UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

|               
|---------------
|FORM 10-K/A    
|               
|AMENDMENT No. 1

(MARK ONE)

|                                                         |                                                                                            
|-------------------------------------------------------- | -------------------------------------------------------------------------------------------
|                                                         | xANNUAL
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                                         |                                                                                            
|For the fiscal year
  ended August 31, 2005             
|                                                         |                                                                                            
|OR                                                      
|                                                         |                                                                                            
|                                                         | oTRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                         |                                                                                            
|For the transition
  period from___________to___________
|                                                         |                                                                                            
|Commission file number:
  0-32789                       
|                                                         |                                                                                            
|EMTEC, INC.                                             
|(Exact name of
  registrant as specified in its charter)

|                                           |  |                                       
|------------------------------------------ |  | --------------------------------------
|Delaware                                   |  | 87-0273300                            
|(State of incorporation
  or organization) |  | (I.R.S. Employer
  Identification No.)

572 Whitehead Road,
Bldg#1
Trenton, New Jersey 08619
(Address of principal executive offices, including zip code)

(609)-528-8500
(Registrants telephone number, including area code)

Securities registered
pursuant to Section 12(b) of the Act:
None

Securities registered
pursuant to Section 12(g) of the Act:

| |                                 | 
| | ------------------------------- | 
| | Common Stock, $0.01 par
  value | 
| |                                 | 
| | Title of class                  | 

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

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

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

Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o

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

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

The aggregate market value of the voting and
non-voting common equity held by non-affiliates of the registrant as of
February 28, 2005 was approximately $10,912,085 computed by reference to the
closing price of the common stock for that date.

As of June 30, 2006, there were outstanding 14,381,286 shares
  of the registrants common stock.

DOCUMENTS
INCORPORATED BY REFERENCE

None.

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EXPLANATORY
NOTE

Emtec, Inc. is filing this Amendment No. 1 to its
Annual Report on Form 10-K for the year ended August 31, 2005, as filed with
the Securities and Exchange Commission on December 14, 2005 (the Original
10-K).  At the time of filing its
Original 10-K, the Companys financial statements for 2003 had been audited by
an accounting firm, Glassel & Bonfiglio, LLC (Glassel), that was not
registered by the PCAOB.  Subsequently,
Glassel registered with the PCAOB and reaudited the 2003 financial statements
which are filed with this Form 10-K/A.
This amendment updates all references to the 2003 financial statements
by removing all references to the 2003 financial statements as being unaudited
in Item 5, Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities, Item 6, Selected Financial Data
and Item 7, Managements Discussion and Analysis of Financial Condition and Results
of Operations.  Item 15(a), Financial
Statements is also amended to include a Report of the Independent Registered
Public Accounting Firm for 2003.

The Company has also amended footnote 15 Quarterly
Financial Information  (Unaudited) of Notes to Consolidated Financial
Statements to correct a typographical error that was included in the Original
Filing.

As required by Rule 12b-15
of the Exchange Act, new certifications by our principal executive officer and
principal financial officer are being flied as exhibits herewith under Item
15(c) Exhibits as part of this Amendment No. 1.   Additionally, the Company is filing, as Exhibits 23.1 and 23.2,
Consents of each of the Registered Public Accounting Firms that has audited its
financial statements.  As further
required by Rule 12b-15, this Amendment No. 1 sets forth the complete text of
each item as amended.

This Amendment No. 1 does
not affect any other section of the Original 10-K not otherwise discussed
herein and continues to speak as of the date of the Original 10-K.  Accordingly, this Amendment No. 1 should be
read in conjunction with the Registrants other filings made with the
Securities and Exchange Commission subsequent to the filing of the Original
10-K.

---



References in this Annual Report to we, us, or
our are to Emtec, Inc. and its subsidiaries, unless the context specifies or
requires otherwise.

Cautionary Statement
Regarding Forward-Looking Statements

You should carefully review the information contained
in this Annual Report and in other reports or documents that we file from time
to time with the Securities and Exchange Commission (the SEC). In this Annual
Report, we state our beliefs of future events and of our future financial
performance. In some cases, you can identify those so-called forward-looking
statements by words such as may, will, should, expects, plans,
anticipates, believes, estimates, predicts, potential, or
continue
or the negative of those words and other comparable words. You should be aware
that those statements are only our predictions. Actual events or results may
differ materially. In evaluating those statements, you should specifically
consider various factors, including the risks discussed in this Annual Report
for the year ended August 31, 2005 and other reports or documents that we file
from time to time with the SEC. Those factors may cause our actual results to
differ materially from any of our forward-looking statements. All
forward-looking statements attributable to us or a person acting on our behalf
are expressly qualified in their entirety by this cautionary statement.

Assumptions relating to budgeting, marketing, and
other management decisions are subjective in many respects and thus susceptible
to interpretations and periodic revisions based on actual experience and
business developments, the impact of which may cause us to alter our marketing,
capital expenditure, or other budgets, which may in turn affect our business,
financial position, results of operations, and cash flows.

- i -

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PART
II

Item 5.
Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

Our common stock is quoted on the Over The Counter
Bulletin Board under the symbol ETEC. The following table sets forth the high
and low closing prices of our common stock for the periods indicated:

|                     |  |   |      |  |     |      |  | 
|-------------------- |  | - | ---- |  | --- | ---- |  | 
|Three
  Months Ended |  |   | High |  | Low |     
|                     |  |   |      |  |     |     
|August 31, 2005      |  | $ | 2.85 |  | $   | 1.60 | 
|May 31, 2005         |  | $ | 2.00 |  | $   | 1.32 | 
|February 28, 2005    |  | $ | 3.04 |  | $   | 1.70 | 
|November 30, 2004    |  | $ | 2.25 |  | $   | 0.88 | 
|                     |  |   |      |  |     |      | 
|August 31, 2004      |  | $ | 1.15 |  | $   | 0.91 | 
|                     |  |   |      |  |     |      | 
|May 31, 2004         |  | $ | 1.45 |  | $   | 0.99 | 
|February 29, 2004    |  | $ | 1.25 |  | $   | 0.82 | 
|November 30, 2003    |  | $ | 1.20 |  | $   | 0.77 | 

The
above quotations represent prices between dealers and do not include retail
mark-ups, markdowns or commissions. They do not necessarily represent actual
transactions.

As
of November 7, 2005, there were 612 record holders of our common stock,
although we believe that beneficial holders approximate 850.

We
have not previously declared any dividends. It is not likely that dividends on
the shares will be declared in the forseeable future. Under our current loan
agreement, we may not declare any dividends without the consent of our lenders.
However, even if our lenders consented, the determination and payment of
dividends with respect to the shares in the future will be within the
discretion of our board of directors and will depend on our earnings, capital
requirements and operating and financial condition, among other factors.

Equity
Compensation Plan Information

|                                                               |  |                                                                                                   |  |                                                                                 |  |                                                                                                                                                    |      |  |  |         |  | 
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  |  | ------- |  | 
|Plan
  category                                                |  | Number of securities to be
  issued upon exercise of
  outstanding options, warrants
  and rights |  | Weighted-average exercise
  price of outstanding options,
  warrants and rights |  | Number of securities remaining available
  for future
  issuance under equity compensation plans
  (excluding securities reflected in
  column(a)) |     
|                                                               |  |                                                                                                   |  |                                                                                 |  |                                                                                                                                                    |     
|                                                               |  | (a)                                                                                               |  | (b)                                                                             |  | (c)                                                                                                                                                |     
|                                                               |  |                                                                                                   |  |                                                                                 |  |                                                                                                                                                    |      |  |  |         |  | 
|Equity compensation plans approved by security holders         |  |                                                                                                  |  |                                                                                 |  |                                                                                                                                                    |     |  |  |        |  | 
|                                                               |  |                                                                                                   |  |                                                                                 |  |                                                                                                                                                    |      |  |  |         |  | 
|Equity compensation plans not approved by security holders
(1) |  | 92,453                                                                                            |  |                                                                                 |  | $                                                                                                                                                  | 1.22 |  |  | 639,058 |  | 
|                                                               |  |                                                                                                   |  |                                                                                 |  |                                                                                                                                                    |      |  |  |         |  | 
|Total                                                          |  | 92,453                                                                                            |  |                                                                                 |  | $                                                                                                                                                  | 1.22 |  |  | 639,058 |  | 

- 2 -

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(1)
Our 1996 Stock Option Plan (the Plan) (amended in 1999) authorizes the
granting of stock options to directors and eligible employees. We have reserved
1,000,000 shares of our common stock for issuance under the Plan at prices not
less than 100% of the fair value of our common stock on the date of grants
(110% in the case of shareholders owning more than 10% of our common stock). As
of August 31, 2005, 268,489 options have been exercised under the Plan.

Recent
Sales of Unregistered Securities

In
connection with the Merger, all of the shares of Darr common stock issued and
outstanding were exchanged for 9,528,110 shares of our common stock and
warrants to purchase an additional 10% of our common stock, measured on a post
exercise basis. Neither the shares issued nor the shares underlying the warrant
were registered in connection with the closing of the Merger. The new issuance
of common stock represented approximately 55.7% of the issuers total
outstanding common stock post-merger and resulted in a change of control of the
registrant.

The
warrants to purchase our common stock issued to Darrs former shareholders
evidences our obligation to issue a variable number of shares, in the
aggregate, equal to 10% of the total issued and outstanding shares of the
Companys stock, measured on a post exercise basis, at any date during the 5
year term of the warrants ending August 5, 2010. The aggregate exercise price
of these warrants is fixed at $3,645,752. The exercise price per warrant shall
vary based upon the number of shares issuable under the warrants. As of August
31, 2005, the aggregate number of shares issuable under these warrants totaled
1,914,682 with an exercise price per share of $1.90. In addition, Darr issued a
promissory note with a face value of $1,102,794 at an 8% annual interest rate
in full redemption of its outstanding $1 million of preferred stock previously
issued by Darr in connection with the Westwood Acquisition and in payment of
$102,794 of dividends payable on preferred stock at the merger date.

Pursuant to the Merger, we initiated a self tender
offer on September 7, 2005. When the tender offer closed on October 4, 2005,
4,984,185 shares had been properly tendered and not withdrawn. Because the
number of shares of common stock tendered exceeded the number of shares that we
offered to purchase, 57.473 percent of the shares that were tendered were
repurchased. We funded the payment for the shares of our common stock from
borrowings of $5.5 million under our revolving credit facility.

- 3 -

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Item 6.
Selected Financial Data

The
issuance of our common stock in connection with the Merger gave the former Darr
shareholders shares equal to approximately 55.7% of our total outstanding
common stock post-merger and resulted in a change of control for us.
Accordingly, for financial reporting purposes, the Merger was treated as an
acquisition of Emtec by Darr and a recapitalization of Darr and the
registrants historical financial statements for periods prior to the Merger
become those of Darr. In addition, for financial accounting purposes, the
Westwood Acquisition was treated as an acquisition of Darr by Westwood with the
result that the pre-Westwood Acquisition financial statements of Darr, and
therefore, the Registrant are those of Westwood. As a result, the consolidated
financial statements included in this Form 10-K include (i) the accounts and
transactions for Westwood for the year ended August 31, 2003, (ii) the accounts
and transactions of Westwood for the period from September 1, 2003 to April 16,
2004 (Darr Predecessor Period) and for Westwood and Darr for the period from
April 17, 2004 to August 31, 2004 (Darr Successor Period) and (iii) the
accounts and transactions of Darr for the period from September 1, 2004 to
August 31, 2005 and including the accounts and transactions of Emtec for the
period from August 6, 2005 to August 31, 2005.

The
following selected consolidated financial data below should be read in
conjunction with our consolidated financial statements including the
accompanying notes and Managements Discussion and Analysis of Financial
Condition and Results of Operations, both elsewhere in this Report. The data as
of August 31, 2005, 2004 and 2003 and for the year ended August 31, 2005, and
for the periods from September 1, 2003 to April 16, 2004 (Darr Predecessor
Period) and from April 17, 2004 to August 31, 2004 (Darr Successor Period), and
for the year ended August 31, 2003 have been derived from, and should be read
in conjunction with, our audited consolidated financial statements and accompanying
notes, which are contained elsewhere in this Report. The data as of August 31,
2002, and 2001 and for each of the two years in the period ended August 31,
2002 have been derived from our unaudited financial statements, which are not
contained in this Report.

|                                                     |  |                       |             |                             |   |                               |  |      |            |                    |   |                    |  |   |            |  |   |            | 
|---------------------------------------------------- |  | --------------------- | ----------- | --------------------------- | - | ----------------------------- |  | ---- | ---------- | ------------------ | - | ------------------ |  | - | ---------- |  | - | ---------- | 
|                                                     |  |                       |            
|                                                     |  | YEAR ENDED AUGUST 31, |            
|                                                     |  |                       |            
|                                                     |  | 2005                  |             | (Successor
  Period)
  2004 |   | (Predecessor
  Period)
  2004 |  | 2003 |            | 2002
  (unaudited) |   | 2001
  (unaudited) | 
|                                                     |  |                       |             |                             |   |                               |  |      |            |                    |   |                    | 
|Net revenues                                         |  | $                     | 162,632,042 |                             | $ | 41,641,604                    |  | $    | 88,229,719 |                    | $ | 97,449,611         |  | $ | 94,165,222 |  | $ | 80,184,220 | 
|                                                     |  |                       |             |                             |   |                               |  |      |            |                    |   |                    |  |   |            |  |   |            | 
|Net Income (loss)                                    |  | $                     | 826,985     |                             | $ | 122,281                       |  | $    | 885,837    |                    | $ | 467,390            |  | $ | 549,605    |  | $ | 612,757    | 
|                                                     |  |                       |             |                             |   |                               |  |      |            |                    |   |                    |  |   |            |  |   |            | 
|Net Income (loss) per common share (basic & diluted) |  | $                     | 0.08        |                             | $ | 0.01                          |  | $    | 0.09       |                    | $ | 0.05               |  | $ | 0.06       |  | $ | 0.06       | 
|                                                     |  |                       |             |                             |   |                               |  |      |            |                    |   |                    |  |   |            |  |   |            | 

|                                |  |               |            |      |   |            |  |                    |            |                    |   |            |  |   |            | 
|------------------------------- |  | ------------- | ---------- | ---- | - | ---------- |  | ------------------ | ---------- | ------------------ | - | ---------- |  | - | ---------- | 
|                                |  | AT AUGUST 31, |           
|                                |  |               |           
|                                |  | 2005          |            | 2004 |   | 2003       |  | 2002
  (unaudited) |            | 2001
  (unaudited) |  
|                                |  |               |            |      |   |            |  |                    |            |                    |  
|Total assets                    |  | $             | 70,009,919 |      | $ | 21,737,638 |  | $                  | 22,984,079 |                    | $ | 23,060,145 |  | $ | 14,038,416 | 
|                                |  |               |            |      |   |            |  |                    |            |                    |   |            |  |   |            | 
|Total long-term debt            |  | $             | 3,010,219  |      | $ | 2,405,084  |  |                    |            |                    | $ | 351,112    |  | $ | 404,445    | 
|                                |  |               |            |      |   |            |  |                    |            |                    |   |            |  |   |            | 
|Total preferred stock *         |  |               |            |      | $ | 1,030,000  |  |                    |            |                    |   |            |  |   |            | 
|                                |  |               |            |      |   |            |  |                    |            |                    |   |            |  |   |            | 
|Total redeemable common
  stock |  | $             | 5,500,000  |      | $ | 0          |  | $                  | 0          |                    | $ | 0          |  | $ | 0          | 
|                                |  |               |            |      |   |            |  |                    |            |                    |   |            |  |   |            | 

*Liquidation
value of $1,030,00.00

- 4 -

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There
was a dividend in the form of the distribution of a note receivable in the
amount of $399,958 paid to the shareholders of Westwood on April 15, 2004. There
were no other dividends paid to common stockholders during the five year period
ended on August 31, 2005.

- 5 -

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Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations

Reference
is made to the Risk Factors outlined in Item 1A for a discussion of important
factors that could cause actual results to differ from expectations and any of
our forward-looking statements contained herein. The following discussion as of
August 31, 2005, 2004 and 2003 and the corresponding data for (i) the year
ended August 31, 2005, and (ii) for the periods from (a) September 1, 2003 to
April 16, 2004 (Darr Predecessor Period) and (b) from April 17, 2004 to August
31, 2004 (Darr Successor Period) and for the year ended August 31, 2006 have
been derived from, and should be read in conjunction with, our audited
consolidated financial statements and accompanying notes, which are contained
elsewhere in this Report.

