Cratos
      business and has written off $1,512,742 in accounts receivable The Company
      is
      currently seeking legal advice with regards to the Cratos
      situation.


-23-
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          of Contents**




**Critical
      Accounting Policies**




*Significant
      Accounting Policies and Critical Accounting Estimates*




The
      Company’s Consolidated Financial Statements are prepared in accordance with U.S.
      GAAP. The preparation of the Consolidated Financial Statements in accordance
      with U.S. GAAP necessarily requires the Company to make estimates and judgments
      that affect the reported amounts of assets, liabilities, revenues and expenses,
      and related disclosure of contingent assets and liabilities. On an on-going
      basis, the Company evaluates its estimates, including those related to revenues,
      bad debts, investments, intangible assets, income taxes, contingencies and
      litigation. The Company bases its estimates on historical experience and on
      various other assumptions that are believed at the time to be reasonable under
      the circumstances. Under different assumptions or conditions, the actual results
      will differ, potentially materially, from those previously estimated. Many
      of
      the conditions impacting these assumptions and estimates are outside of the
      Company’s control.




The
      Company believes the following critical accounting policies affect its more
      significant judgments and estimates used in the preparation of its Consolidated
      Financial Statements.




*Revenue:* A
      significant portion of all of the Company's net sales are derived from
      commercial software development and sales activities, which are subject to
      increasing competition, rapid technological change and evolving customer
      preferences, often resulting in the frequent introduction of new products and
      short product lifecycles. Accordingly, the Company's profitability and growth
      prospects depend upon its ability to continually acquire, develop and market
      new, commercially successful software products and obtain adequate financing.
      If
      the Company is unable to continue to acquire, develop and market commercially
      successful software products, its operating results and financial condition
      could be materially adversely affected in the near future.





The
      Company recognizes revenue for software sales in accordance with Statement
      of
      Position ("SOP") 97-2 "Software Revenue Recognition", as amended by SOP 98-9
      "Modification of SOP 97-2 Software Revenue Recognition with respect to Certain
      Transactions." SOP 97-2 provides guidance on applying generally accepted
      accounting principles in recognizing revenue on software transactions. SOP
      98-9
      deals with the determination of vendor specific objective evidence ("VSOE")
      of
      fair value in multiple element arrangements, such as maintenance agreements
      sold
      in conjunction with software packages. For 2005 and 2004 the Company does not
      have any multi-element arrangements that would require it to establish VSOE
      for
      each element, nor does the Company have any sales activity that requires the
      contract method of accounting. The Company's software transactions generally
      include only one element, the software under license. The Company recognizes
      revenue when the price is fixed and determinable, there is persuasive evidence
      of an arrangement, the fulfillment of its obligations under any such
      arrangement, and determination that collection is probable. Accordingly, revenue
      is recognized when the license or title and all risks of loss are transferred
      to
      the customer, which is generally upon receipt by customer.


-24-
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          of Contents**




The
      Company's payment arrangements with its customers provide primarily multi month
      terms unless the purchase price is relatively low. As a result of the
      multi-month terms, an imputed interest cost accounting for the net present
      value
      of the terms was deducted in determining the amount of revenue and receivable
      recognized.





The
      Company recognizes revenue in the period in which the service is performed
      and
      collection is reasonably assured.




*Allowance
      for Doubtful Accounts.* The
      Company maintains allowances for doubtful accounts for estimated losses
      resulting from the inability of its customers to make required payments. The
      Company performs ongoing credit evaluations of its customer’s financial
      condition and if the financial condition of the Company’s customers were to
      deteriorate, resulting in an impairment of their ability to make payments,
      additional allowances would likely be required. Actual collections could differ
      materially from our estimates.




*Income
      Taxes.* The
      Company has currently recorded a full valuation allowance against all of its
      deferred income tax assets as management believes it is more likely than not
      that all of the deferred income tax assets will not be realized. In making
      this
      determination, management has considered factors such as the reversal of
      deferred income tax liabilities, projected taxable income, the character of
      the
      income tax asset and tax planning strategies. A change to these factors could
      impact the estimated valuation allowance and income tax expense.




*Litigation.* The
      Company is a party, from time to time, in legal proceedings. In these cases,
      management assesses the likelihood that a loss will result, as well as the
      amount of such loss and the financial statements provide for the Company’s best
      estimate of such losses. To the extent that any of these legal proceedings
      are
      resolved and result in the Company being required to pay an amount in excess
      of
      what has been provided for in the financial statements, the Company would be
      required to record, against earnings, the excess at that time. If the resolution
      resulted in a gain to the Company, or a loss less than that provided for, such
      gain is recognized when received or receivable.