Overview

We
are an information technology company, providing services and products to
commercial, federal, education, state and local verticals. Areas of specific
practices include communications, data availability, enterprise computing,
managed services, storage and data center planning and development. Our solutions
are crafted to enable our customers to become more efficient and effective,
thereby giving them a competitive advantage. To date, the most significant
portion of our revenues has been derived from our activities as a reseller of
IT products, such as workstations, servers, microcomputers, application
software and networking and communications equipment. However, we are actively
endeavoring to increase the portion of our revenues that are derived from IT
services.

Merger
with Darr

On
August 5, 2005, we completed our merger under the Agreement and Plan of Merger
dated as of July 14, 2005 (the Merger Agreement), by and among us, Emtec
Viasub LLC, a Delaware limited liability company and our wholly-owned
subsidiary (MergerCo), and Darr Westwood Technology Corporation, a Delaware
corporation (Darr). Pursuant to the terms of the Merger Agreement, Darr
merged with and into MergerCo, with MergerCo remaining as the surviving company
(the Surviving Company) and a wholly-owned subsidiary of Emtec (the
Merger).

The
Merger has been accounted for as a capital transaction followed by a
recapitalization. Our management concluded that the transaction resulted in a
change in control of the Company and that the Merger should be accounted for as
a reverse acquisition. Accordingly, Darr is deemed to be the acquiring company
for financial reporting purposes in the reverse acquisition. The reverse merger
was treated as an acquisition of Emtec by Darr and a recapitalization of Darr.
Consequently, Emtecs historical financial statements for periods prior to the
Merger become those of Darr.

Furthermore,
in connection with the closing of the Merger, Emtec changed its fiscal year end
from March 31 to August 31, effective as of August 5, 2005.

Darr and
Its 2004 Merger with Westwood

Prior
to the Merger, Darr was a holding company formed in April 2004 in order to
effectuate the purchase of all of the outstanding capital stock of Westwood.
Darrs acquisition of Westwoods capital stock was completed on April 16, 2004.
Westwood is engaged in the sale and service of computers and

- 6 -

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peripherals to customers which include departments of
the United States, state and local governments and commercial businesses
throughout the United States.

We
refer to Darrs acquisition of Westwood as the Westwood Acquisition. Darr is
referred to as Darr Predecessor for the periods prior to the Westwood
Acquisition and Darr for the periods following the Westwood Acquisition.
Similarly to the Emtec-Darr Merger, in the Westwood Acquisition, Westwood was
deemed to be the acquiring company for financial reporting purposes in the
reverse acquisition. Consequently, Westwoods historical financial statements
for periods prior to the Westwood Acquisition become those of Darr. For the
discussion and analysis in this Report we have combined Westwoods period from
September 1, 2003 to April 16, 2004 (Darr Predecessor Period) and Darrs period
from April 17, 2004 to August 31, 2004 (Darr Successor Period).

Westwood
is engaged in the sale and service of computers and peripherals to customers
which include departments of the United States, state and local governments and
commercial businesses throughout the United States. Westwood is a supplier of
information technology products and services primarily to the Federal
Government. It has been recognized as one of the top 20 General Services
Administration vendors in the IT industry during each of the past eight years
and was named in data compiled by the GSA as the ninth largest such vendor for
the Federal Governments 2004 fiscal year. Westwood has additional locations in
New York and Virginia, as well as five regional offices in the South and
western United States.

The
majority of Westwoods sales are drawn from various civilian and military U.S.
governmental departments and agencies. These customers include the Department
of Defense, Department of Justice, Department of Homeland Security, Department
of Health and Human Services, Department of Agriculture, Department of Commerce
and the GSA. During the last three fiscal years ended on August 31, 2005, 2004,
and 2003, U.S. governmental departments and agencies accounts for approximately
76.1%, 75.6%, and 75.7%, respectively. The federal government business
typically experiences increased activity during the months August through
November.

Overview
of Financial Statements Presented Herein

As
previously noted, the Merger was treated as an acquisition of Emtec by Darr and
a recapitalization of Darr and the registrant. Darr is deemed to be the
acquiring company for financial reporting purposes and Emtecs historical
financial statements for periods prior to the Merger become those of Darr.

In
evaluating our results of operations and financial performance, our management
has used combined results for the fiscal year ended August 31, 2005 as a single
measurement period. Due to the Merger, we believe that comparisons between the
eleven months ended August 5, 2005 and either Darrs results for the period
from September 1, 2004 to August 5, 2005 or Emtecs results for the period from
August 6, 2005 through August 31, 2005 may impede the ability of users of our
financial information to understand our operating and cash flow performance.
Consequently, in order to enhance an analysis of our operating results and cash
flows, we have presented our operating results and cash flows on a combined
basis for the fiscal year ended August 31, 2005. This combined presentation for
the fiscal year ended August 31, 2005 simply represents the mathematical
addition of the pre-acquisition results of operations of Darr for the period
from September 1, 2004 through August 5, 2005 and the results of operations of
Emtec, following the Merger, for the period from August 6, 2005 through August
31, 2005.

Therefore,
the financial statements presented in this Report consist of the following
financial statements:

- 7 -

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| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Westwood for the fiscal year ended August 31,
  2003;                                                                                             
| |                                                                                                                                                      
| | 2. Westwood for the period from September 1, 2003 to
  April 16, 2004 (the Darr Predecessor Period);                                                 
| |                                                                                                                                                      
| | 3. Darr (following the Westwood Merger on April 16,
  2004) for the period from April 17, 2004 to August 31, 2004 (Darr Successor
  Period);         
| |                                                                                                                                                      
| | 4. Darr for the fiscal year ended August 31, 2005
  (including Emtec, following the Merger, for the period from August 6, 2005 to
  August 31, 2005).

As mentioned above, for the discussion and analysis in
this Report we have combined Westwoods period from September 1, 2003 to April
16, 2004 (Darr Predecessor Period) and Darrs period from April 17, 2004 to
August 31, 2004 (Darr Successor Period) and our period from September 1, 2004
to August 31, 2005 represents the financial statements of Darr for the 2005 fiscal
year plus the financial statements of Emtec for the period from August 6, 2005
to August 31, 2005.

Results of Operations

The
following discussion and analysis provides information that management believes
is relevant to an assessment and understanding of our Results of Operations for
the fiscal years ended August 31, 2005 and 2004. For this discussion and
analysis we have combined the periods from September 1, 2003 to April 16, 2004
(Darr Predecessor Period) and from April 17, 2004 to August 31, 2004 (Darr
Successor Period and our period from September 1, 2004 to August 31, 2005
represents the results of operations of Darr for the 2005 fiscal year plus the
financial statements of Emtec for the period from August 6, 2005 to August 31,
2005.

Our
Report on Form 10-Q that will be filed for the quarter ended November 30, 2005,
will be our first quarterly report that will include full three months of
results of operations of the combined company.

- 8 -

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Comparison
of Years Ended August 31, 2005 and 2004

EMTEC,
INC. 
CONSOLIDATED STATEMENTS OF OPERATIONS 
Years Ended August 31,

|                                                |  |      |             |      |   |             |   |   |            |   |  |        |  
|----------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | - | - | ---------- | - |  | ------ | -
|                                                |  | 2005 |             | 2004 |   | Change      |   | % |           
|                                                |  |      |             |      |   |             |   |   |           
|Revenues                                        |  | $    | 162,632,042 |      | $ | 129,871,323 |   | $ | 32,760,719 |   |  | 25.2   | %
|Cost of revenues                                |  |      | 148,587,442 |      | $ | 117,214,228 |   |   | 31,373,214 |   |  | 26.8   | %
|                                                |  |      |             |      |   |             |   |   |            |   |  |        |  
|Gross profit                                    |  |      | 14,044,600  |      |   | 12,657,095  |   |   | 1,387,505  |   |  | 11.0   | %
|Percent of revenues                             |  |      | 8.6         | %    |   | 9.7         | % |   |            |   |  |        |  
|                                                |  |      |             |      |   |             |   |   |            |   |  |        |  
|Operating expenses:                             |  |      |             |      |   |             |   |   |            |   |  |        |  
|Selling,
  general, and administrative expenses |  |      | 11,872,766  |      | $ | 10,711,020  |   |   | 1,161,746  |   |  | 10.8   | %
|Management fee 
  related party                |  |      | 350,000     |      |   | 116,664     |   |   | 233,336    |   |  | 200.0  | %
|Rent expense 
  related party                  |  |      | 180,000     |      | $ | 215,333     |   |   | (35,333    | ) |  | -16.4  | %
|Depreciation and
  amortization                 |  |      | 174,944     |      | $ | 75,005      |   |   | 99,939     |   |  | 133.2  | %
|                                                |  |      |             |      |   |             |   |   |            |   |  |        |  
|Total operating expenses                        |  |      | 12,577,710  |      |   | 11,118,022  |   |   | 1,459,688  |   |  | 13.1   | %
|                                                |  |      |             |      |   |             |   |   |            |   |  |        |  
|Pecent of revenues                              |  |      | 7.7         | %    |   | 8.6         | % |   |            |   |  | 0.0    | %
|                                                |  |      |             |      |   |             |   |   |            |   |  |        |  
|Operating income                                |  |      | 1,466,890   |      |   | 1,539,073   |   |   | (72,183    | ) |  | -4.7   | %
|Percent of revenues                             |  |      | 0.9         | %    |   | 1.2         | % |   |            |   |  |        |  
|                                                |  |      |             |      |   |             |   |   |            |   |  |        |  
|Other expense (income):                         |  |      |             |      |   |             |   |   |            |   |  |        |  
|Forgiveness of
  debt                           |  |      |            |      |   | ($405,652   | ) |   | 405,652    |   |  | -100.0 | %
|Interest income
   related party               |  |      |            |      |   | ($21,483    | ) |   | 21,483     |   |  | -100.0 | %
|Interest income
   other                       |  |      | (120,520    | )    |   | ($70,262    | ) |   | (50,258    | ) |  | 71.5   | %
|Interest expense                                |  |      | 611,479     |      | $ | 257,484     |   |   | 353,995    |   |  | 137.5  | %
|Other expense
  (income)                        |  |      | (303,604    | )    |   |            |   |   | (303,604   | ) |  | N/A    |  
|Loss on sales of
  land and building            |  |      |            |      |   |            |   |   |           |   |  | N/A    |  
|                                                |  |      |             |      |   |             |   |   |            |   |  |        |  
|                                                |  |      |             |      |   |             |   |   |            |   |  |        |  
|Income before income taxes                      |  |      | 1,279,535   |      |   | 1,778,986   |   |   | (499,451   | ) |  | 28.1   | %
|Provision for income taxes                      |  |      | 452,550     |      | $ | 770,868     |   |   | (318,318   | ) |  | -41.3  | %
|                                                |  |      |             |      |   |             |   |   |            |   |  |        |  
|Net income                                      |  | $    | 826,985     |      | $ | 1,008,118   |   | $ | (181,133   | ) |  | -18.0  | %
|                                                |  |      |             |      |   |             |   |   |            |   |  |        |  
|Percent of revenues                             |  |      | 0.5         | %    |   | 0.8         | % |   |            |   |  |        |  

- 9 -

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Total
Revenues

Total
revenues increased by 25.2% or $32.76 million to $162.63 million for the year
ended August 31, 2005, compared to $129.87 million for the year ended August
31, 2004. This increase is primarily attributable to an increase in the federal
government business including significant one-time sale to a federal government
customer - the United States Department of Agriculture (USDA) of approximately
$21.79 million which represented approximately 66% of our total increase in
revenue. Additionally, our revenue increased as a result of our merger with
Emtec on August 5, 2005. Revenues associated with this merger equaled $6.26
million for the year ended August 31, 2005 which represents approximately 19%
of the total revenue increase. Other factors which increased revenue include
increased service revenue and higher selling efforts.

The
federal government business typically experiences increased activity during the
months of August through November. We do not expect that significant one-time
sales like one discussed above will continue to occur in the future periods.

Gross
Profit

Aggregate
gross profit increased by 11.0% or $1.39 million to $14.04 million for the year
ended August 31, 2005, as compared to $12.66 million for the year ended August
31, 2004. This increase is primarily attributable to a significant sale to a
federal government customer- the USDA discussed above in the revenue section,
and the gross profit associated with Emtec post-merger, (Old Emtec) revenues.
Gross profits associated with USDA sales approximated $814,000, and gross
profit associated with merger equaled approximately $772,000. Without this
one-time sale and the Merger, our aggregate gross profit would have decreased
by approximately $200,000. Measured as a percentage of revenues, our gross
profit margin decreased to 8.6% of total revenues for the year ended August 31,
2005 from 9.7% for the year ended August 31, 2004. Both of these decreases are
mainly due to competitive pressures and aggressive pricing strategies which
lowered our gross margins.

Factors
that may affect gross margins in the future include changes in product margins,
changes in technical employee utilization rates, the mix of products and
services sold, and the decision to aggressively price certain products and
services.

Selling,
General, and Administrative Expenses

Selling,
general and administrative expenses increased by 10.8% or $1.16 million to
$11.87 million for the year ended August 31, 2005, compared to $10.71 million
for the year ended August 31, 2004. This increase is mainly due to the Merger
with Emec on August 5, 2005. Selling, general and administrative expenses
associated with Emtec post-merger (Old Emtec) approximated $857,000. Our
increase in head count company-wide and the corresponding compensation and
benefits expense associated with our long-term investment in new employees also
factored into the increase of our selling, general and administrative expenses.
Selling, general and administrative expenses as a percentage of sales decreased
to 7.3% from 8.2%.

Factors
that may in the future have a negative impact on our selling, general and
administrative costs include costs associated with marketing and selling
activities, compliance costs associated with Securities and Exchange Commission
rules and insurance markets.

Management
Fee-Related Party

- 10 -

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Management
fee related-party increased by 200% or $233,336 to $350,000 for the year ended
August 31, 2005 compared to $116,664 for the year ended August 31, 2004. The
increase in the management fee-related party is due to a full year of management
fees paid to DARR Global Holdings, Inc. as compared with only a partial year of
management fees in 2004. DARR Global Holdings, Inc. is a management consulting
company owned by Dinesh Desai, our Chief Executive Officer.

Rent
Expense-Related Party

Rent
Expense-Related Party decreased by 16.4% or $35,333 to $180,000 for the year
ended August 31, 2005 compared to $215,333 for the year ended August 31, 2004.
The decrease in Rent Expense-Related Party is due to the decrease in rent for
the Springfield, NJ office and warehouse space.

We
occupy approximately 43,000 square feet of office and warehouse space in
Springfield, New Jersey. This space is leased from Westwood Property Holdings,
LLC, in which Mr. Keith Grabel, our director and an executive officer, Mrs.
Mary Margaret Grabel, spouse of our director and an executive officer, and Mr.
David Micales, our Vice President of Operations are members. The lease term is
through April 2009 with monthly base rent of $15,000.

Depreciation
and Amortization

Depreciation
and Amortization expense increased by 133.2% or $99,939 to $174,944 for the
year ended August 31, 2005 compared to $75,005 for the year ended August 31,
2004. This increase is attributable to the merger with Emtec acquisition on
August 5. Old Emtecs post-merger depreciation and amortization accounted for
approximately for $52,000 of the increase. Additionally, we made fixed asset
acquisitions of $491,310 during the year ended August 31, 2005. These capital
assets acquisitions were primarily for the purchase of computer equipment for
internal use, purchase of software licenses to upgrade our computer systems,
and for furniture and fixtures, which increased our depreciation expense.

On
August 5, 2005, the Company recorded an Intangible asset, ascribed to customer
relationship of $8,378,166 in connection with the acquisition of Old Emtec.
Intangible assets at August 31, 2005 and 2004 consisted of the value ascribed
to customer relationships of $8,661,712 less accumulated amortization of
$68,868 and $283,546 less accumulated amortization of $7,270, respectively. The
assets ascribed to customer relationships are being amortized on a
straight-line basis over 13-15 years. Amortization expense was $61,598 and
$7,270 for the periods ended August 31, 2005 and August 31, 2004, respectively.
Amortization expense of $580,356 is expected to be recorded each year through
August 31, 2016, $573,085 for the year ended August 31, 2017, $558,544 for the
years ended August 31, 2018, and 2019, and $518,755 for the year ended August
31, 2020.

Interest
expense

Interest
expense increased by 137.5% or $353,995 to $611,479 for the year ended August
31, 2005, compared to $257,484 for the year ended August 31, 2004. This is
mainly due to a full year of interest expense on notes payable to former
stockholders of Westwood, DARR Westwood LLC, and Four Kings Management, LLC,
which were associated with the April 2004 acquisition of Westwood by Darr.

Other
expense (income)

- 11 -

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Other
income of $303,604 recorded on August 31, 2005, was due to the change in the
value of the put options issued on August 5, 2005 using a Black-Scholes option
pricing model. Under the Black-Scholes model, the total value of the put
options was $315,104. As of August 31, 2005, the total value of the put options
was $11,500.