*Valuation
      of Intangible Assets.* The
      Company has a history of acquiring other businesses, and expects that this
      trend
      will likely continue in the future. As part of the completion of any business
      combination, the Company is required to value any intangible assets acquired
      at
      the date of acquisition. This valuation is inherently subjective, and
      necessarily involves judgments and estimates regarding future cash flows and
      other operational variables of the entity acquired. However, there can be no
      assurance that the judgments and estimates made at the date of acquisition
      will
      reflect future performance of the acquired entity. If management makes judgments
      or estimates that differ from actual circumstances, the Company may be required
      to write-off certain of its intangible assets. Similarly, in accordance with
      SFAS No. 142 *Goodwill
      and Other Intangible Assets* , the
      Company is required to annually test the value of its goodwill as well as its
      acquired intangible assets. This testing requires management to make estimates
      of the market value of its various operating segments. Changes in estimates
      could result in different conclusions for the value of goodwill. The Company
      performs its annual impairment testing on its goodwill at December
      31 st of each
      year, provided that circumstances don’t arise during the year that would
      necessitate an earlier evaluation.


-25-
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          of Contents**




**Results
      of Operations**




***Results
      of Operations for the Three and Nine Month Periods Ended September 30, 2006
      Compared to the Same Periods Ended September 30, 2005***




**Overview**




During
      the quarter ended September 30, 2006, the Company recorded revenues of $0.6
      million, and a loss from continuing operations of million. These amounts compare
      to revenue of $2.7 million during the quarter ended September 30, 2005, when
      a
      loss from continuing operations of $0.5 million was incurred. During the nine
      month period ended September 30, 2006, the Company recorded revenues of $3.6
      million, and a loss from continuing operations of $4.6 million. These amounts
      compare to revenue of $4.7 million during the nine month period ended September
      30, 2005, when a loss from continuing operations of 2.3 million was incurred.
      The most significant change from 2005 to 2006 from a revenue perspective was
      the
      fact that the Company sold the MDI business in the second quarter quarter of
      2006, sold the DisclosurePLUS business in the third quarter of 2006, sold two
      Cratos “Lift and Shift” projects to a third party and discontinued operating the
      Cratos GE Money contract during the quarter ended September , 2006. During
      this
      third quarter of 2006, the Company had no revenue from MDI, two months of
      revenue from DisclosurePLUS and one month of revenue from Cratos. As a result,
      the 2006 third quarter revenue has decreased substantially. Earlier this year
      the Company made several announcements regarding its change in direction and
      anticipated a decline in revenue from this decision. It is expected that revenue
      will continue to decline until the new Payment Technology direction begins
      to
      generate new revenue streams.




**Revenues**




**Three
                months ended September 30**
            **Nine
                months ended September 30****2006**
            **2005**
            **%
                Change**
            **2006**
            **2005**
            **%
                Change****572,043**
            **2,708,373**
            **(79%)**
            **3,609,484**
            **4,665,541**
            **(23%)**




During
      the three months ended September 30, 2006 the Company generated $0.6 million
      in
      revenue from the sale of products and services versus $2.7 million in revenue
      in
      the same three month period ended September 30, 2005. The decrease in revenue
      during 2006 was primarily a result of discontinued operations that occurred
      when
      the Company decided to pursue a new strategic direction as a Payment Technology
      solution provider.. For the nine month period ended September 30, 2006, total
      revenue was $3.6 million, which represented a 23% decrease from the $4.7 million
      recorded during the nine month period ended September 30, 2005. From a revenue
      source perspective, the vast majority of the revenue recorded in both 2006
      and
      2005 was service related, while product related revenue represented only a
      small
      percentage of the total. The decrease in the nine month revenue in 2006 as
      compared to 2005 was a direct result of the change in the Company’s strategic
      direction, the discontinuance of the Cratos division, the divestiture of the
      MDI
      business and the divestiture of the Disclosure Plus business.


-26-
 **Table
          of Contents**




**Cost
      of Sales**




**Three
                months ended September 30**
            **Nine
                months ended September 30****2006**
            **2005**
            **%
                Change**
            **2006**
            **2005**
            **%
                Change****218,880**
            **1,714,395**
            **(87%)**
            **3,064,962**
            **3,075,177**
            **—
                %**




Cost
      of
      sales for the three month period ended September 30, 2006 were $0.2 million,
      which consisted primarily of direct wages paid to consulting services staff,
      the
      cost of the communication facilities of the C COMM division, , and amortization
      of software licensing agreements. These amounts are significantly lower than
      fiscal 2005 when the Company’s cost of sales totaled $1.7 million which was also
      principally comprised of direct wages for consulting staff. The decrease in
      cost
      of sales for the three month period relates to the fact that most of the
      Company’s cost of sales during both periods relates to the Cratos consulting
      staff, and during 2005 this operation was consolidated for two month whereas
      in
      2006 it was in the Company’s results of operations for three month and only for
      the consultants assigned to the GE Money contract as the majority of Cratos
      consultants left the Company when it sold its two active “Lift and Shift”
projects. For the nine month period ended September 30, 2006, cost of sales
      totaled $3.1 million, which represented a small decrease from the nine month
      period ended September 30, 2005. denineSeptemberThe Company’s gross margin
      increased to 62% from 37% from the three month period ended September 30, 2005
      to the three month period ended September 30, 2006. This increase was a result
      of the fact that during 2005 the Company’s Cratos division was working on larger
      projects than they have been during 2006, and those larger projects afforded
      the
      Company smaller gross margins.