Income
Taxes

Income
taxes decreased by 41.3% or $318,318 to $452,550 for the year ended August 31,
2005, compared to $770,868 for the year ended August 31, 2004. This decrease is
primarily attributable to the decrease in taxable income. Taxable income
decreased by 28.19% or $499,451 to $1.28 million for the year ended August 31,
2005, compared to $1.78 million for the year ended August 31, 2004.

- 12 -

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Comparison of Years Ended August 31, 2004 and
2003

The
following discussion and analysis provides information that management believes
is relevant to an assessment and understanding of our Results of Operations for
the fiscal years ended March 31, 2004, and 2003. For this discussion and
analysis we have combined the periods from September 1, 2003 to April 16, 2004
(Darr Predecessor Period) and from April 17, 2004 to August 31, 2004 (Darr
Successor Period).

EMTEC, INC. 
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended August 31,

|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|----------------------------------------------- |  | ---- | ----------- | ---- | - | ---------- | - | - | ---------- | - |  | ----- | -
|                                                |  | 2004 |             | 2003 |   | Change     |   | % |           
|                                                |  |      |             |      |   |            |   |   |           
|Revenues                                        |  | $    | 129,871,323 |      | $ | 97,449,611 |   | $ | 32,421,712 |   |  | 33.3  | %
|Cost of
  revenues                              |  | $    | 117,214,228 |      |   | 87,843,440 |   |   | 29,370,788 |   |  | 33.4  | %
|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|Gross profit                                    |  |      | 12,657,095  |      |   | 9,606,171  |   |   | 3,050,924  |   |  | 31.8  | %
|Percent of
  revenues                           |  |      | 9.7         | %    |   | 9.9        | % |   |            |   |  |       |  
|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|Operating
  expenses:                           |  |      |             |      |   |            |   |   |            |   |  |       |  
|Selling, general, and administrative
  expenses |  | $    | 10,711,020  |      |   | 8,623,016  |   |   | 2,088,004  |   |  | 24.2  | %
|Management fee  related party                  |  |      | 116,664     |      |   |           |   |   | 116,664    |   |  | N/A   |  
|Rent expense  related party                    |  | $    | 215,333     |      |   |           |   |   | 215,333    |   |  | N/A   |  
|Depreciation and amortization                   |  | $    | 75,005      |      |   | 125,054    |   |   | (50,049    | ) |  | -40.0 | %
|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|Total
  operating expenses                      |  |      | 11,118,022  |      |   | 8,748,070  |   |   | 2,369,952  |   |  | 27.1  | %
|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|Percent of
  revenues                           |  |      | 8.6         | %    |   | 9.0        | % |   |            |   |  |       |  
|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|Operating
  income                              |  |      | 1,539,073   |      |   | 858,101    |   |   | 680,972    |   |  | 79.4  | %
|Percent of
  revenues                           |  |      | 1.2         | %    |   | 0.9        | % |   |            |   |  |       |  
|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|Other
  expense (income):                       |  |      |             |      |   |            |   |   |            |   |  |       |  
|Forgiveness of debt                             |  | $    | (405,652    | )    |   |           |   |   | (405,652   | ) |  | N/A   |  
|Interest income  related party                 |  | $    | (21,483     | )    |   |           |   |   | (21,483    | ) |  | N/A   |  
|Interest income  other                         |  | $    | (70,262     | )    |   | (48,613    | ) |   | (21,649    | ) |  | 44.5  | %
|Interest expense                                |  | $    | 257,484     |      |   | 42,324     |   |   | 215,160    |   |  | 508.4 | %
|Loss on sales of land and building              |  |      |            |      |   | 102,253    |   |   |           |   |  | N/A   |  
|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|Income
  before income taxes                    |  |      | 1,778,986   |      |   | 762,137    |   |   | 1,016,849  |   |  | 133.4 | %
|Provision
  for income taxes                    |  | $    | 770,868     |      |   | 294,747    |   |   | 476,121    |   |  | 161.5 | %
|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|Net income                                      |  | $    | 1,008,118   |      | $ | 467,390    |   | $ | 540,728    |   |  | 115.7 | %
|                                                |  |      |             |      |   |            |   |   |            |   |  |       |  
|Percent of
  revenues                           |  |      | 0.8         | %    |   | 0.5        | % |   |            |   |  |       |  

- 13 -

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Total
Revenues

Total
revenues increased by 33.3% or $32.42 million, to $129.87 million for year
ended August 31, 2004, compared to $97.45 for the year ended August 31, 2003.
Of this $32.42 million increase, $24.31 million, representing 75.0% of the
increase, was attributable to a substantial increase in federal government
related business. The increase was amongst various military and civilian
departments and agencies including sizable increases in sales to the Department
of Defense and the Department of Justice which amounted to approximately $3.23
million and $5.71 million, respectively, for the year ended August 31, 2004. In
addition to our federal government related business, our overall revenues from
our commercial customer base increased by approximately $8.0 million for the
fiscal year ended August 31, 2004 as compared with the year ended August 31,
2003. This is mainly attributable to an overall increase in our commercial
customers IT spending.

Gross
Profit

Aggregate
gross profit increased by 31.8%, or $3.05 million, to $12.66 million for the year
ended August 31, 2004, compared to $9.61 million for the year ended August 31,
2003. This was primarily attributable to an increase in our overall revenues as
discussed in the total revenue section above. Measured as a percentage of
product revenues, our gross profit margin decreased to 9.7% of revenue for the
year ended August 31, 2004, as compared with 9.9% for the year ended August 31,
2003. This decrease is mainly due to continued downward pricing pressure on
product sales from our customers.

Selling,
General, and Administrative Expenses

Selling,
general and administrative expenses increased by 26.7%, or $2.33 million to
$11.02 million for the year ended August 31, 2004, compared to $8.7 million for
the year ended August 31, 2003. This increase was mainly due to payroll and
benefits costs associated with increase in employee headcount company-wide,
increased management related compensation, increased sales commission expense
related to increased revenue and gross profits and increased professional fees
as a result of the April 16, 2004 acquisition of Westwood by Darr.

Depreciation
and Amortization

Depreciation
and Amortization expense decreased by 40.0% or $50,049 to $75,005 for the year
ended August 31, 2004 as compared to $125,054 for year ended August 31, 2003

Interest
expense

Interest
expense increased by 508.4%, or $215,160, to $257,484 for the year ended August
31, 2004, compared to $42,324 for the year ended August 31, 2003. This is primarily
attributable to the interest expense on the notes payable to former
stockholders of Westwood, the note payable to DARR Westwood LLC, and the note
payable to Four Kings Management, LLC. Partial year interest expense was
recorded in 2004. These notes did not exist in 2003.

Income
Taxes

Income
tax expense increased by 161.5%, or $476,121, to $770,868 for the year ended
August 31, 2004, compared to $294,747 for the year ended August 31, 2003. This
increase is primarily attributable to the increase in taxable income. Taxable
income increased by 133.4% or $1.02 million to $1.78 million for the year ended
August 31, 2004, compared to $762,137 for the year ended August 31, 2004.

- 14 -

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Recently Issued Accounting Standards

In November 2004,
the Financial Accounting Standards Board (FASB) issued SFAS No. 151,
Inventory Costs, and an Amendment of ARB No. 43, Chapter 4. SFAS No. 151
retains the general principle of ARB No. 43, Chapter 4, Inventory Pricing,
that inventories are presumed to be stated at cost; however, it amends ARB No.
43 to clarify that abnormal amounts of idle facilities, freight, handling costs
and spoilage should be recognized as current period expenses. Also, SFAS No.
151 requires that fixed overhead costs be allocated to inventories based on
normal production capacity. The guidance in SAFS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. We
believe that implementing SFAS No. 151 should not have any material impact on
our financial condition, results of operations or cash flows.

In December
2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS 123R), which replaces SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS 123) and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. SFAS 123R requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values, beginning
with the next fiscal year that begins after June 15, 2005. The pro forma
disclosures previously permitted under SFAS 123 will no longer be an
alternative to financial statement recognition. Under SFAS 123R, we must
determine the appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the transition
method to be used at date of adoption.

SFAS No. 123R
will apply to awards granted or modified by us after August 31, 2005.
Compensation cost will also be recorded for prior option grants that vest after
that date. The effect of adopting SFAS 123 on our consolidated results of
operations will depend on the level of future option grants and the fair value
of the options granted at such future dates, as well as the vesting periods
provided by such awards and, therefore, cannot currently be estimated. We are
evaluating the requirements of SFAS 123R and have not yet determined the method
of adoption or the effect of adopting SFAS 123R, and we have not determined
whether the adoption will result in amounts that are similar to the current pro
forma disclosures under SFAS 123.

- 15 -

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Liquidity and Capital Resources

Cash
and cash equivalents at August 31, 2005 of $1.02 million represented a decrease
of $194,680 from $1.22 million at August 31, 2004. Outstanding borrowings under
our line of credit at August 31, 2005 represented an increase of $4.11 million
from $299,290 at August 31, 2004. At August 31, 2005, our working capital was
decreased by $901,605 to $2.90 million from $3.80 million as of August 31,
2004.

The
Merger was treated as a purchase by Darr of Emtec. Working capital of Emtec
acquired by Darr amounted to $5.49 million at August 5, 2005. Darr incurred
merger transaction costs of $521,134 that reduced its working capital. Pursuant
to the merger terms, we executed a self tender offer to purchase up to
2,864,584 shares of its outstanding common stock from pre-merger Emtec
stockholders at a price per share of $1.92. We recorded a current liability of
$315,104 at August 5, 2005 related to the fair value of the put options granted
in the self tender offer. We borrowed $5.5 million on August 5, 2005 under our
revolving credit facility with GE Commercial Distribution Finance Corporation;
this amount is classified as restricted cash on the balance sheet as a
non-current asset and therefore, reduced our working capital. We initiated this
self tender offer on September 7, 2005 and closed on October 4, 2005. The net
effect of the Merger and related aforementioned transactions reduced the
overall working capital of Darr by $846,728 exclusive of post-merger interest
costs related to the $5.5 million borrowing.

The
March 1, 2005 acquisition of Proven Technology business was done at a cost of
$162,610 which reduced working capital. Earnings from operations for the year
ended August 31, 2005 added approximately $1.0 million to our working capital,
whereas capital expenditures of $491,000 and debt repayments of $449,000
reduced working capital as of August 31, 2005.

Since
our inception, we have funded our operations primarily from borrowings under
our credit facility. On August 5, 2005, our subsidiaries, Emtec NJ and Westwood
(together, the Borrower), entered into a Business Financing Agreement with GE
Commercial Distribution Finance Corporation (Lender) pursuant to which the
Lender has agreed to provide to Borrower an accounts receivable facility (the
Credit Facility). The Credit Facility provides for aggregate borrowings of
the lesser of $35.0 million or 85% of eligible accounts receivable, plus 100%
of unsold inventory financed by the Lender, minus a $3.15 million reserve. The
Credit Facility includes certain financial covenants that we must maintain on a
quarterly basis and we are also subject to certain mandatory prepayments upon
the occurrence of certain events, subject to certain exceptions, set forth in
the Business Financing Agreement.

Borrowings
under the Credit Facility will bear interest at an annual rate equal to the
greater of (i) the rate of interest which JP Morgan Chase Bank (or its
successor) publicly announces from time to time as its prime rate or reference
rate or (ii) four percent (4%). Interest will be calculated by multiplying (i)
the annual rate divided by 360 and (ii) the amount of the outstanding principal
balance under the Credit Facility at the end of each day.

To
secure the payment of the obligations under the Credit Facility, Borrower
granted to Lender a security interest in all of Borrowers interests in certain
of its assets, including inventory, equipment, fixtures, accounts, chattel
paper, instruments, deposit accounts, documents, general intangibles, letter of
credits rights, and all judgments, claims and insurance policies.

In
connection with the Credit Facility, Emtec NJ and Westwood (together, the
Dealer) entered into the Agreement for Wholesale Financing with the Lender on
August 5, 2005 (the Wholesale

- 16 -

---



Agreement). The Wholesale Agreement provides for an
extension of credit by the Lender to the Dealer from time to time, subject to
the maximum aggregate borrowings set forth in the Credit Facility, to purchase
inventory from approved vendors and for other purposes. The financial terms of
any advance by the Lender are not set forth in the Wholesale Agreement because
such terms depend upon many variable factors, including availability of vendor
discounts, payment terms or other incentives and purchase volume. The Wholesale
Agreement contains certain customary representations and warranties and events
of default, including the failure to pay interest, principal or fees, any
material inaccuracy of any representation and warranty, bankruptcy and
insolvency events.

Since
our current credit facility with one of our primary trade vendors MRA Systems,
Inc dba GE Access was also collateralized by substantially all of our assets,
the Lender and GE Access entered into an intercreditor agreement in which the
lender agreed to give GE Access first lien position on all future unbilled
service maintenance billings and which provide that as regards to GE Access,
all debt obligations to the Lender are accorded priority.

As
of August 31, 2005, we were in compliance with all of our financial covenants
and we had a $4.41 million outstanding balance under the credit facility and an
unused availability of $11.16 million.

On
November 22, 2005, the Lender increased our total credit facility from $35.0 million
to $48.0 million. This is a temporary increase available to us only through
December 15, 2005.

Our
open terms credit facilities at August 31, 2005 with our primary trade vendors,
including aggregators and manufacturers was $20.75 million with outstanding
principal of approximately $13.67 million. Under these credit lines, we are
obligated to pay each invoice within 30-45 days from the date of such invoice.
These credit lines could be reduced or eliminated without a notice, and this
action could have a material adversely affect our business, result of
operations, and financial condition.

Capital
expenditures of $491,310 during the year ended August 31, 2005 were primarily
for the purchase of computer equipment for internal use, purchase of software
licenses to upgrade our computer systems, and for furniture and fixtures. We
anticipate our capital expenditures for fiscal year ending August 31, 2006 will
be approximately $650,000. Approximately $540,000 will primarily be for the upgrade
of our computer system across the organization, as well as implementation and
data conversion costs, and remaining $110,000 will primarily be for the
purchase of computer equipment for internal use.

The
following are our long-term contractual obligations for leases, debt and other
long term liabilities as of August 31, 2005. Other long-term liabilities
consist of accrued severance.

|                            |  |                           |           |  |                    |           |           |   |           |  |                     |           |  |   |   |  | 
|--------------------------- |  | ------------------------- | --------- |  | ------------------ | --------- | --------- | - | --------- |  | ------------------- | --------- |  | - | - |  | 
|                            |  | Payments
  due by period: |          
|                            |  |                           |          
|Contractual Obligations:    |  |                           | Total     |  | less than
  1 year |           | 1-3 years |   | 4-5 years |  | more than
  5 years |          
|                            |  |                           |           |  |                    |           |           |   |           |  |                     |           |  |   |   |  | 
|                            |  |                           |           |  |                    |           |           |   |           |  |                     |           |  |   |   | 
|Long-term debt obligations  |  |                           | 3,535,093 |  |                    | 524,874   |           |   | 1,223,027 |  |                     | 1,787,192 |  |   |  | 
|                            |  |                           |           |  |                    |           |           |   |           |  |                     |           |  |   |   | 
|Capital lease obligations   |  |                           |          |  |                    |          |           |   |          |  |                     |          |  |   |  | 
|                            |  |                           |           |  |                    |           |           |   |           |  |                     |           |  |   |   | 
|Operating lease obligations |  |                           | 3,010,259 |  |                    | 973,463   |           |   | 1,498,299 |  |                     | 538,497   |  |   |  | 
|                            |  |                           |           |  |                    |           |           |   |           |  |                     |           |  |   |   | 
|Purchase obligations        |  |                           |          |  |                    |          |           |   |          |  |                     |          |  |   |  | 
|                            |  |                           |           |  |                    |           |           |   |           |  |                     |           |  |   |   | 
|Other long-term liabilities |  |                           | 380,356   |  |                    | 130,150   |           |   | 235,900   |  |                     | 14,306    |  |   |  | 
|                            |  |                           |           |  |                    |           |           |   |           |  |                     |           |  |   |   | 
|                            |  |                           |           |  |                    |           |           |   |           |  |                     |           |  |   |   | 
|Total                       |  | $                         | 6,925,708 |  | $                  | 1,628,487 |           | $ | 2,957,226 |  | $                   | 2,339,995 |  | $ |  | 
|                            |  |                           |           |  |                    |           |           |   |           |  |                     |           |  |   |   | 

- 17 -

---



We
will need to generate cash flow from operations at a sufficient enough level
through fiscal 2009 to finance anticipated capital expenditures and service our
current outstanding debt.

Cash
generated from operations may be negatively affected by a number of factors.
See Forward Looking Statements and Business Risk Factors for a discussion
of the factors that can negatively impact the amount of cash we generate from
our operations.

We
anticipate that our primary sources of liquidity in fiscal 2006 will be cash
generated from operations, trade vendor credit and cash available to us under
our revolving credit facility. Our future financial performance will depend on
our ability to continue to reduce and manage operating expenses, as well as our
ability to grow revenues. Our revenues will continue to be impacted by the loss
of customers due to price competition and technological advances. Our future
financial performance could be negatively affected by unforeseen factors and
unplanned expenses. See Forward Looking Statements and Business  Risk
Factors.

Although
we have no definite plans to undertake any future debt or equity financing, we
will continue to pursue all potential funding alternatives. Among the
possibilities for raising additional funds are issuances of debt or equity
securities and other borrowings under secured or unsecured loan arrangements.
There can be no assurances that additional funds will be available to us on
acceptable terms or in a timely manner.

We
have no arrangements or other relationships with unconsolidated entities or
other persons that are reasonably likely to materially affect liquidity or the
availability of or requirements for capital resources.

We
believe that funds generated from operations, trade vendor credit and bank
borrowings should be sufficient to meet our current operating cash requirements
through the next twelve months, although there can be no assurance that all of
the aforementioned sources of cash can be realized.

Critical Accounting Policies

Our financial statements are prepared in accordance
with accounting principles that are generally accepted in the United States.
The methods, estimates, and judgments we use in applying our most critical
accounting policies have a significant impact on the results we report in our
financial statements. The Securities and Exchange Commission has defined
critical accounting policies as policies that involve critical accounting
estimates that require (i) management to make assumptions that are highly
uncertain at the time the estimate is made, and (ii) different estimates that
could have been reasonably used for the current period, or changes in the
estimates that are reasonably likely to occur from period to period, which
would have a material impact on the presentation of our financial condition,
changes in financial condition or in result of operations. Based on this
definition, our most critical policies include: revenue recognition, allowance
for doubtful accounts, inventory valuation reserve, the assessment of
recoverability of long-lived assets, the assessment of recoverability of
goodwill and intangible assets, and valuation of deferred tax assets.

Revenue Recognition

We
recognize revenue from the sales of products when risk of loss and title passes
which is upon customer acceptance.

- 18 -

---



Revenue
from the sale of warranties and support service contracts is recognized on a
straight-line basis over the term of the contract, in accordance with Financial
Accounting Standards Board Technical Bulleting No. 90-1, Accounting for Separately Priced Extended Warranty
and Product Maintenance Contracts (FTB 90-1).

We
may also enter into sales arrangements with customers that contain multiple
elements. We recognize revenue from sale arrangements that contain both
products and manufacturer warranties in accordance with Emerging Issues Task
Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables, based on the relative fair value of the individual components.
The relative fair value of individual components is based on historical sales
of the components sold separately.

Product revenue
represents sales of computer hardware and pre-packaged software. These
arrangements often include software installations, configurations, and imaging,
along with delivery and set-up of hardware. We follow the criteria contained in
EITF 00-21 and SAB 104 in recognizing revenue associated with these
transactions. We perform software installations, configurations and imaging
services at our locations prior to the delivery of the product. Some customer
arrangements include set-up services performed at customer locations where
our personnel perform the routine tasks of removing the equipment from boxes,
and setting up the equipment at customer workstations by plugging in all necessary
connections. This service is usually performed the same day as delivery.
Revenue is recognized on the date of acceptance, except as follows:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In some instances, the set-up service is performed
  after date of delivery. We recognizes revenue for the hardware component at
  date of delivery when the amount of revenue allocable to this component is
  not contingent upon the completion of set-up services and therefore, our
  customer has agreed that the transaction is complete as to the hardware
  component. In instances where our customer does not accept delivery until
  set-up services are completed, we defer all revenue in the transaction
  until customer acceptance occurs.                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | There are occasions when a customer requests a
  transaction on a bill & hold basis. We follow the SAB 104 criteria and
  recognize revenue from these sales prior to date of physical delivery only
  when all the criteria of SAB 104 are met. At August 31, 2005, accounts
  receivable related to bill and hold sales totaled $221,255. Total revenue
  from bill and hold sales were $768,726 with a gross profit of $86,860 which
  was included in the results of operations for the year ended August 31, 2005.
  We do not modify our normal billing and credit terms for these customers. The
  customer is invoiced at the date of revenue recognition when all of the
  criteria have been met.

We have experienced
minimal customer returns. Since all eligible projects must be returned to us
within 30 days from the date of the invoice, we reduce the product revenue and
cost of goods in each accounting period based on the actual returns that
occurred in the next 30 days after the close of the accounting period.

Service and consulting
revenue include time billings based upon billable hours charged to the customers,
fixed price short-term projects, hardware maintenance contracts, and
manufacturer support service contracts. These contracts generally are task
specific and do not involve multiple deliverables. Revenues from time billings
are recognized as services are delivered. Revenues from short-term fixed price
projects are recognized using the proportionate performance method by
determining the level of service performed based upon the amount of labor cost
incurred on the project versus the total labor costs to perform the project
because this is the most readily reliable measure of output. Revenues from
hardware maintenance contracts are recognized ratably over the contract period.

- 19 -

---



Revenues from
manufacturer support service contracts where the manufacturer is responsible
for fulfilling the service requirements of the customer are recognized
immediately on their contact sale date. Manufacturer support service contracts
contain cancellation privileges that allow our customers to terminate a
contract with 90 days written notice. In this event, the customer is entitled
to a pro-rated refund based on the remaining term of the contract and we would
owe the manufacturer a pro-rated refund of the cost of the contract. However,
we have experienced no customer cancellations of any significance during our
most recent 3-year history and do not expect cancellations of any significance
in the future.

Trade
Receivables

We
maintain allowance for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. We base our estimates
on the aging of our accounts receivable balances and our historical write-off
experience, net of recoveries. If the financial condition of our customers were
to deteriorate, additional allowances may be required. We believe the
accounting estimate related to the allowance for doubtful accounts is a
critical accounting estimate because changes in it can significantly affect
net income. Allowance for doubtful accounts was $225,000 and $225,000 as of
August 31, 2005, and 2004, respectively.

Inventories

Inventory
is stated at the lower of average cost (specific identification) or market.
Inventory is entirely finished goods purchased for resale and consists of
computer hardware, computer software, computer peripherals and related
supplies. We provide an inventory reserve for products it determines are
obsolete or where salability has deteriorated based on managements review of
products and sales.

The components of inventory at August 31 are as
follows:

|                                             |  |   |           |   |   |          |  
|-------------------------------------------- |  | - | --------- | - | - | -------- | -
|Hardware,
  software, accessories, and parts |  | $ | 6,070,728 |   | $ | 644,262  |  
|                                             |  |   |           |   |   |          |  
|Less: Inventory
  reserve                    |  | $ | (300,138  | ) | $ | (120,000 | )
|                                             |  |   |           |   |   |          |  
|                                             |  |   |           |   |   |          |  
|Net Inventory                                |  | $ | 5,770,590 |   | $ | 524,262  |  
|                                             |  |   |           |   |   |          |  

Property
and Equipment

We
estimate the useful lives of property and equipment in order to determine the
amount of depreciation and amortization expense to be recorded during any
reporting period. The majority of our equipment is depreciated over a
three-five year period. The estimated useful lives are based on the historical
experience with similar assets as well as taking into account anticipated
technological or other changes. If technological changes were to occur more
rapidly than anticipated or in a different form than anticipated, the useful
lives assigned to these assets may need to be accelerated, resulting in the
recognition of increased depreciation and amortization expense in future
periods. We evaluate the recoverability of our long-lived assets (other than
intangibles and deferred tax assets) in accordance with Statement of Financial
Accounting Standard No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, (SFAS No. 144). Long-lived assets are reviewed for
impairment under SFAS No. 144 whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS No.
144 requires recognition of impairment of long-lived assets in the event that
the net book value of such assets exceeds the future undiscounted net cash
flows attributable to such assets. Impairment, if any, is recognized

- 20 -

---



in the period of identification to the extent the
carrying amount of an asset exceeds the fair value of such asset.

Property and
equipment along with their components are as follows:

|                                   |  |      |           |      |   |         |                       |  |        | 
|---------------------------------- |  | ---- | --------- | ---- | - | ------- | --------------------- |  | ------ | 
|                                   |  | 2005 |           | 2004 |   |         | Estimated
  LifeYears
|                                   |  |      |           |      |   |         |                      
|                                   |  |      |           |      |   |         |                       |  |        | 
|Leasehold
  improvements           |  | $    | 197,903   |      | $ | 132,018 |                       |  | 4.67   | 
|                                   |  |      |           |      |   |         |                       |  |        | 
|Computer
  equipment               |  |      | 572,728   |      |   | 199,504 |                       |  | 3 to 5 | 
|                                   |  |      |           |      |   |         |                       |  |        | 
|Furniture and
  fixtures           |  |      | 31,156    |      |   | 7,738   |                       |  | 3 to 5 | 
|                                   |  |      |           |      |   |         |                       |  |        | 
|Automobiles                        |  |      | 72,956    |      |   | 27,445  |                       |  | 3 to 5 | 
|                                   |  |      |           |      |   |         |                       |  |        | 
|Software                           |  |      | 172,410   |      |   |        |                       |  | 3 to 5 | 
|                                   |  |      |           |      |   |         |                       |  |        | 
|                                   |  |      |           |      |   |         |                       |  |        | 
|Total Property
  Plant & Equipment |  | $    | 1,047,153 |      | $ | 366,705 |                       |  |        | 
|                                   |  |      |           |      |   |         |                       |  |        | 
|Less accumulated
  depreciation    |  |      | (129,994  | )    |   | (16,469 | )                     |  |        | 
|                                   |  |      |           |      |   |         |                       |  |        | 
|                                   |  |      |           |      |   |         |                       |  |        | 
|                                   |  | $    | 917,159   |      | $ | 350,236 |                       |  |        | 
|                                   |  |      |           |      |   |         |                       |  |        | 

Goodwill
and Intangible Assets

We
have adopted Statement of Financial Accounting Standards No. 141 Business
Combinations and No. 142 Goodwill and Other Intangible Assets. As a result,
amortization of goodwill was discontinued. Goodwill is the excess of the
purchase price over the fair value of the net assets acquired in a business
combination accounted for under the purchase method. At August 31, 2005, we
recorded goodwill related to the acquisition of Old Emtec of $8,974,610. We
test goodwill and indefinite-lived assets for impairment at least annually in
accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, (SFAS 142). Intangible assets that have finite
useful lives are amortized over their useful lives.

Intangible
assets at August 31, 2005 and 2004 consisted of the value ascribed to customer
relationships of $8,661,712 less accumulated amortization of $68,868 and
$283,546 less accumulated amortization of $7,270, respectively. The assets
ascribed to customer relationships are being amortized on a straight-line basis
over 13-15 years. Amortization expense was $61,598 and $7,270 for the periods
ended August 31, 2005 and August 31, 2004, respectively. Absent any further
acquisitions, amortization expense of $580,356 is expected to be recorded each
year through August 31, 2016, $573,085 for the year ended August 31, 2017,
$558,544 for the years ended August 31, 2018, and 2019, and $518,755 for the
year ended August 31, 2020.

Property
and equipment and customer relationship intangible assets are tested for
recoverability whenever events or changes in circumstances indicate that their
carrying amount may not be recoverable in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144 Accounting for the Impairment
or Disposal of Long-Lived Assets. Recoverability of long-lived assets is
assessed by a comparison of the carrying amount to the estimated undiscounted
future net cash flows expected to result from the use of the assets and their
eventual disposition. If estimated undiscounted future net cash flows are less
than the carrying amount, the asset is considered impaired and a loss would be
recognized based on the amount by which the carrying value exceeds the fair
value of the asset.

- 21 -

---



Rebates

Rebates
are recorded in the accompanying consolidated statements of income as a
reduction of the cost of revenues in accordance with Emerging Issues Task Force
Abstract No. 02-16, Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor(EITF 02-16). At August 31, 2005 and
August 31, 2004, approximately $2,117,290 and $1,009,000, respectively, of
rebates receivable are recorded in accounts-receivable-other in the
accompanying consolidated balance sheets.

Income
Taxes

Income
taxes are accounted for under an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in our financial statements or
tax returns. In estimating future tax consequences, we generally consider all
expected future events other than the enactment of changes in tax laws or
rates. A valuation allowance is recognized if, on weight of available evidence,
it is more likely than not that some portion or all the deferred tax assets
will not be realized.

Off-Balance Sheet Arrangements

Under SEC
regulations, in certain circumstances, we are required to make certain
disclosures regarding the following off-balance sheet arrangements, if
material:

|  |                                                                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Any
  obligation under certain guarantee contracts;                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                
| | Any retained
  or contingent interest in assets transferred to an unconsolidated entity or
  similar arrangement that serves as credit, liquidity or market risk support
  to that entity for such assets;                                                                                     
|  |                                                                                                                                                                                                                                                                                                
| | Any
  obligation under certain derivative instruments; and                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                
| | Any
  obligation arising out of a material variable interest held by the Company in
  an unconsolidated entity that provides financing, liquidity, market risk or
  credit risk support to the Company, or engages in leasing, hedging or
  research and development services with the Company.

We do not have
any off-balance sheet arrangements that are required to be disclosed pursuant
to these regulations.

- 22 -

---



Item 8. Financial Statements and
Supplementary Data

Reference
is made to Item 15(a)(i) herein.

- 23 -

---



|       
|-------
|PART IV

Item 15. Exhibits and Financial Statement
Schedules

|                                                                                                                                                         |  |  |       | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ----- | 
|(a) Financial Statements                                                                                                                                 |  |  |       | 
|                                                                                                                                                         |  |  |       | 
|Report of Independent Registered Public
  Accounting Firm                                                                                                |  |  | 29    | 
|                                                                                                                                                         |  |  |       | 
|Report of Independent Registered Public
  Accounting Firm                                                                                                |  |  | 30    | 
|                                                                                                                                                         |  |  |       | 
|Consolidated Balance Sheets as of August
  31, 2005 and 2004                                                                                             |  |  | 31    | 
|                                                                                                                                                         |  |  |       | 
|Consolidated Statements of Operations for
  the periods ended August 31, 2005, August 31, 2004, April 16, 2004 and
  August 31, 2003                     |  |  | 32    | 
|                                                                                                                                                         |  |  |       | 
|Consolidated Statements of Cash Flows for
  the periods ended August 31, 2005, August 31, 2004, April 16, 2004 and
  August 31, 2003                     |  |  | 33    | 
|                                                                                                                                                         |  |  |       | 
|Consolidated Statements of Changes in
  Shareholders Equity for the periods ended August 31, 2005, August 31,
  2004, April16, 2004 and August 31, 2003 |  |  | 34    | 
|                                                                                                                                                         |  |  |       | 
|Notes to Consolidated Financial Statements                                                                                                               |  |  | 35-52 | 

(b) Financial
Statement Schedules

None.