**Operating
      Expenses**




Total
      operating expenses for the three months ended September 30, 2006 were $1.8
      million as compared to $1.4 million during the three months ended September
      30,
      2005. Operating expenses increased for the nine month periods from $3.6 million
      in 2005 to $4.6 million in 2006. After these expenses, the Company recognized
      a
      loss from operations of $1.4 million in the three months ended September 30,
      2006 versus a loss from operations of $0.4 million in the same quarter ended
      September 30, 2005. For the nine month period ended September 30, 2006, the
      Company incurred a loss from operations of $4.0 million as compared with a
      loss
      of $2.0 million in fiscal 2005. The increased loss in 2006 was primarily related
      to the Cratos division which resulted in the Company choosing to discontinue
      this money losing operation.


-27-
 **Table
          of Contents**




**Salaries
      and Wages**




**Three
                months ended September 30**
            **Nine
                months ended September 30****2006**
            **2005**
            **%
                Change**
            **2006**
            **2005**
            **%
                Change****343,912**
            **515,702**
            **(33)%**
            **1,410,242**
            **937,411**
            **50%**




Salaries
      and wages in 2006 represent the cost of administration and sales and marketing
      staff except for certain contractors who are shown as consulting costs. For
      the
      three month period ended September 30, 2006, salaries and wages were $0.3
      million as compared with $0.5 million during the three month period ended
      September 30, 2005. For the nine month period ended September 30, 2006, the
      increase in salaries and wages was 50% higher. The decrease in the three month
      period is primarily a result of the impact of the discontinued operations of
      MDI, DisclosurePLUS and Cratos.. . The increase in the nine month period is
      a
      result of both the increased expenditures in the Activecast business, the impact
      of Cratos management salaries for seven months as well as the fact that stock
      compensation expense in 2006 was considerably higher than in 2005 as a result
      of
      stock compensation provided to both executive management and staff which was
      not
      provided in 2005.




**Consulting
      fees**




**Three
                months ended September 30**
            **Nine
                months ended September 30****2006**
            **2005**
            **%
                Change**
            **2006**
            **2005**
            **%
                Change****122,288**
            **131,096**
            **(%)**
            **423,745**
            **511,126**
            **(17%)**




For
      the
      three month period ended September 30, 2006, consulting fees decreased 7% to
      $0.1 million from $0.1 million as compared to the three month period ended
      September 30, 2005. For the nine month period ended September 30, 2006, this
      decrease was 17% given that consulting fees for the nine month period ended
      September 30, 2006 were $0.4 million as compared to $0.5 million during the
      nine
      months ended September 30, 2005. Consulting expenses incurred during the three
      month period ended June 30, 2005 included approximately $100,000 in one-time
      termination costs incurred to exit a consulting contract which the Company
      determined was no longer producing acceptable returns to the organization.
      Additionally, during the nine month period ended September 30, 2005,
      approximately $50,000 of consulting expense relates to the amortization of
      deferred consulting costs which relate to assistance in securing certain
      financing transactions. The amortization of these costs expired later in 2005
      and as a result have no comparable balance in consulting expense in
      2006.


-28-
 **Table
          of Contents**




**Legal
      and Accounting**




**Three
                months ended September 30**
            **Nine
                months ended September 30****2006**
            **2005**
            **%
                Change**
            **2006**
            **2005**
            **%
                Change****142,229**
            **281,182**
            **(49%)**
            **512,941**
            **628,745**
            **(18)%**




For
      the
      three month period ended September 30, 2006, legal and accounting expenses
      decreased 49% to $0.1 million from $0.3 million during the three month period
      ended September 30, 2005. For the nine month period ended September 30, 2006,
      legal and accounting expenses decreased by 18% given that legal and accounting
      expenses for the nine month period ended September 30, 2006 were $0.5 million
      as
      compared to $0.6 million during the nine months ended September 30, 2005. Legal
      and accounting expenses included legal costs associated with using third party
      lawyers to act on behalf of the Company in current legal matters. Additionally,
      the Company has incurred significant legal costs over the past year in an
      attempt to gain control over Infolink, in the last quarter there have been
      virtually no costs associated with the InfoLink case. Accounting costs include
      audit fees and related costs as well as costs incurred to complete periodic
      regulatory filings. The Company experienced a decrease in its annual audit
      fees
      from 2005 to 2006 and this accounts for the decrease in legal and accounting
      costs during the three month period ended September 30, 2006 as compared to
      the
      same period in 2005.