(c) Exhibits:

|            |  |                                                                                                                                                                                                                                                                                                   |             | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | 
|Exhibit No. |  |                                                                                                                                                                                                                                                                                                   | Description | 
|            |  |                                                                                                                                                                                                                                                                                                   |             | 
|            |  |                                                                                                                                                                                                                                                                                                  
|2.1         |  | Agreement
  and Plan of Merger and Reorganization, dated as of December 14, 2000, between
  Registrant, then known as American Geological Enterprises, Inc., and Emtec,
  Inc.(1)                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                  
|2.2         |  | Agreement
  and Plan of Merger, dated as of March 15, 2004, by and among DARR Westwood
  Technology Corporation, DARR Westwood Acquisition Corporation, the
  Shareholders of Westwood Computer Corporation Named, Westwood Computer
  Corporation, and Keith Grabel, as Shareholders Agent.(18)
|            |  |                                                                                                                                                                                                                                                                                                  
|2.3         |  | Agreement and
  Plan of Merger, dated as of July 14, 2005, by and among the Registrant, Emtec
  Viasub LLC, and Darr Westwood Technology Corporation.(14)                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                  
|3.1         |  | Certificate
  of Incorporation, as amended.(2)                                                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                  
|3.2         |  | Amended and
  Restated Bylaws.(2)                                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                  
|4.1         |  | Certificate
  evidencing shares of common stock.(2)                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                  
|10.1        |  | Resale
  Agreement, dated September 29, 1997, between Registrant and Ingram Micro,
  Inc.(2)                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                  
|10.2        |  | Volume
  Purchase Agreement, dated January 28, 1998, between Registrant and Tech
  Data Corporation.(2)                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                  
|10.3        |  | 1996 Stock
  Option Plan, as amended in 1999.(2)                                                                                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                  
|10.4        |  | U.S. Systems
  Integrator Agreement, dated December 22, 1999, between Cisco System, Inc. and
  Registrant.(3)                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                  
|10.5        |  | Sun
  Microsystem, Inc. Channel Agreement, dated February 1, 2000, between Sun
  Microsystems,Inc. and
Registrant.(5)                                                                                                                                                                            

- 24 -

---



|            |  |                                                                                                                                                                    |             | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------- | 
|Exhibit No. |  |                                                                                                                                                                    | Description | 
|            |  |                                                                                                                                                                    |             | 
|            |  |                                                                                                                                                                   
|10.6        |  | IBM Business Partner Agreement, dated May
31, 2000, between International Business Machines Corporation and Registrant.(3)                                        
|            |  |                                                                                                                                                                   
|10.7        |  | Microsoft Certified Partner Agreement,
dated December 20, 2000, between Microsoft and Registrant.(3)                                                              
|            |  |                                                                                                                                                                   
|10.8        |  | Letter Agreement, dated April 24, 2001,
between Novell Inc. and Registrant.(3)                                                                                    
|            |  |                                                                                                                                                                   
|10.9        |  | Citrix Solutions Network Gold Renewal
Membership Agreement, dated April 30, 2001, between Citrix Systems, Inc. and
Registrant.(3)                                 
|            |  |                                                                                                                                                                   
|10.10       |  | Loan and Security Agreement, dated November
21, 2001, by and between Fleet Capital Corporation and Registrant.(12)                                                
|            |  |                                                                                                                                                                   
|10.11       |  | Agreement for Wholesale Financing, dated
November 21, 2001, by and between IBM Credit Corporation and Registrant.(12)                                             
|            |  |                                                                                                                                                                   
|10.12       |  | Subordination Agreement, dated as of
November 21, 2001, among Registrant, MRA Systems, Inc., dba GE Access, and
Fleet Capital Corporation.(12)                    
|            |  |                                                                                                                                                                   
|10.13       |  | Intercreditor Agreement, dated as of
November 21, 2001, between Fleet Capital Corporation and Ingram Micro, Inc.,
and accepted by Registrant.(12)                 
|            |  |                                                                                                                                                                   
|10.14       |  | Asset Acquisition Agreement, dated December
5, 2001, by and between Devise Associates, Inc. and Registrant.(4)                                                    
|            |  |                                                                                                                                                                   
|10.15       |  | Lease Agreement, dated January 9, 2002,
between Registrant and Vandergrand Properties Co., L.P., for New York, New
York facility.(8)                              
|            |  |                                                                                                                                                                   
|10.16       |  | Lease Agreement, dated March 1, 2002,
between Registrant and G. F. Florida Operating Alpha, Inc., for Jacksonville,
Florida facility.(8)                          
|            |  |                                                                                                                                                                   
|10.17       |  | Asset Acquisition Agreement, dated August
12, 2002, by and between Acentra Technologies, Inc. and Registrant.(6)                                                  
|            |  |                                                                                                                                                                   
|10.18       |  | Remarketer/Integrator Agreement, dated
August 15, 2002, between Dell Marketing L.P. and Registrant.(6)                                                            
|            |  |                                                                                                                                                                   
|10.19       |  | Asset Acquisition Agreement, dated August
31, 2002, by and between Turnkey Computer Systems, Inc. and Registrant.(7)                                              
|            |  |                                                                                                                                                                   
|10.20       |  | Lease Agreement, dated November 15, 2002,
between Registrant and Hamilton Transit Corporate Center, for warehouse
facility in Trenton, New Jersey.(9)             
|            |  |                                                                                                                                                                   
|10.21       |  | Lease Agreement, dated April 21, 2003,
between V-Sullyfield Properties II LLC and Westwood Computer Corporation, for
Chantilly, Virginia facility.(18)            
|            |  |                                                                                                                                                                   
|10.22       |  | Lease Agreement, dated July 1, 2003, between
Westwood Property Holdings LLC and Westwood Computer Corporation, for
Springfield, New Jersey facility.(18)          
|            |  |                                                                                                                                                                   
|10.23       |  | Amendment to Lease Agreement, dated July
14, 2003, between V-Sullyfield Properties II LLC and Westwood Computer
Corporation, for Chantilly, Virginia facility.(18)
|            |  |                                                                                                                                                                   
|10.24       |  | Management Services Agreement, dated April
16, 2004, by and between DARR Global Holdings, Inc., and Westwood Computer
Corporation.(18)                            
|            |  |                                                                                                                                                                   
|10.25       |  | Employment Agreement, dated as of April 16,
2004, by and between Keith Grabel and Westwood Computer Corporation.(18)                                              
|            |  |                                                                                                                                                                   
|10.26       |  | Employment Agreement, dated as of April 16,
2004, by and between Mary Margaret Grabel and Westwood Computer Corporation.(18)                                      

- 25 -

---



|            |  |                                                                                                                                                                                     |             | 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | 
|Exhibit No. |  |                                                                                                                                                                                     | Description | 
|            |  |                                                                                                                                                                                     |             | 
|            |  |                                                                                                                                                                                    
|10.27       |  | Separation
  Agreement, dated April 16, 2004, between Westwood Computer Corporation and
  Joyce Tischler.(18)                                                                      
|            |  |                                                                                                                                                                                    
|10.28       |  | Subordinated
  Note, dated April 16, 2004, in the amount of $750,000, made by DARR Westwood
  Acquisition Corporation in favor of DARR Westwood LLC.(17)                           
|            |  |                                                                                                                                                                                    
|10.29       |  | Subordinated
  Note, dated April 16, 2004, in the amount of $750,000, made by DARR Westwood
  Acquisition Corporation in favor of Four Kings Management LLC.(17)                   
|            |  |                                                                                                                                                                                    
|10.30       |  | 5% Junior
  Subordinated Note, dated April 16, 2004, in the amount of $7,771.63, made by
  Westwood Computer Corporation in favor of Michael John Grabel.(18)                      
|            |  |                                                                                                                                                                                    
|10.31       |  | 5% Junior
  Subordinated Note, dated April 16, 2004, in the amount of $12,588.89, made by
  Westwood Computer Corporation in favor of Megan Patricia Grabel.(18)                   
|            |  |                                                                                                                                                                                    
|10.32       |  | 5% Junior
  Subordinated Note, dated April 16, 2004, in the amount of $132,183.32, made
  by Westwood Computer Corporation in favor of Mary Margaret Grabel.(18)                   
|            |  |                                                                                                                                                                                    
|10.33       |  | 5% Junior
  Subordinated Note, dated April 16, 2004, in the amount of $161,151.16, made
  by Westwood Computer Corporation in favor of Keith Grabel.(17)                           
|            |  |                                                                                                                                                                                    
|10.34       |  | 8% Junior
  Subordinated Note, dated April 16, 2004, in the amount of $23,314.84, made by
  Westwood Computer Corporation in favor of Michael John Grabel.(18)                     
|            |  |                                                                                                                                                                                    
|10.35       |  | 8% Junior
  Subordinated Note, dated April 16, 2004, in the amount of $37,766.58, made by
  Westwood Computer Corporation in favor of Megan Patricia Grabel.(18)                   
|            |  |                                                                                                                                                                                    
|10.36       |  | 8% Junior
  Subordinated Note, dated April 16, 2004, in the amount of $396,549.13, made
  by Westwood Computer Corporation in favor of Mary Margaret Grabel.(18)                   
|            |  |                                                                                                                                                                                    
|10.37       |  | 8% Junior
  Subordinated Note, dated April 16, 2004, in the amount of $483,452.45, made
  by Westwood Computer Corporation in favor of Keith Grabel.(17)                           
|            |  |                                                                                                                                                                                    
|10.38       |  | First
  Amendment to Lease Agreement, dated April 16, 2004, between Westwood Property
  Holdings LLC and Westwood Computer Corporation, for Springfield, New Jersey
  facility.(18)
|            |  |                                                                                                                                                                                    
|10.39       |  | Lease
  Agreement, dated May 20, 2004, between Registrant and Facstore, for office
  space in Cranford, New Jersey.(10)                                                            
|            |  |                                                                                                                                                                                    
|10.40       |  | Lease
  Agreement, dated June 1, 2004, between Registrant and Hamilton Transit
  Corporate Center, for office space in Trenton, New Jersey.(10)                                    
|            |  |                                                                                                                                                                                    
|10.41       |  | Lease
  Agreement, dated September 2, 2004, between Registrant and GS&T
  Properties, LLC, for Suwanee, Georgia facility.(11)                                                      
|            |  |                                                                                                                                                                                    
|10.42       |  | Sublease
  Agreement, dated November 24, 2004, between Registrant and vFinance, Inc.,
  for office space in New York, New York.(11)                                                
|            |  |                                                                                                                                                                                    
|10.43       |  | Amendment to
  Loan and Security Agreement, dated as of December 10, 2004, between Bank of
  America Business Capital Corporation and Registrant.(13)                              
|            |  |                                                                                                                                                                                    
|10.44       |  | Lease
  Agreement, dated January 1, 2005, between Registrant and Select Office
  Suites, for a sales office space in New York, New York.(11)                                       
|            |  |                                                                                                                                                                                    
|10.45       |  | Lease
  Agreement, dated March 1, 2005, between Twenty Keyland Corporation and
  Westwood Computer Corporation, for Bohemia, New York facility.(18)                                

- 26 -

---



|            |  |                                                                                                                                                                                                                                      |             | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------- | 
|Exhibit No. |  |                                                                                                                                                                                                                                      | Description | 
|            |  |                                                                                                                                                                                                                                      |             | 
|            |  |                                                                                                                                                                                                                                     
|10.47       |  | Revocable
  License Agreement, dated June 1, 2005, between A.M. Property Holding
  Corporation and Westwood Computer Corporation, for New York, New York
  facility.(18)                                                            
|            |  |                                                                                                                                                                                                                                     
|10.48       |  | Employment
  Agreement, dated as of July 14, 2005, between Registrant and John Howlett.(14)                                                                                                                                         
|            |  |                                                                                                                                                                                                                                     
|10.49       |  | Employment
  Agreement, dated as of July 14, 2005, between Registrant and Ronald Seitz.(14)                                                                                                                                         
|            |  |                                                                                                                                                                                                                                     
|10.50       |  | Form of
  Guaranty issued by Registrant in favor of Four Kings Management LLC, Keith
  Grabel, Mary Margaret Grabel, Megan Patricia Grabel, Michael John Grabel,
  Darr Westwood LLC, and Joyce Tischler, dated September, 2005.(18)
|            |  |                                                                                                                                                                                                                                     
|10.51       |  | Business
  Financing Agreement, dated August 5, 2005, by and between GE Commercial
  Distribution Finance Corporation and subsidiaries of Registrant.(15)                                                                           
|            |  |                                                                                                                                                                                                                                     
|10.52       |  | Agreement
  for Wholesales Financing, dated August 5, 2005, by and between GE Commercial
  Distribution Finance Corporation and subsidiaries of Registrant.(15)                                                                     
|            |  |                                                                                                                                                                                                                                     
|10.53       |  | Addendum to
  Agreement for Wholesales Financing and Business Financing Agreement, dated
  August 5, 2005, by and between GE Commercial Distribution Finance Corporation
  and subsidiaries of Registrant.(15)                      
|            |  |                                                                                                                                                                                                                                     
|10.54       |  | Common Stock
  Purchase Warrant between Registrant and DARR Westwood LLC, dated August 5,
  2005.(16)                                                                                                                               
|            |  |                                                                                                                                                                                                                                     
|10.55       |  | Common Stock
  Purchase Warrant between Registrant and Margaret Grabel, dated August 5,
  2005.(16)                                                                                                                                 
|            |  |                                                                                                                                                                                                                                     
|10.56       |  | 8%
  Subordinated Promissory Note, dated August 5, 2005, issued by Darr Westwood
  Technology Corporation in favor of Darr Westwood LLC.(17)                                                                                        
|            |  |                                                                                                                                                                                                                                     
|10.57       |  | Assignment
  of State of New Jersey Contract from Acentra Technologies, Inc. to
  Registrant.(6)                                                                                                                                    
|            |  |                                                                                                                                                                                                                                     
|14.1        |  | Code of
  Ethics.(10)                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                     
|21.1        |  | List of
  Subsidiaries.(18)                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                     
|23.1        |  | Consent of a
  Registered Public Accounting Firm                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                     
|23.2        |  | Consent of a
  Registered Public Accounting Firm                                                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                     
|31.1        |  | Certification
  of Dinesh R. Desai, Principal Executive Officer of Registrant, dated July 6
  2006. Rule 13a-14(a)/15 d-14(a).                                                                                                      
|            |  |                                                                                                                                                                                                                                     
|31.2        |  | Certification
  of Stephen C. Donnelly, Principal Financial Officer of Registrant, dated July
  6 2006. Rule 13a-14(a)/15 d-14(a).                                                                                                  
|            |  |                                                                                                                                                                                                                                     
|32.1        |  | Certificate
  of Dinesh R. Desai, Principal Executive Officer of Registrant, dated July 6
  2006. Section 1350.                                                                                                                     
|            |  |                                                                                                                                                                                                                                     
|32.2        |  | Certificate
  of Stephen C. Donnelly, Principal Financial Officer of Registrant, dated July
  6 2006. Section 1350.                                                                                                                 

|    |                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously
  filed as an exhibit to Registrants Current Report on Form 8-­K, dated
  January 17, 2001, filed on January 31, 2001, and incorporated
  herein by reference.
|    |                                                                                                                                                                           
|(2) | Previously
  filed as an exhibit to Registrants Registration Statement on Form 10,
  filed on May 21, 2001,                                                              

- 27 -

---



|     |                                                                                                                                                                            
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | and
  incorporated herein by reference.                                                                                                                                    
|     |                                                                                                                                                                            
|(3)  | Previously
  filed as an exhibit to Amendment No. 1 to Registration Statement on
  Form 10, filed on July 12, and incorporated herein by reference.                        
|     |                                                                                                                                                                            
|(4)  | Previously
  filed as an exhibit to Registrants Current Report on Form 8-K, dated
  December 5, 2001, filed on December 20, 2001, and incorporated herein by
  reference. 
|     |                                                                                                                                                                            
|(5)  | Previously
  filed as an exhibit to Registrants Form 10-K dated March 31, 2001, filed on
  July 12, 2001, and incorporated herein by reference.                           
|     |                                                                                                                                                                            
|(6)  | Previously
  filed as an exhibit to Registrants Current Report on Form 8-K, dated August
  12, 2002, filed on August 26, 2002, and incorporated herein by
  reference.    
|     |                                                                                                                                                                            
|(7)  | Previously
  filed as an exhibit to Registrants Current Report on Form 8-K, dated August
  31, 2002, filed on September 13, 2002, and incorporated herein by reference.   
|     |                                                                                                                                                                            
|(8)  | Previously
  filed as an exhibit to Registrants Form 10-K, dated March 31, 2002, filed on
  June 30, 2002, and incorporated herein by reference.                          
|     |                                                                                                                                                                            
|(9)  | Previously
  filed as an exhibit to Registrants Form 10-K, dated March 31, 2003, filed on
  July 15, 2003, and incorporated herein by reference.                          
|     |                                                                                                                                                                            
|(10) | Previously
  filed as an exhibit to Registrants Form 10-K, dated March 31, 2004, filed on
  July 14, 2004, and incorporated herein by reference.                          
|     |                                                                                                                                                                            
|(11) | Previously
  filed as an exhibit to Registrants Form 10-K, dated March 31, 2005, filed on
  July 14, 2005, and incorporated herein by reference.                          
|     |                                                                                                                                                                            
|(12) | Previously
  filed as an exhibit to Registrants Current Report on Form 8-K, dated
  November 21, 2001, filed on November 26, 2001, and incorporated herein by
  reference.
|     |                                                                                                                                                                            
|(13) | Previously
  filed as an exhibit to Registrants Current Report on Form 8-K, dated
  December 10, 2004, filed on December 14, 2004, and incorporated herein by
  reference.
|     |                                                                                                                                                                            
|(14) | Previously
  filed as an exhibit to Registrants Current Report on Form 8-K, dated July
  14, 2005, filed on July 20, 2005, and incorporated herein by reference.          
|     |                                                                                                                                                                            
|(15) | Previously
  filed as an exhibit to Registrants Quarterly Report on Form 10-Q, dated June
  30, 2005, filed on August 19, 2005, and incorporated herein by reference.     
|     |                                                                                                                                                                            
|(16) | Previously
  filed as an exhibit to Registrants Tender Offer Statement on Form SC TO-I,
  filed September 7, 2005, and incorporated herein by reference.                  
|     |                                                                                                                                                                            
|(17) | Previously
  filed as an exhibit to Amendment to Registrants Tender Offer Statement on
  Form SC TO-I/A, filed September 22, 2005, and incorporated herein by
  reference.
|     |                                                                                                                                                                            
|(18) | Previously
  filed as an exhibit to Registrants Form 10-K, dated August 31, 2005, filed
  on December 14, 2005, and incorporated herein by reference.                     

- 28 -

---



Report of
Independent Registered Public Accounting Firm

Board of Directors
Emtec, Inc.

We have audited the accompanying consolidated balance
sheets of Emtec, Inc. as of August 31, 2005 and 2004, and the related
consolidated statements of operations, cash flows and changes in stockholders
equity, for the year ended August 31, 2005, the period from April 17, 2004
to August 31, 2004 (Successor Period) and the period from
September 1, 2003 to April 16, 2004 (Predecessor Period). These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the
standards of The Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Companys internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Emtec, Inc at August 31, 2005 and 2004, and the consolidated
results of its operations and its cash flows for the year ended August 31,
2005, the period from April 17, 2004 to August 31, 2004 (Successor
Period) and the period from September 1, 2003 to April 16, 2004
(Predecessor Period), in conformity with U.S. generally accepted accounting
principles.

/s/ ERNST &
YOUNG LLP

Philadelphia, PA
December 2, 2005

29

---



REPORT of INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

To the Board of Directors
Westwood Computer Corporation
11 Diamond Road
Springfield, N.J. 07081

We have audited the accompanying consolidated balance
sheet of Westwood Computer Corporation and subsidiary as of August 31, 2003, and
the related consolidated statements of income, changes in stockholders equity
and cash flows for the year ended August 31, 2003. These financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Westwood Computer Corporation as of August 31, 2003, and the
results of its operations and cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.

|                             | 
|---------------------------- | 
|/s/ Glassel & Bonfiglio, LLC | 
|                             | 
|GLASSEL & BONFIGLIO, LLC     | 
|                             | 
|May 15, 2006                 | 

30

---



EMTEC,
INC. CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2005 and 2004

|                                                                                                                                                   |  |      |            |      |   |            | 
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | 
|                                                                                                                                                   |  | 2005 |            | 2004 |  
|                                                                                                                                                   |  |      |            |      |  
|Assets                                                                                                                                             |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Current Assets                                                                                                                                     |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Cash & cash
  equivalents                                                                                                                          |  | $    | 1,021,237  |      | $ | 1,215,917  | 
|Receivables:                                                                                                                                       |  |      |            |      |   |            | 
|Trade, less
  allowance for doubtful accounts                                                                                                      |  |      | 34,541,373 |      |   | 17,732,321 | 
|Others                                                                                                                                             |  |      | 3,385,891  |      |   | 1,191,658  | 
|Inventories, net                                                                                                                                   |  |      | 5,770,590  |      |   | 524,262    | 
|Prepaid expenses                                                                                                                                   |  |      | 433,238    |      |   | 79,388     | 
|Deferred tax
  asset - current                                                                                                                     |  |      | 603,533    |      |   | 172,232    | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Total Current
  Assets                                                                                                                             |  |      | 45,755,862 |      |   | 20,915,778 | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Net property and
  equipment                                                                                                                       |  |      | 917,159    |      |   | 350,236    | 
|Deferred tax
  asset - long term                                                                                                                   |  |      |           |      |   | 154,344    | 
|Customer
  relationships, net                                                                                                                      |  |      | 8,592,844  |      |   | 276,276    | 
|Goodwill                                                                                                                                           |  |      | 8,974,610  |      |   |           | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Restricted cash                                                                                                                                    |  |      | 5,650,000  |      |   |           | 
|Other assets                                                                                                                                       |  |      | 119,443    |      |   | 41,004     | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Total Assets                                                                                                                                       |  | $    | 70,009,918 |      | $ | 21,737,638 | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Liabilities and Shareholders Equity                                                                                                               |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Current
  Liabilities                                                                                                                              |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Line of credit                                                                                                                                     |  |      | 4,412,526  |      |   | 299,250    | 
|Accounts payable
  - trade                                                                                                                         |  |      | 29,738,061 |      |   | 14,259,738 | 
|Accounts payable
  - related party                                                                                                                 |  |      | 133,333    |      |   | 33,333     | 
|Current portion
  of long term debt - related party                                                                                                |  |      | 524,874    |      |   | 349,694    | 
|Income taxes
  payable                                                                                                                             |  |      | 828,659    |      |   | 97,786     | 
|Accrued
  liabilities                                                                                                                              |  |      | 4,190,728  |      |   | 1,021,994  | 
|Due to former
  stockholders                                                                                                                       |  |      | 631,415    |      |   | 664,567    | 
|Customer
  deposits                                                                                                                                |  |      | 1,268,672  |      |   |           | 
|Deferred revenue                                                                                                                                   |  |      | 1,125,205  |      |   | 385,422    | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Total Current
  Liabilities                                                                                                                        |  |      | 42,853,473 |      |   | 17,111,784 | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Accrued
  severance                                                                                                                                |  |      | 380,356    |      |   | 473,489    | 
|Deferred tax
  liability                                                                                                                           |  |      | 2,838,298  |      |   |           | 
|Long term debt -
  related party                                                                                                                   |  |      | 3,010,219  |      |   | 2,405,084  | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Total Liabilities                                                                                                                                  |  |      | 49,082,346 |      |   | 19,990,357 | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Shareholders
  Equity                                                                                                                             |  |      |            |      |   |            | 
|Redeemable preferred stock,
$0.01 par value                                                                                                        |  |      |           |      |   | 10         | 
|Common Stock
  $0.01 par value; 25,000,000 shares authorized; 17,232,134 and 9,528,110
  shares issued and outstanding at August 31, 2005 and 2004 |  |      | 172,321    |      |   | 95,281     | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Additional
  paid-in capital                                                                                                                       |  |      | 19,908,779 |      |   | 1,529,709  | 
|Retained
  earnings                                                                                                                                |  |      | 846,472    |      |   | 122,281    | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Total Shareholders Equity                                                                                                                         |  |      | 20,927,572 |      |   | 1,747,281  | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|                                                                                                                                                   |  |      |            |      |   |            | 
|Total Liabilities and Shareholders Equity                                                                                                         |  | $    | 70,009,918 |      | $ | 21,737,638 | 
|                                                                                                                                                   |  |      |            |      |   |            | 

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

31

---



EMTEC,
INC.CONSOLIDATED STATEMENTS OF OPERATIONSPeriods
Ended August 31, 2005, 2004 and 2003

|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|----------------------------------------------- |  | ----------------------------- | ----------- | --------------------------------------------------------------- | - | ---------------------------------------------------------------------- | - | ---------------------------- | ---------- | - | - | ---------- | -
|                                                |  | Year Ended 
  August 31, 2005 |             | Period from April 17, 2004 to August 31, 2004(Successor Period) |   | Period from
  September 1, 2003 to April 16, 2004 (Predecessor Period) |   | Year Ended
  August 31, 2003 |           
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |           
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Revenues                                        |  | $                             | 162,632,042 |                                                                 | $ | 41,641,604                                                             |   | $                            | 88,229,719 |   | $ | 97,449,611 |  
|Cost of revenues                                |  |                               | 148,587,442 |                                                                 |   | 37,617,860                                                             |   |                              | 79,596,368 |   |   | 87,843,440 |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Gross profit                                    |  |                               | 14,044,600  |                                                                 |   | 4,023,744                                                              |   |                              | 8,633,351  |   |   | 9,606,171  |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Operating expenses:                             |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Selling,
  general, and administrative expenses |  |                               | 11,872,766  |                                                                 |   | 3,418,755                                                              |   |                              | 7,292,265  |   |   | 8,623,016  |  
|Management fee 
  related party                |  |                               | 350,000     |                                                                 |   | 116,664                                                                |   |                              |           |   |   |           |  
|Rent expense 
  related party                  |  |                               | 180,000     |                                                                 |   | 60,000                                                                 |   |                              | 155,333    |   |   |           |  
|Depreciation and
  amortization                 |  |                               | 174,944     |                                                                 |   | 23,739                                                                 |   |                              | 51,266     |   |   | 125,054    |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Total operating
  expenses                      |  |                               | 12,577,710  |                                                                 |   | 3,619,158                                                              |   |                              | 7,498,864  |   |   | 8,748,070  |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Operating income                                |  |                               | 1,466,890   |                                                                 |   | 404,586                                                                |   |                              | 1,134,487  |   |   | 858,101    |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Other expense (income):                         |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Forgiveness of
  debt                           |  |                               |            |                                                                 |   |                                                                       |   |                              | (405,652   | ) |   |           |  
|Interest income
   related party               |  |                               |            |                                                                 |   |                                                                       |   |                              | (21,483    | ) |   |           |  
|Interest income
   other                       |  |                               | (120,520    | )                                                               |   | (25,783                                                                | ) |                              | (44,479    | ) |   | (48,613    | )
|Interest expense                                |  |                               | 611,479     |                                                                 |   | 184,665                                                                |   |                              | 72,819     |   |   | 42,324     |  
|Other expense
  (income)                        |  |                               | (303,604    | )                                                               |   |                                                                       |   |                              |           |   |   |           |  
|Loss on sales of
  land and building            |  |                               |            |                                                                 |   |                                                                       |   |                              |           |   |   | 102,253    |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Income before income taxes                      |  |                               | 1,279,535   |                                                                 |   | 245,704                                                                |   |                              | 1,533,282  |   |   | 762,137    |  
|Provision for income taxes                      |  |                               | 452,550     |                                                                 |   | 123,423                                                                |   |                              | 647,445    |   |   | 294,747    |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Net income                                      |  |                               | 826,985     |                                                                 |   | 122,281                                                                |   |                              | 885,837    |   |   | 467,390    |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Preferred stock
  dividends                     |  |                               | (72,794     | )                                                               |   | (30,000                                                                | ) |                              |           |   |   |           |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Net income
  allocable to common stockholders   |  | $                             | 754,191     |                                                                 | $ | 92,281                                                                 |   | $                            | 885,837    |   | $ | 467,390    |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Net income per common share Basic and Diluted   |  | $                             | 0.08        |                                                                 | $ | 0.01                                                                   |   | $                            | 0.09       |   | $ | 0.05       |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Weighted Average Shares Outstanding             |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Basic                                           |  |                               | 10,075,520  |                                                                 |   | 9,528,110                                                              |   |                              | 9,528,110  |   |   | 9,597,871  |  
|                                                |  |                               |             |                                                                 |   |                                                                        |   |                              |            |   |   |            |  
|Diluted                                         |  |                               | 10,108,803  |                                                                 |   | 9,528,110                                                              |   |                              | 9,528,110  |   |   | 9,597,871  |  

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

32

---



Emtec
Inc.Consolidated Statements of Cash Flows
Periods Ended August 31, 2005, 2004 and 2003

|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|---------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | ----------------------------------------------------------------------- | - | --------------------------------------------------------------------------- | - | ---------------------------- | ---------- | - | - | ---------- | -
|                                                                                               |  | Year Ended 
  August 31, 2005 |            | Period from 
  April 17, 2004 to
  August 31, 2004
  (Successor Period) |   | Period from 
  September 1, 2003 to
  April 16, 2004
  (Predecessor Period) |   | Year Ended
  August 31, 2003 |           
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |           
|Cash Flows From
Operating Activities                                                           |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Net income for
  the year                                                                      |  | $                             | 826,985    |                                                                         | $ | 122,281                                                                     |   | $                            | 885,837    |   | $ | 467,390    |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Adjustments
  to Reconcile Net Income to Net Cash (Used In) Provided by Operating
  Activities |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Forgiveness of
  debt                                                                          |  |                               |           |                                                                         |   |                                                                            |   |                              | (405,652   | ) |   |           |  
|Depreciation and
  amortization                                                                |  |                               | 196,755    |                                                                         |   | 23,739                                                                      |   |                              | 51,266     |   |   | 125,054    |  
|Loss on sale of
  land and building                                                            |  |                               |           |                                                                         |   |                                                                            |   |                              |           |   |   | 102,253    |  
|Deferred income tax
  (benefit) expense                                                        |  |                               | (147,382   | )                                                                       |   | 50,578                                                                      |   |                              | 58,303     |   |   | (203,517   | )
|Put option
  valuation                                                                         |  |                               | (303,604   | )                                                                       |   |                                                                            |   |                              |           |   |   |           |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Changes
  In Operating Assets and Liabilities                                                  |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Receivables                                                                                    |  |                               | (2,118,382 | )                                                                       |   | (6,854,567                                                                  | ) |                              | 579,725    |   |   | 4,918,052  |  
|Inventories                                                                                    |  |                               | (3,090,989 | )                                                                       |   | (75,838                                                                     | ) |                              | 622,947    |   |   | 1,290,429  |  
|Prepaid expenses
  and other assets                                                            |  |                               | (21,380    | )                                                                       |   | 7,706                                                                       |   |                              | (22,063    | ) |   | 45,233     |  
|Accounts payable                                                                               |  |                               | 5,875,608  |                                                                         |   | 8,707,348                                                                   |   |                              | (1,238,723 | ) |   | (1,056,019 | )
|Customer
  deposits                                                                            |  |                               | (43,935    | )                                                                       |   |                                                                            |   |                              |           |   |   |           |  
|Income Taxes
  Payable                                                                         |  |                               | 148,501    |                                                                         |   |                                                                            |   |                              |           |   |   |           |  
|Accrued
  liabilities                                                                          |  |                               | 1,362,375  |                                                                         |   | (637,962                                                                    | ) |                              | 765,315    |   |   | 149,630    |  
|Deferred
  compensation                                                                        |  |                               |           |                                                                         |   |                                                                            |   |                              |           |   |   | 489,465    |  
|Deferred revenue                                                                               |  |                               | (74,611    | )                                                                       |   | 16,815                                                                      |   |                              | (125,914   | ) |   | 291,583    |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Net
  Cash (Used In) Provided By Operating Activities                                          |  | $                             | 2,609,941  |                                                                         | $ | 1,360,100                                                                   |   | $                            | 1,171,041  |   | $ | 6,619,553  |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Cash Flows From
Investing Activities                                                           |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Purchases of
  property and equipment                                                          |  | $                             | (491,310   | )                                                                       | $ | (147,705                                                                    | ) | $                            | (45,616    | ) | $ | (67,593    | )
|Repurchase of
  treasury stock                                                                 |  |                               |           |                                                                         |   |                                                                            |   |                              |           |   |   | (13,670    | )
|Payments from
  note receivable                                                                |  |                               |           |                                                                         |   |                                                                            |   |                              |           |   |   | (2,706     | )
|Acquisition of
  businesses, net of cash acquired                                              |  |                               | (678,875   | )                                                                       |   | (4,917,499                                                                  | ) |                              |           |   |   |           |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Net
  Cash Used In Investing Activities                                                        |  | $                             | (1,170,185 | )                                                                       | $ | (5,065,204                                                                  | ) | $                            | (45,616    | ) | $ | (83,969    | )
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Cash
  Flows From Financing Activities                                                         |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Net Increase
  (decrease) in line of credit                                                    |  | $                             | 4,054,524  |                                                                         | $ | 299,250                                                                     |   | $                            | (7,121,955 | ) | $ |           |  
|Proceeds from
  issuance of common stock                                                       |  |                               | 16,671     |                                                                         |   | 625,000                                                                     |   |                              |           |   |   |           |  
|Proceeds from
  issuance of preferred stock                                                    |  |                               |           |                                                                         |   | 1,000,000                                                                   |   |                              |           |   |   |           |  
|Proceeds from
  long-term debt                                                                 |  |                               |           |                                                                         |   | 1,500,000                                                                   |   |                              |           |   |   |           |  
|Repayment of
  amount due to former stockholders                                               |  |                               | (33,152    | )                                                                       |   |                                                                            |   |                              |           |   |   |           |  
|Increase in
  restricted cash                                                                  |  |                               | (5,350,000 | )                                                                       |   |                                                                            |   |                              |           |   |   |           |  
|Repayment of
  debt                                                                            |  |                               | (322,479   | )                                                                       |   |                                                                            |   |                              |           |   |   | (44,445    | )
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Net
  Cash Provided By (Used In) Financing Activities                                          |  | $                             | (1,634,436 | )                                                                       | $ | 3,424,250                                                                   |   | $                            | (7,121,955 | ) | $ | (44,445    | )
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Net
  (decrease) increase in Cash and Cash Equivalents                                         |  | $                             | (194,680   | )                                                                       | $ | (280,854                                                                    | ) | $                            | (5,996,530 | ) | $ | 6,491,139  |  
|Beginning
  Cash and Cash Equivalents                                                          |  | $                             | 1,215,917  |                                                                         | $ | 1,496,771                                                                   |   | $                            | 7,493,301  |   | $ | 1,002,162  |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  
|Ending
  Cash and Cash Equivalents                                                             |  | $                             | 1,021,237  |                                                                         | $ | 1,215,917                                                                   |   | $                            | 1,496,771  |   | $ | 7,493,301  |  
|                                                                                               |  |                               |            |                                                                         |   |                                                                             |   |                              |            |   |   |            |  