**General
      and Administrative**




**Three
                months ended September 30**
            **Nine
                months ended September 30****2006**
            **2005**
            **%
                Change**
            **2006**
            **2005**
            **%
                Change****993,383**
            **289,288**
            **243%**
            **1,599,569**
            **996,239**
            **61%**




For
      the
      three month period ended September 30, 2006, general and administrative expenses
      increased 243% to $1.0 million from $0.3 million during the three month period
      ended September 30, 2005. For the nine month period ended September 30, 2006,
      general and administrative expenses increased 61%. General and administrative
      expenses include amounts spent to operate the Company’s various facilities,
      including rent, office expenses, insurance, and communications, as well as
      travel expenses. During both the three and nine month periods ended September
      30, 2006 general and administrative expenses include a $994,222 write-off
      related to a receivables which the Company determined to be
      uncollectible.


-29-
 **Table
          of Contents**




**Other
      Income/Expenses**




**Three
                months ended September 30**
            **Nine
                months ended September 30****2006**
            **2005**
            **%
                Change**
            **2006**
            **2005**
            **%
                Change****Loss
                on settlement of debt**
            **(110,463)**
            **(74,463)**
            **48%**
            —
            **(74,463)**
            **100%****Interest
                Expense**
            **(156,582)**
            **(74,070)**
            **111%**
            **(534,485)**
            **(189,974)**
            **181%****Foreign
                Exchange Loss**
            **2,156**
            **31,367**
            **(69)%**
            **(65,270)**
            **(5,928)**
            **008%**




Also
      during the quarter ended September 30, 2006, the Company expended $156,582
      in
      financial interest which was significantly higher than the $74,070 expensed
      in
      the quarter ended September 30, 2005. Interest expense for the nine month period
      ended September 30, 2006 totaled $534,485 as compared with $189,974 for the
      nine
      month period ended September 30, 2005. The increase in interest expense in
      2006
      as compared with 2005 is a result of new interest bearing facilities which
      the
      Company put into place including a loan with a Canadian chartered bank, a term
      loan with a private institution, as well as interest incurred in relation to
      certain short-term loans the Company entered into towards the end of 2005 and
      into 2006. In addition, the Company settled its litigation with Orchestral
      during the quarter ended June 2006 and agreed to pay interest costs on its
      outstanding liability and this resulted in a large charge in the three month
      period ended June 30, 2006.




Foreign
      exchange gains were $2,156 and a loss of $65,270 for the three and nine month
      periods ended September 30, 2006 respectively as compared with $31,367 and
      a
      loss of $5,928 for the three and nine month periods ended September 30, 2005
      respectively. These gains and losses are a result of the fluctuation of the
      U.S.
      dollar relative to the Canadian dollar.




**Discontinued
      Operations**




In
      the
      quarter ended September 30, 2006, the Company recorded discontinued operations
      with respect to its MDI business. The Company recorded a gain on the disposition
      of this business of $263,541. This gain was a result of the fact that the
      business was disposed of for cash and note receivable consideration totaling
      $388,700, and that these businesses had a net book value of $125,159 as of
      the
      date of disposition. During the quarter ended September 30, 2006, MDI recorded
      no operations. This compares to a profit of $46,130 during the quarter ended
      September 30, 2005. For the nine month period ended September 30, 2006, the
      MDI
      business recorded a net loss of $53,659, compared to a profit of $16,617 for
      the
      same period in 2005.





In
      the
      quarter ended September 30, 2006, the Company recorded discontinued operations
      with respect to its Disclosure PLUS business. The Company recorded a loss on
      the
      disposition of this business of $313,929. This loss was a result of the fact
      that the business was disposed of for debt owing to Dean Peloso totaling
      $94,534, and that this business had a net book value of $533,324 as of the
      date
      of disposition. During the quarter ended September 30, 2006, Disclosure PLUS
      recorded a $1,550 profit from operations. For the nine month period ended
      September 30, 2006, the Disclosure PLUS business recorded a net profit of $2,610
      compared to a profit of $7,252 for the same period in 2005.





In
      the
      quarter ended September 30, 2006, the Company recorded discontinued operations
      with respect to its Cratos business. The Company recorded a loss on the business
      of $6,369,914. This loss was a result of the fact that two contracts from this
      business were disposed for debt owed, and the balance of the business collapsed
      when a major vendor failed to pay its accounts in a timely fashion resulting
      in
      a default in both consulting fees and the bank line of credit payments. During
      the quarter ended September 30, 2006, Cratos recorded a loss from operations
      of
      $15,223. This compares to a profit of $223,875 during the quarter ended
      September 30, 2005. For the nine month period ended September 30, 2006, the
      Cratos business recorded a net loss of $703,234, compared to a profit of
      $1,260,679 for the same period in 2005.




The
      Company also had discontinued operations with respect to Twincentric for the
      2005 periods only. Twincentric was disposed of during the Company’s third
      quarter of 2005. For the three month period ended September 30, 2005,
      Twincentric recorded a loss from operation of $1,269, and for the nine month
      period ended September 30, 2005 recorded a loss of $445,032.


-30-
 **Table
          of Contents**




**Liquidity
      and Capital Resources**




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. The company had a net loss of
      $10,426,240 and incurred negative cash flows from operations of $1,214,128
      for
      the nine months ended September 30, 2006 and has a working capital deficiency
      of
      $5,468,369 and an accumulated deficit of $51,208,845 at September 30, 2006.
      These matters raise substantial doubt about its ability to continue as a going
      concern. The condensed consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty. The
      Company’s ability to continue as a going concern is dependent on its ability to
      raise additional debt and equity financing and to implement its business plan
      to
      market and sell its various enterprise software and services. At the current
      time management anticipates that it will be able to address its need for
      financing through the execution of private placements of the Company’s shares to
      both related and unrelated parties.




At
      September 30, 2006, the Company’s need for cash included satisfying $6,114,186
      of current liabilities. The Company’s ability to continue as a going concern is
      dependent on its ability to raise additional funding through expansion of its
      current bank facility, an equity injection, a convertible loan and increased
      sales revenue. Additional equity financing in particular is very important
      to
      the organization particularly if the Company is successful in acquiring GSPS,
      given that the Company expects that the investment required to bring the ePocket
      product into the marketplace will be significant. At September 30, 2006, the
      Company had $94,007 of cash on hand. In addition, certain shareholders have
      also
      supported the Company by deferring the timing of certain payments from
      time-to-time or converting shareholders loans into equity. While there is no
      legal commitment for them to do so, the Company believes that certain
      shareholders will continue to support the Company in a similar
      manner.




As
      the
      Company is currently in the process of acquiring GSPS, its cash needs in the
      future will involve raising funds to complete this transaction, as well as
      raising funds to bring the ePocket product into the marketplace. The Company
      is
      currently in the process of raising additional financing, which it expects
      will
      be in the form of either common stock or a convertible debenture.




The
      failure of the Company to obtain additional debt and equity funding will have
      a
      material adverse effect on the Company’s business and may force the Company to
      reorganize, reduce its investment in, or otherwise divest of one or more of
      the
      Company’s operations, or to reduce the cost of all operations to a lower level
      of expenditure thereby reducing the Company’s expected revenues and net income
      in 2006 and beyond.




**Consolidated
      Statement of Cash Flows**




Cash
      on
      the consolidated balance sheet decreased from $109,789 at December 31, 2005
      to
      $94,007 at September 30, 2006.




**Net
      Cash Used in Operating Activities**




For
      the
      nine months ended September 30, 2006, the net cash used in operating activities
      was $1,214,128 versus $1,543,639 in the nine month period ended September 30,
      2005.




**Net
      Cash Provided by Investing Activities**




Net
      cash
      provided by investing activities was $100,440 for the nine month period ended
      September 30, 2006. This period’s use of cash is a result of capital asset
      purchases which were less than the proceeds received from the sale of
      investments.




**Net
      Cash Provided by Financing Activities**




Net
      cash
      provided by financing activities was $1,194,274 in the nine months ended
      September 30, 2006. The source of funds was primarily a result of the Company
      receiving proceeds from the issuance of shares of $851,875. In the nine month
      period ended September 30, 2005, the Company generated cash flows from financing
      activities of $1,640,261 which was primarily a result of the line
      of
      credit the company secured in order to finance Cratos as well as the issuance
      of
      preferred shares.


-31-
 **Table
          of Contents**




**Certain
      Business Risk Factors**




A
      significant portion of the Company’s net sales are derived from data integration
      services and from the sale of enterprise software, which are subject to
      increasing competition, rapid technological change and evolving customer
      preferences, often resulting in the frequent introduction of new products and
      short product lifecycles. Accordingly, the Company’s profitability and growth
      prospects depend upon its ability to continually acquire, develop and market
      new, commercially successful software products and obtain adequate financing.
      If
      the Company is unable to continue to acquire, develop and market commercially
      successful software products, its operating results and financial condition
      could be materially adversely affected in the near future.




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the dates of the financial statements
      and
      the reported amounts of revenues and expenses during the reported periods.
      The
      most significant estimates and assumptions relate to the recoverability of
      capitalized software development costs and other intangibles, realization of
      deferred income taxes, and doubtful accounts. Actual amounts could differ
      significantly from these estimates.




**Item
      3. Controls and Procedures**




**(A)
      Evaluation of Disclosure Controls and Procedures**




As
      of the
      end of the period covered by this Quarterly Report on Form 10-QSB, the Company
      carried out an evaluation, under the supervision and with the participation
      of
      the Company’s Chief Executive Officer and Chief Financial Officer, of the
      effectiveness of the design and operation of the Company’s disclosure controls
      and procedures (as defined in Rules 13a - 15(e) promulgated under the Securities
      Exchange Act of 1934, as amended. The Company’s disclosure controls and
      procedures are designed to provide a reasonable level of assurance of achieving
      the Company’s disclosure control objectives. The Company is currently reviewing
      its internal controls and plans to implement improved procedures over the next
      two quarters.