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

33

---



Emtec
Inc. Consolidated Statement of Changes in Shareholders Equity


|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|--------------------------------------------------------- |  | --------------- | ------ | ------------ | - | ------------------------------ | - | ------------------- | ---------- | --------------------------- | - | ------- | - | - | ------------------------------ | - | - | --------- | - | - | ------- | - | - | ---------- | -
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   | Total
  Stockholders
  Equity |  
|                                                          |  | Preferred Stock |        | Common Stock |   | Additional
  Paid-in
  Capital |   | Retained
  Earnings |            | Treasury
  Stock, at
  Cost |   |        
|                                                          |  |                 |        |              |   |                                |   |                     |           
|                                                          |  | Shares          |        | Amount       |   | Shares                         |   | Amount              |            |                             |   |         |  
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |  
|Predecessor period                                        |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|Balance at September 1, 2002                              |  |                 |        |              |   |                                |   |                     | 9,667,645  |                             | $ | 96,676  |   | $ | 770,285                        |   | $ | 3,664,339 |   | $ | (1,767  | ) | $ | 4,529,533  |  
|Purchase of treasury stock                                |  |                 |        |              |   |                                |   |                     | (139,535   | )                           |   | (1,395  | ) |   | 1,395                          |   |   |           |   |   | (13,670 | ) |   | (13,670    | )
|Net income                                                |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   | 467,390   |   |   |         |   |   | 467,390    |  
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|Balance at August 31, 2003                                |  |                 |        |              |   |                                |   |                     | 9,528,110  |                             | $ | 95,281  |   | $ | 771,680                        |   | $ | 4,131,729 |   | $ | (15,437 | ) | $ | 4,983,253  |  
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|Capital contribution                                      |  |                 |        |              |   |                                |   |                     |           |                             |   |        |   |   | 903,811                        |   |   |          |   |   |        |   |   | 903,811    |  
|Noncash distribution                                      |  |                 |        |              |   |                                |   |                     |           |                             |   |        |   |   |                               |   |   | (399,587  | ) |   |        |   |   | (399,587   | )
|Net income                                                |  |                 |        |              |   |                                |   |                     |           |                             |   |        |   |   |                               |   |   | 885,837   |   |   |        |   |   | 885,837    |  
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|Balance at April 16, 2004                                 |  |                 |        |              |   |                                |   |                     | 9,528,110  |                             | $ | 95,281  |   | $ | 1,675,491                      |   | $ | 4,617,979 |   | $ | (15,437 | ) | $ | 6,373,314  |  
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|Successor period                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|Balance at April 17, 2004                                 |  |                 | 1,000  |              | $ | 10                             |   |                     | 9,528,110  |                             | $ | 95,281  |   | $ | 1,529,709                      |   |   |          |   |   |        |   | $ | 1,625,000  |  
|Net income                                                |  |                 |       |              |   |                               |   |                     |           |                             |   |        |   |   |                               |   |   | 122,281   |   |   |        |   |   | 122,281    |  
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|Balance at August 31, 2004                                |  |                 | 1,000  |              | $ | 10                             |   |                     | 9,528,110  |                             | $ | 95,281  |   | $ | 1,529,709                      |   | $ | 122,281   |   | $ |        |   | $ | 1,747,281  |  
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|Common stock deemed to be issued in reverse
merger        |  |                 |        |              |   |                                |   |                     | 7,676,024  |                             |   | 76,760  |   |   | 19,362,670                     |   |   |           |   |   |         |   |   | 19,439,430 |  
|Dividends on preferred stock                              |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   | (102,794  | ) |   |         |   |   | (102,794   | )
|Conversion of preferred stock into debt                   |  |                 | (1,000 | )            |   | (10                            | ) |                     |            |                             |   |         |   |   | (999,990                       | ) |   |           |   |   |         |   |   | (1,000,000 | )
|Common stock issued upon exercise of options- post
merger |  |                 |        |              |   |                                |   |                     | 28,000     |                             |   | 280     |   |   | 16,390                         |   |   |           |   |   |         |   |   | 16,670     |  
|Net income                                                |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   | 826,985   |   |   |         |   |   | 826,985    |  
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  
|Balance at August 31, 2005                                |  |                 |       |              | $ |                               |   |                     | 17,232,134 |                             | $ | 172,321 |   | $ | 19,908,779                     |   | $ | 846,472   |   | $ |        |   | $ | 20,927,572 |  
|                                                          |  |                 |        |              |   |                                |   |                     |            |                             |   |         |   |   |                                |   |   |           |   |   |         |   |   |            |  

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

34

---



Emtec,
Inc.Notes to Consolidated Financial Statements

1.
Organization

Business

On August 5, 2005, Emtec, Inc. (Old Emtec) completed a
merger with Darr Westwood Technology Corporation (Darr) pursuant to which the
two companies merged and now operate as a consolidated entity that has retained
the name Emtec, Inc. (the Company or Emtec) (the August 5, 2005 merger).
Management concluded that the transaction resulted in a change in control of
the Company and that the transaction should be accounted for as a reverse
merger, whereby Darr was considered the accounting acquirer of Old Emtec for
financial reporting purposes. In what was regarded as a recapitalization, the
historical stockholders equity of Darr, the accounting acquirer, prior to the
merger, was retroactively restated for the equivalent number of shares received
in the merger after giving effect to any difference in the par value of Old
Emtecs and Darrs stock with an offset to paid-in capital. Retained earnings
of Darr are carried forward after the merger. Operations prior to the merger
are those of Darr. Earnings per share for periods prior to the merger were
restated to reflect the equivalent number of shares.

Accordingly, the historical financial statements of
Emtec are considered to be those of Darr for all periods presented. The
consolidated financial statements include the accounts and transactions of Darr
for the year ended August 31, 2005 (and including the accounts and transactions
of Emtec for the period from August 6, 2005 to August 31, 2005), the periods
from September 1, 2003 to April 16, 2004 (Predecessor Period) and from April
17, 2004 to August 31, 2004 (Successor Period) and for the year ended August
31, 2003 and the accounts and transactions of Old Emtec for the period from
August 5, to August 31, 2005. The notes to the consolidated financial
statements refer to the following defined periods ended: August 31, 2005,
August 31, 2004, April 16, 2004 and August 31, 2003.

The Company is a systems integrator focused on
providing technology solutions that enable its customers to use and manage
their data to grow their businesses. The Companys customer base is comprised
of departments of the United States, state and local governments, education and
commercial businesses throughout the United States. Emtec specializes in
information technology services including: enterprise computing, data
communications, data access, network design, enterprise backup and storage
consolidation, managed services and staff augmentation. The most significant
portion of the Companys revenue is derived from activities as a reseller of IT
products, such as workstations, servers, microcomputers, and application
software and networking and communications equipment.

The Company considers all of its operating activity to
be generated from a single operating segment.

35

---



2.
Summary of Significant Accounting Policies

Principles
of Consolidation

The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Westwood, and
Westwoods wholly owned subsidiary, Solutions. Significant intercompany account
balances and transactions have been eliminated in consolidation.

Use of
Estimates

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

Cash and
Cash Equivalents

The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. The
Company typically maintains cash at major financial institutions. At times
throughout the year, bank account balances exceed FDIC insurance limits, which
are up to $100,000 per account.

The Company has restricted cash from time to time
during the year that represents amounts collected on accounts receivable that
have not been released to the Company by its financing company. At August 31, 2005
cash that has not been released by the finance company totaled $476,290. In
addition, the Company recorded $5,650,000 of restricted cash at August 31, 2005
that represents cash earmarked to fund a self tender offer of $5,500,000 that
begins September 7, 2005, and $150,000 to obtain a letter of credit required as
a security deposit for a real estate lease.

Concentration
of Credit Risk and Significant Customers

Other financial instruments that potentially subject
the Company to a concentration of credit risk consist principally of accounts
receivable. A substantial portion of the Companys customer base is related
departments of the United States government and state and local governments.
The Company does not require collateral or other security to support credit
sales, but provides an allowance for doubtful accounts based on historical
experience and specifically identified risks. Accounts receivable are
considered delinquent when payment is not received within standard terms of
sale and are charged off against the allowance for doubtful accounts when
management determines that recovery is unlikely and the Company ceases its
collection efforts.

The Companys revenues comprised of the following
customer types for the periods ended:

|                                              |  |                   |             |                   |   |                  |  |                   |            |  |   |            | 
|--------------------------------------------- |  | ----------------- | ----------- | ----------------- | - | ---------------- |  | ----------------- | ---------- |  | - | ---------- | 
|                                              |  | August 31,
  2005 |             | August 31,
  2004 |   | April 16,
  2004 |  | August 31,
  2003 |           
|                                              |  |                   |             |                   |   |                  |  |                   |           
|Departments of
  the United States Government |  | $                 | 123,823,906 |                   | $ | 31,463,023       |  | $                 | 66,663,466 |  | $ | 73,816,257 | 
|State and Local
  Governments                 |  |                   | 17,625,586  |                   |   | 3,571,827        |  |                   | 7,567,943  |  |   | 11,691,527 | 
|Commercial
  Companies                        |  |                   | 12,338,163  |                   |   | 4,580,576        |  |                   | 9,705,269  |  |   | 9,880,240  | 
|Education and
  other                         |  |                   | 8,844,387   |                   |   | 2,026,178        |  |                   | 4,293,041  |  |   | 2,061,587  | 
|                                              |  |                   |             |                   |   |                  |  |                   |            |  |   |            | 
|Total Revenues                                |  | $                 | 162,632,042 |                   | $ | 41,641,604       |  | $                 | 88,229,719 |  | $ | 97,449,611 | 
|                                              |  |                   |             |                   |   |                  |  |                   |            |  |   |            | 

36

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The United States Department of Agriculture (USDA),
accounted for approximately 13.4%, 1.2%, 1.1% and 1.1% of our total revenues
for the periods ended August 31, 2005, August 31 2004, April 16, 2004 and 2003,
respectively.

As of August 31, 2005 and 2004, trade accounts
receivable are comprised of the following:

|                                 |  |                   |            |                   |   |            |  
|-------------------------------- |  | ----------------- | ---------- | ----------------- | - | ---------- | -
|                                 |  | August 31,
  2005 |            | August 31,
  2004 |  
|                                 |  |                   |            |                   |  
|Trade
  receivables              |  | $                 | 34,766,373 |                   | $ | 17,957,321 |  
|Allowance for
  doubtful account |  |                   | (225,000   | )                 |   | (225,000   | )
|                                 |  |                   |            |                   |   |            |  
|Trade
  receivables, net         |  | $                 | 34,541,373 |                   | $ | 17,732,321 |  
|                                 |  |                   |            |                   |   |            |  

Fair
Value of Financial Instruments

The carrying amounts of accounts receivable, other
receivables accounts payable, accrued expenses and customer deposits
approximate fair value because of their short-term nature. The carrying amount
of the line of credit and long-term debt approximates their fair value because
the interest rates reflect rates the Company would be able to obtain on debt
with similar terms and conditions.

Revenue
Recognition

The Company recognizes revenue from the sales of
products when risk of loss and title passes which is upon customer acceptance.

Revenue from the sale of warranties and support
service contracts is recognized on a straight-line basis over the term of the
contract, in accordance with Financial Accounting Standards Board Technical
Bulleting No. 90-1, Accounting for
Separately Priced Extended Warranty and Product Maintenance Contracts
(FTB 90-1).

The Company may also enter into sales arrangements
with customers that contain multiple elements. The Company recognizes revenue
from sale arrangements that contain both products and manufacturer warranties
in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables, based on the relative fair value of
the individual components. The relative fair value of individual components is
based on historical sales of the components sold separately.

Product revenue represents sales of computer hardware
and pre-packaged software. These arrangements often include software
installations, configurations, and imaging, along with delivery and set-up of
hardware. The Company follows the criteria contained in EITF 00-21 and SAB 104
in recognizing revenue associated with these transactions. The Company performs
software installations, configurations and imaging services at its locations
prior to the delivery of the product. Some customer arrangements include
set-up services performed at customer locations where the Companys personnel
perform the routine tasks of removing the equipment from boxes, and setting up
the equipment at customer workstations by plugging in all necessary
connections. This service is usually performed the same day as delivery.
Revenue is recognized on the date of acceptance, except as follows:

37

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In some instances, the set-up service is performed
  after date of delivery. The Company recognizes revenue for the hardware
  component at date of delivery when the amount of revenue allocable to this
  component is not contingent upon the completion of set-up services and
  therefore, the Companys customer has agreed that the transaction is complete
  as to the hardware component. In instances where the Companys customer
  does not accept delivery until set-up services are completed, the Company
  defers all revenue in the transaction until customer acceptance occurs.                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | There are occasions when a customer requests a
  transaction on a bill & hold basis. The Company follows the SAB 104
  criteria and recognizes revenue from these sales prior to date of physical
  delivery only when all the criteria of SAB 104 are met. At August 31, 2005,
  accounts receivable related to bill and hold sales totaled $221,255. Total
  revenue from bill and hold sales were $768,726 with a gross profit of $86,860
  which was included in the results of operations for the year ended August 31,
  2005. The Company does not modify its normal billing and credit terms for
  these customers. The customer is invoiced at the date of revenue recognition
  when all of the criteria have been met.

The Company has experienced minimal customer returns.
Since all eligible products must be returned to the Company with 30 days from
the date of the invoice, the Company reduces the product revenue and cost of
goods in each accounting period based on the actual returns that occurred in
the next 30 days after the close of the accounting period.

Service and consulting revenue include time billings
based upon billable hours charged to the customers, fixed price short-term
projects, hardware maintenance contracts, and manufacturer support service
contracts. These contracts generally are task specific and do not involve
multiple deliverables. Revenues from time billings are recognized as services
are delivered. Revenues from short-term fixed price projects are recognized
using the proportional performance method by determining the level of service
performed based upon the amount of labor cost incurred on the project versus
the total labor costs to perform the project because this is the most readily
reliable measure of output. Revenues from hardware maintenance contracts are
recognized ratably over the contract period.

Revenues from manufacturer support service contracts
where the manufacturer is responsible for fulfilling the service requirements
of the customer are recognized immediately on their contact sale date.
Manufacturer support service contracts contain cancellation privileges that
allow our customers to terminate a contract with 90 days written notice. In
this event, the customer is entitled to a pro-rated refund based on the
remaining term of the contract and we would owe the manufacturer a pro-rated
refund of the cost of the contract. However, the Company has experienced no
customer cancellations of any significance during our most recent three-year
history and do not expect cancellations of any significance in the future.

Rebates

Rebates received on products purchased are recorded in
the accompanying consolidated statements of operations as a reduction of the
cost of revenues in accordance with Emerging Issues Task Force Abstract No.
02-16, Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a Vendor (EITF
02-16). At August 31, 2005 and August 31, 2004, approximately $2,117,290 and
$1,009,000, respectively, of rebates receivable were recorded in
accounts-receivable-other in the accompanying consolidated balance sheets.

38

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Inventory

Inventory is stated at the lower of average cost
(specific identification) or market. Inventory is entirely finished goods
purchased for resale and consists of computer hardware, computer software,
computer peripherals and related supplies. The Company provides an inventory
reserve for products it determines are obsolete or where salability has
deteriorated based on managements review of products and sales. The components
of inventory at August 31 are as follows:

|                                           |  |      |           |      |   |          |  
|------------------------------------------ |  | ---- | --------- | ---- | - | -------- | -
|                                           |  | 2005 |           | 2004 |  
|                                           |  |      |           |      |  
|Hardware, software, accessories, and parts |  | $    | 6,070,728 |      | $ | 644,262  |  
|Less: Inventory reserve                    |  | $    | (300,138  | )    | $ | (120,000 | )
|                                           |  |      |           |      |   |          |  
|Net Inventory                              |  | $    | 5,770,590 |      | $ | 524,262  |  
|                                           |  |      |           |      |   |          |  

Property
and Equipment

Property and equipment are recorded at cost.
Depreciation and amortization are provided on a straight-line basis over the
estimated useful lives of the assets, which generally are three to five years.
Maintenance and repair costs are charged to expense as incurred. The cost and
accumulated depreciation relating to property and equipment retired or
otherwise disposed of are eliminated from the accounts and any resulting gains
or losses are credited or charged to income.