**Limitations
      on the Effectiveness of Controls:** The
      Company’s management, including the Company’s Chief Executive Officer and Chief
      Financial Officer, does not expect that its disclosure controls or its internal
      controls over financial reporting will prevent all error and all fraud. Any
      Control system, no matter how well conceived and managed, can provide only
      reasonable assurance that the objectives of the control system are met. The
      design of a control system must reflect the fact that there are resource
      constraints, and the benefits of controls must be considered relative to their
      costs. Due to the inherent limitations in all control systems, no evaluation
      of
      controls can provide absolute assurance that all control issues and instances
      for fraud, if any, within the Company have been detected. These inherent
      limitations include the realities that judgments in decision-making can be
      faulty, and that breakdown can occur because of simple error or mistake.
      Additionally, controls can be circumvented by the individual acts of some
      persons, by collusion of two or more people, or by management override of the
      control. The design of any system of controls also is based in part upon certain
      assumptions about the likelihood of future events, and there can be no assurance
      that any design will succeed in achieving its stated goals under all potential
      future conditions; over time, control may become inadequate because of changes
      in conditions, or the degree of compliance with the policies or procedures
      may
      deteriorate. Because of the inherent limitations in a cost-effective control
      system, misstatements due to error or fraud may occur and not be
      detected.




**Conclusions:** The
      Company’s Chief Executive Officer has concluded that, subject to the limitations
      noted above, the Company’s disclosure controls and procedures are reasonable but
      definitely need improvement.


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**(B)
      Changes in Internal Controls Over Financial Reporting**




In
      connection with the evaluation of the Company’s internal controls during the
      Company’s quarter ended September 30, 2006, the Company’s Chief Executive
      Officer and Chief Financial Officer have determined that there are no changes
      to
      the Company’s internal controls over financial reporting that has materially
      affected, or is reasonably likely to materially effect, the Company’s internal
      controls over financial reporting.


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**PART
      II**




**OTHER
      INFORMATION**




**Item
      1. Legal Proceedings**




**James
      Cassidy and TPG Corporation**




In
      March
      of 2000, the Company entered into an agreement (the “TPG Agreement”) with TPG
      Capital Corporation (“TPG”). Under the TPG Agreement, TPG provided advice and
      other services to ActiveCore with respect to the acquisition of Erebus
      Corporation (the “Erebus Acquisition”). The Company pursued the Erebus
      Acquisition to, among other things, maintain its listing eligibility on the
      Over
      the Counter Bulletin Board (“OTCBB”). TPG was the sole stockholder of Erebus
      Corporation and the Company believes that James Cassidy was a controlling
      stockholder of TPG.




Under
      the
      Erebus Acquisition, the Company purchased Erebus, a non-active entity with
      securities registered under the Securities Exchange Act of 1934, as amended,
      to,
      among other things, retain its listing status on the OTCBB.  At that time,
      the Company was at risk of losing its listing eligibility under a new national
      Association of Securities Dealers (“NASD”) listing requirement. Loss of listing
      eligibility would have resulted in the Company trading in the Pink Sheets. 
Management and the board of directors at that time determined that such a
      development would be detrimental to its stockholders and other investors. The
      Company consummated the Erebus Acquisition in March of 2000.




Under
      the
      TPG Agreement, the Company paid to TPG 200,000 shares of the Company’s common
      stock, then worth $500,000, and $200,000 in cash. In addition, the TPG Agreement
      contains a reset provision which obligates the Company to issue additional
      shares of its common stock so that the total number of shares issued to TPG
      under the TPG Agreement had a value of $500,000 as of the first anniversary
      of
      the effective date of the TPG Agreement. Based on the relative share prices
      of
      the Company’s common stock as of March of 2000 and March of 2001, if the Company
      was required to satisfy the reset provision, the Company would be required
      to
      issue to TPG an additional 3,028,378 shares of its common stock (“Reset
      Shares”).




The
      Company does not believe that TPG is entitled to the Reset Shares. Based on
      public records, in June of 2001, TPG and Mr. Cassidy reached a settlement
      agreement with the SEC with respect to securities fraud and disclosure
      violations alleged by the SEC in connection with transactions substantially
      similar to the Erebus Acquisition. Neither Mr. Cassidy nor TPG admitted or
      denied the allegations. A description of the settlement is contained in SEC
      Litigation Release No. 17023, dated June 4, 2001. Although the Company has
      maintained its listing status on the OTCBB, the Company has experienced
      significant regulatory problems in connection with the Erebus Acquisition that
      are related to the allegations underlying the settlement between TPG and Mr.
      Cassidy and the Securities and Exchange Commission. These problems have resulted
      in significant delays and expense to the Company.




In
      March
      of 2005, Mr. Cassidy, as assignee of TPG’s rights under the TPG Agreement, filed
      a claim in the Superior Court of the District of Columbia against the Company
      seeking, among other things, the Reset Shares. The Company has engaged a law
      firm to vigorously defend it against the claim. During the quarter ended June
      30, 2006 the action was withdrawn and the Company and Mr. Cassidy agreed to
      enter into arbitration on the matter and this is now in process with the
      arbitration board currently being established. No contingent liability has
      been
      allocated for any eventual loss on the action.


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          of Contents**




Pursuant
      to Rule 405 promulgated under the Securities Act of 1933, as amended, the
      Company believes that Mr. Cassidy may be deemed to be a “promoter” of the
      Company. The Company has no ongoing business relationship with Mr. Cassidy
      and
      he is not employed by the Company in any manner.




This
      case
      is proceeded to arbitration on August 26, 2006 and
      the
      arbitrator found in favor of Mr. Cassidy. The Company was ordered to pay Mr.
      Cassidy the amount of $448,000 USD payable in shares. The Company has made
      a
      provision for this settlement and will issue the appropriate number of shares
      to
      Mr. Cassidy and will register them on the next SB2 filing.





The
      arbitration hearing was held in the second quarter of 2006 and the arbitrator
      found in favor of Mr. Cassidy. The Company was ordered to pay Mr. Cassidy the
      amount of $448,000 USD payable in shares. The Company has made a provision
      for
      this settlement and will issue the appropriate number of shares to Mr.Casidy
      and
      will register them on the next SB2 filing.




**Orchestral
      Corporation**




Orchestral
      Corporation commenced a proceeding in Ontario court in January of 2003, which
      was subsequently placed into abeyance, then revived in August of 2003, against
      the Company and its Canadian subsidiary, ActiveCore Limited (formerly
      Springboard Technologies Inc.) to the effect that they had infringed upon the
      copyright that Orchestral maintained in PowerAudit and further that the Company
      had breached the distribution contract between Orchestral and the Company with
      respect to termination and non-payment of support costs with regard to the
      distribution of Power Audit. Orchestral has claimed punitive and exemplary
      damages of Canadian $4,000,000 and Canadian $1,000,000, respectively. The
      Company has retained counsel and is defending the action on the basis that
      the
      Company believes that there is no merit to the case and in the event that there
      was merit, the time frame in which to bring an action in the contract has
      expired.




Orchestral
      commenced an Application before the Ontario courts to enforce a settlement
      which
      it alleged was reached with the Company during the negotiations between its
      first and second lawsuits. The court ordered that a settlement was enforceable
      and that $226,824 was owed by the Company to the licensor. The Company appealed
      this decision and in January 2006 the initial judgment was upheld.





During
      the six month period ended June 30, 2006, the Company reached a settlement
      with
      Orchestral in which it agreed to pay Orchestral the $226,824 which the court
      had
      previously ordered payable, along with interest from the date of that judgment
      totaling $57,224. The interest was recorded in the Company’s consolidated
      statement of operations for the six month period ended June 30, 2006.
      Additionally, Orchestral agreed to accept the Company’s common stock in
      consideration for settlement of this debt. The conversion price for the common
      stock was a 20% discount to price of the Company’s common stock for the trailing
      20 trading day prior to settlement. This settlement resulted in a loss of
      $110,463, which has been recorded in the Company’s consolidated statement of
      operations for the six month period ended June 30, 2006. The common stock to
      be
      issued by the Company pursuant to this settlement agreement has been recorded
      in
      common stock to be issued in the Company’s consolidated balance sheet at June
      30, 2006.




During
      the quarter ended September 30, 2006 the Company issued 6,575,180 common shares
      to Orchestral  and
      will
      register these shares on the next SB2 filing .





**Cesar
      Correia and InfoLink Technologies Ltd.**




From
      December 2003 to April 2005, the Company was engaged in discussions with certain
      major shareholders of Infolink Technologies Limited with regard to the potential
      acquisition of Infolink Technologies Ltd., a public company listed on the TSX
      Venture Exchange under the symbol “IFL”. During the course of discussions, an
      offer to purchase was rebuffed by Cesar Correia, the former Chairman of the
      Board, President and CEO and 34% shareholder of Infolink. At the time, Mr.
      Correia was told that the Company would purchase another competitor to Infolink,
      C Comm Network Corporation. In May 2005, the Company purchased C Comm. In July
      2005, an unrelated minority shareholder of Infolink commenced an action in
      Ontario alleging that Mr. Correia has mismanaged Infolink and amongst other
      things that he had inappropriately obtained funds from the company and converted
      them to his own purposes. The day prior to the court hearing with regard to
      the
      minority shareholder action, Mr. Correia together with Infolink Technology
      commenced a proceeding in the same Ontario court alleging unfair competition
      as
      a result of an alleged improper acquisition of confidential information from
      Infolink and numerous other causes of action. Meanwhile, the court appointed
      a
      monitor and investigator to look into the allegations against Mr. Correia.
      The
      court appointed monitor and investigator issued an interim report in October
      2005 which found that several of the allegations against Mr. Correia were
      substantiated. Mr. Correia was removed from the position of Chairman, President
      and CEO of Infolink and is now an employee of Infolink with a reduced salary.
      The Company believes that Infolink as a corporate entity will not proceed with
      any action against the Company as the Company believes that the action was
      commenced as a defensive move by Mr. Correia and now that he has been removed
      from management of Infolink there is little basis for the action to
      continue




**E.A.W
      Group Inc., Consulting and Referral Services Inc.,Neale Business Consulting
      Inc., Andrew Wickett and Debbie Gracie-Smith**





On
      November 15, 2006 a legal proceeding was initiated in the Ontario Superior
      Court
      by E.A.W Group Inc., Consulting and Referral Services Inc., Neale Business
      Consulting Inc., Andrew Wickett and Debbie Gracie-Smith. The plaintiffs (Andrew
      Wickett and Debbie Gracie-Smith) claim damages of 2.5 million Canadian dollars
      for breach of the Share Purchase Agreement and Registration Rights Agreement.
      The plaintiff (E.A.W Group) claims damages of $19,871.42 CAD for unpaid salary
      and $52,672.03 CAD for unpaid commissions. The plaintiff (Consulting and
      Referral Services Inc.) claims damages of $11,591.66 CAD for unpaid salary
      and
      $52,672.03 CAD for unpaid commissions. The plaintiff (Neale Business Consulting
      Inc.) claims damages of $24,892.00 CAD for unpaid consulting services.





The
      Company will vigorously defend against this proceeding on the grounds that
      the
      plaintiffs were in charge of the Cratos organization and their actions caused
      great harm to both Cratos and the parent Company.





The
      Company believes that this case has no merit. The Company will vigorously defend
      this action.


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          of Contents**




**Part
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**




On
      February 9, 2006, the board of directors authorized the issuance of 40,000
      restricted common shares of stock from treasury to unrelated parties (Shai
      Stern) and an additional 40,000 restricted common shares of stock from treasury
      to (Seth Farbman) of Vintage Filings, LLC in order to receive long term
      discounted pricing for issuance of ActiveCore press releases.




On
      February 9, 2006, the board of directors authorized the issuance 400,000
      restricted common shares of stock from treasury as board compensation to two
      independent members of the board. Stephen Lewis received 200,000 common shares
      and Steven Smith received 200,000 common shares.




Effective
      March 1, 2006, the Company completed a reverse split of the common shares on
      a 1
      for 10 ratio and this resulted in the issuance from treasury of the following
      share amounts in respect of “round-up” for beneficial owners of the common
      shares: (i) to Cede & Co of 49,995 common shares; (ii) to ADP Clearing of 9
      common shares; and (iii) to RBC Dominion Securities of 6 common
      shares.




**Item
      3. Defaults Upon Senior Securities**




None.




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




None.




**Item
      5. Subsequent Events**




On
      November 1st, 2006 the Company filed a form S8 to significantly reduce debt
      related to back wages, legal fees and other consulting contracts associated
      with
      the re-branding of the Company. The total number of shares issued on this S8
      were 63,368,212. For more information regarding the S8, please refer to the
      actual S8 filing and associated press release of November 1 st ,
      2006
      available on EDGAR.





On
      October 25, 2006 ActiveCore and GSPS signed a binding purchase and sale
      agreement that has been approved and reviewed by both Boards of Directors.
      This
      transaction is expected to close by December 31 st ,
      2006
      with the consent of a minimum of 51% of the ActiveCore shareholders. A consent
      document has been prepared for circulation.





On
      November 20 th ,
      2006
      the financial institution that had a line of credit in place with the Cratos
      division for 1.5 million dollars issued a letter to Cratos demanding payment
      of
      the loan for violation of associated covents and late payments. The Board of
      Directors of ActiveCore Inc. are reviewing a bank sponsored forebearance
      agreement and will decide on an appropriate course of action in December 2006.
      Note- this liability is not guaranteed by ActiveCore Inc. the
      Parent.


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          of Contents**




**Item
      6. Exhibits AND REPORT FOR FORM
      8-K**




**(a)
      Exhibits:**




**Exhibit
                No.**
            
            **Description**
            
            **Location**31.1
            
            Certification
                by Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
            
            Provided
                herewith31.2
            
            Certification
                by Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
            
            Provided
                herewith32.1
            
            Certification
                by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Provided
                herewith32.2
            
            Certification
                by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Provided
                herewith




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          of Contents**




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




**ACTIVECORE
                TECHNOLOGIES, INC.**December
                18, 2006
            By:**
            */s/Peter
                J. Hamilton*President
                and Chief Executive Officer




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