Goodwill

Goodwill is the excess of the purchase price over the
fair value of the net assets acquired in a business combination accounted for
under the purchase method. On August 5, 2005, the Company recorded goodwill
related to the acquisition of Old Emtec equal to $8,817,231. On March 1, 2005,
the Company recorded goodwill related to the acquisition of Proven
Technologies, Inc. equal to $157,739. Total Goodwill at August 31, 2005 is
$8,974,610. The Company tests goodwill and indefinite-lived assets for
impairment at least annually in accordance with Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, (SFAS
142). The Companys annual impairment test is made on June 1 of each year.
Intangible assets that have finite useful lives are amortized over their useful
lives.

Identifiable
Intangible Asset

On August 5, 2005, the Company ascribed $8,378,166 of
the purchase price associated with the acquisition of Old Emtec to customer
relationships. Intangible assets at August 31, 2005 and 2004 consisted of the
value ascribed to customer relationships of $8,661,712 less accumulated
amortization of $68,868 and $283,546 ascribed to customer relationships less
accumulated amortization of $7,270, respectively. The assets ascribed to
customer relationships are being amortized on a straight-line basis over 13-15
years. Amortization expense was $61,598 and $7,270 for the periods ended August
31, 2005 and August 31, 2004, respectively. Amortization expense of $580,356 is
expected to be recorded each year through August 31, 2016, $573,085 for the
year ended August 31, 2017, $558,544 for the years ended August 31, 2018, and
2019, and $518,755 for the year ended August 31, 2020.

39

---



Property and equipment and customer relationship
intangible assets are tested for recoverability whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable in
accordance with Statement of Financial Accounting Standards (SFAS) No. 144
Accounting for the Impairment or Disposal of Long-Lived Assets.
Recoverability of long-lived assets is assessed by a comparison of the carrying
amount to the estimated undiscounted future net cash flows expected to result from
the use of the assets and their eventual disposition. If estimated undiscounted
future net cash flows are less than the carrying amount, the asset is
considered impaired and a loss would be recognized based on the amount by which
the carrying value exceeds the fair value of the asset.

Advertising

Advertising costs are expensed as incurred.
Advertising expense was $551,065, $200,690, $217,557, and $320,196 for the
periods ending August 31, 2005, August 31, 2004, April 16, 2004 and August 31,
2003, respectively, and is included in selling, general and administrative
expenses in the consolidated statements of operations. Marketing development
funds received from various manufacturers are included in selling, general and
administrative expense.

Stock-Based
Compensation

The Company accounts for stock-based compensation
using the intrinsic value method of accounting in accordance with Accounting
Principles Board Opinion No. 25 Accounting for Stock Issued to Employees (APB
25) and related Interpretations. Accordingly, no compensation cost for stock
options granted to employees is reflected in net income, since all options
granted had an exercise price equal to the fair market value of the Companys
common stock on the date of the grant. Stock options in the Company are fully
vested and were granted by Old Emtec prior to the August 5, 2005 merger.

In December 2004, the FASB issued Statement of
Financial Accounting Standard No. 123 (Revised), Share-Based Payments (SFAS
123R), which is effective for the Company beginning December 15, 2005. Under
SFAS 123R, the Company will be required to measure the cost of employee service
received in exchange for awards of stock options based upon the fair value of
the options as of their grant date. The cost of the employee service will be
recognized as compensation cost ratably over the option vesting period.
Currently, the Company recognizes compensation expense pursuant to APB 25,
whereby compensation expense is recognized to the extent that an option price
is less than the market price of the stock at the date of the grant (the
Intrinsic Value). SFAS 123R allows the use of either the Black-Scholes or a
lattice option-pricing model to calculate the fair value of options. Currently,
the Company is evaluating the adoption alternatives under SFAS 123R. There will
be no impact on future operating results until the Company issues stock options
in future periods.

Income
Taxes

The Company provides for income taxes in accordance
with Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109
requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between financial
statement carrying amounts and the tax basis of assets and liabilities.

40

---



Earnings Per Share

Basic
earnings/(loss) per share is computed based on the weighted average shares
outstanding during the reporting period without considering any dilutive
effects. Diluted earnings (loss) per share is computed similar to basic
earnings (loss) per share except that the weighted average shares outstanding
reflects all shares that could be issued, including options and warrants.

3. Acquisition

On August 5,
2005, Old Emtec and Darr completed a transaction pursuant to which the two
companies merged and will operate as a new consolidated entity that retains the
name Emtec, Inc. Under the terms of the merger agreement all shares Darr common
stock that were issued and outstanding immediately prior to the merger were
exchanged for 9,528,110 shares of Old Emtecs common stock plus warrants to
purchase an additional 10% of the Company, measured on a post exercise basis.
Immediately following the merger, Darrs stockholders owned approximately 55.7%
of the outstanding shares of the Companys common stock. In addition, as a
condition of the transaction, the Company was required to initiate a self
tender offer to repurchase issued and outstanding shares of the Company for an
aggregate purchase price up to $5,500,000 at a fixed price of $1.92 per share.
The Company believes that the merger transaction will allow the Company to
expand its service offerings, add to or enhance its base of technical or sales
personnel, and nurture and expand existing client relationships. The
anticipated synergies from the merger include enhanced buying power, cross
utilization of resources, and cross selling into existing client relationships.

Management
concluded that the transaction resulted in a change in control of the Company
and that the transaction should be accounted for as a reverse merger, whereby
Darr is considered the accounting acquirer and the purchase price is allocated
to the net tangible and intangible assets of Old Emtec (hereinafter net assets)
based on their underlying fair values.

The aggregate
purchase price was $20,275,670 based on the fair value of the consideration,
which consisted of: $19,266,820 for 7,676,024 shares of common stock of Old
Emtec deemed to be issued at $2.51 per share, $172,612 for stock options deemed
to be issued, $315,104 for put warrants issued under a self tender offer and
$521,134 of acquisition costs incurred by Darr. The Company accounted for the
acquisition under the purchase method, whereby, amounts were assigned to assets
acquired and liabilities assumed based on their respective fair values, on the
date of merger. Management determined the fair value of Old Emtecs net assets
on August 5, 2005 was $11,458,800, which resulted in an excess purchase price
over fair value of net assets acquired of $8,816,870, which was recognized
as goodwill.

41

---



The allocation
of purchase price by significant component is as follows:

| |                                   |  |   |            |  
| | --------------------------------- |  | - | ---------- | -
| | Accounts and other receivables    |  | $ | 16,884,901 |  
| | Inventories                       |  |   | 2,155,339  |  
| | Deferred tax asset-current        |  |   | 267,574    |  
| | Prepaid expenses                  |  |   | 354,260    |  
| | Property and equipment            |  |   | 210,770    |  
| | Customer relationships            |  |   | 8,378,166  |  
| | Other assets                      |  |   | 356,651    |  
| | Accounts payable                  |  |   | (9,702,715 | )
| | Other current liabilities         |  |   | (4,469,849 | )
| | Deferred tax liabilities          |  |   | (2,976,297 | )
| |                                   |  |   |            |  
| | Fair value of net assets acquired |  | $ | 11,458,800 |  
| | Purchase price                    |  |   | 20,275,670 |  
| |                                   |  |   |            |  
| | Excess purchase price             |  | $ | 8,816,870  |  
| |                                   |  |   |            |  

The value of
the put options issued was estimated on the date of grant (August 5, 2005)
using a Black-Scholes option pricing model. Under the Black-Scholes model, the
total value of the put options was $315,104. Key assumptions used in the model
included: exercise price - $1.92 per share, stock price- $2.15 per share,
expected volatility of 0.869; risk free rate of 4.5% and dividend yield of
0.0%. At August 31, 2005, the value of the put options was estimated to be
$11,500 and was determined based on the same key assumptions with a stock price
of $2.40 per share. In connection with the change in value, the Company
recorded other income of $303,600 in the consolidated statement of operation.

On April 16,
2004, Darr purchased substantially all of the net assets of Westwood for
$6,697,816. Prior to the acquisition, the Company had no operating history. The
acquisition was accounted for under the purchase method of accounting and
allowed the Company to enter into the computer and peripheral sales and service
industry. The accompanying financial statements present the results of
operations for the period from September 1, 2003 to April 16, 2004 under the
Predecessors basis of accounting (Predecessor Period) and for the period from
April 17, 2004 to August 31, 2004 under the Companys basis of accounting
(Successor Period). The purchase price consisted of cash of $5,245,222, assumed
liabilities of $1,254,778 and related acquisition costs of $197,816.

42

---



The purchase
price was allocated to the assets acquired and liabilities assumed based on
their respective fair values, on the date of purchase, as follows:

|                         |  |   |            |  
|------------------------ |  | - | ---------- | -
|Current
  assets         |  | $ | 14,152,360 |  
|Customer
  relationships |  |   | 283,546    |  
|Property and
  equipment |  |   | 188,420    |  
|Deferred tax
  asset     |  |   | 377,154    |  
|Other assets             |  |   | 58,038     |  
|Current
  liabilities    |  |   | (7,853,970 | )
|Accrued
  severance      |  |   | (507,732   | )
|                         |  |   |            |  
|Net assets
  acquired    |  | $ | 6,697,816  |  
|                         |  |   |            |  

On March 1,
2005, Old Emtec acquired selected assets of Proven Technology LLC, a provider
of data storage solutions including hardware, software and support services for
$162,610. The acquisition was accounted for under the purchase method of
accounting and allowed the Company to enter into the data storage market. The
purchase price was allocated to assets acquired, which consisted of property
and equipment of $4,871 based on their respective fair values on the date of
purchase. There were no liabilities assumed in the transaction and the excess
of purchase price over the estimated fair value of assets acquired totaled
$157,740 and is recorded as goodwill.

Unaudited pro
forma condensed results of operations for the year ended August 31, 2005 and
the twelve month (predecessor and successor combined) period ended August 31,
2004 are presented as if the August 5, 2005 merger and the March 1, 2005 asset
acquisition had been completed at the beginning of each year as follows:

| |                                                                   |  |      |             |      |   |             | 
| | ----------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | 
| |                                                                   |  | 2005 |             | 2004 |  
| |                                                                   |  |      |             |      |  
| |                                                                   |  |      |             |      |  
| | Net revenues                                                      |  | $    | 267,658,142 |      | $ | 235,794,558 | 
| | Gross profit                                                      |  |      | 29,839,291  |      |   | 28,664,004  | 
| |                                                                   |  |      |             |      |   |             | 
| | Income from continuing operations                                 |  | $    | 1,984,942   |      | $ | 892,829     | 
| |                                                                   |  |      |             |      |   |             | 
| |                                                                   |  |      |             |      |   |             | 
| | Income from continuing operations per share
  (basic and diluted) |  | $    | 0.12        |      | $ | 0.05        | 
| |                                                                   |  |      |             |      |   |             | 

43

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4. Property, Plant and Equipment

Property and
equipment consisted of the following at August 31:

|                                |  |      |           |      |   |                        |   |  |        | 
|------------------------------- |  | ---- | --------- | ---- | - | ---------------------- | - |  | ------ | 
|                                |  | 2005 |           | 2004 |   | Estimated Life
  Years |  
|                                |  |      |           |      |   |                        |  
|Leasehold
  improvements        |  | $    | 197,903   |      | $ | 132,018                |   |  | 4.67   | 
|Computer
  equipment            |  |      | 572,728   |      |   | 199,504                |   |  | 3 to 5 | 
|Furniture
  and fixtures        |  |      | 31,156    |      |   | 7,738                  |   |  | 3 to 5 | 
|Automobiles                     |  |      | 72,956    |      |   | 27,445                 |   |  | 3 to 5 | 
|Software                        |  |      | 172,410   |      |   |                       |   |  | 3 to 5 | 
|                                |  |      |           |      |   |                        |   |  |        | 
|Total
  Property and Equipment  |  | $    | 1,047,153 |      | $ | 366,705                |   |  |        | 
|Less
  accumulated depreciation |  |      | (129,994  | )    |   | (16,469                | ) |  |        | 
|                                |  |      |           |      |   |                        |   |  |        | 
|                                |  | $    | 917,159   |      | $ | 350,236                |   |  |        | 
|                                |  |      |           |      |   |                        |   |  |        | 

Depreciation
expense was $113,525, $16,469, $51,266 and $125,054 for the periods ended,
August 31, 2005, August 31, 2004, April 16, 2004 and August 31, 2003,
respectively.

5. Line of Credit

The Company
maintains a credit facility under two agreements with a financing company. The
credit facility finances purchases from specified vendors, as defined, and
allows for borrowings based on a percentage of eligible accounts receivable, as
defined. Borrowings under both agreements are limited to an aggregate of
$35,000,000 and bear interest at the greater of the prime rate as published by
JP Morgan Chase Bank or 4.0%. The underlying agreements allow for an increased
borrowing base during periods of high seasonal activity. At August 31, 2005 and
2004, there were $4,412,526 and $299,250 of borrowings outstanding under this
facility. The credit facility was amended on August 5, 2005 and expires on
August 31, 2006.

The credit
facility is secured by substantially all of the Companys assets and the
underlying agreements contain certain restrictive covenants that limit
dividends to stockholders and require the Company to meet defined financial
covenants. In addition, the credit facility requires that the Company maintain
a lock-box for all cash receipts related to trade accounts receivable, from
which the financing company releases funds to the Company for operations
pursuant to terms identified in the underlying agreements.

6. Commitments

The Company
leases its operating facilities, certain sales offices and transportation
equipment under noncancelable operating lease agreements that expire on various
dates through August 31, 2010. Rent expense was $385,990, $118,958, $222,329
and $149,291 for the periods ending August 31, 2005, August 31, 2004, April 16,
2004, and August 31, 2003, respectively, and is recorded in general and
administrative expenses on the consolidated statements of operations.

The following
are our contractual obligations associated with lease commitments. We lease
warehouse and office facilities, vehicles and certain office equipment under
noncancellable operating leases. Future minimum lease payments under such
leases are as follows:

44

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| |              |  |   |           | 
| | ------------ |  | - | --------- | 
| | Fiscal Years |  |   |           | 
| |              |  |   |           | 
| | 2006         |  | $ | 975,743   | 
| | 2007         |  |   | 810,249   | 
| | 2008         |  |   | 688,430   | 
| | 2009         |  |   | 383,428   | 
| | 2010         |  |   | 155,069   | 
| |              |  |   |           | 
| | Total        |  | $ | 3,012,919 | 
| |              |  |   |           | 

The Company is
occasionally involved in various lawsuits, claims, and administrative
proceedings arising in the normal course of business. The Company believes that
any liability or loss associated with such matters, individually or in the
aggregate, will not have a material adverse effect on the Companys financial
condition or results of operations.

In March 2002,
a lawsuit was filed against the Company by a competitor seeking damages of an
unspecified amount. The competitor is alleging that the Company illegally
interfered with customer relationships of the competitor. There has been no
change to this litigation matter in the last twelve months. The lawsuit is
still in the discovery phase.

At March 16,
2005, Old Emtec sold its 5.49% working interest in the Roosevelt Hot Springs
geothermal unit to Energy Minerals, Inc. (buyer). As part of the transaction,
the buyer assumed the remaining liability under the geothermal steam purchase
agreement with Pacificorp (d/b/a Utah Power & Light Company). Under the
30-year agreement executed in 1993, a $1 million prepayment was received by Old
Emtec from Pacificorp. The agreement gives Pacificorp the right to recover a
pro-rata portion of their original $1 million pre-payment should the geothermal
unit fail to produce steam at levels specified under the agreement. Old Emtec
recorded the pre-payment as deferred revenue and was amortizing the amount as earned
revenue over the 30-year term of the steam purchase agreement. Energy Minerals,
Inc. has been assigned rights to the steam purchase agreement with Pacificorp
and assumed the remaining $672,123 deferred revenue liability as of March 16,
2005. However, should the geothermal unit fail to produce steam at levels
specified under the agreement during the remaining 30 year term of the
agreement, PacifiCorp could potentially make a claim against the Company as a
former owner, if the current ownership of the geothermal unit failed to satisfy
Pacificorps claims. The Company believes that the probability of this
occurrence is remote due to the strong production and operating history of the
geothermal unit.

The Company was counterparty to
deferred compensation arrangements with a spouse (as beneficiary) of a former
officer and a former stockholder of Westwood during the periods ended April 16,
2004 and August 31, 2003. Commensurate with the acquisition of Westwood on
April 16, 2004, the arrangement with the spouse was forfeited in exchange for a
separation agreement. The agreement provides quarterly severance payments to
the beneficiary of $22,000 to $33,900 through February 2009. In connection with
the exchange, the Company recorded forgiveness of debt of $405,652 for the
difference between the estimated present value of future cash flows of the
forfeited deferred compensation arrangement and the separation agreement during
the period ended April 16, 2004. The Companys liability at August 31, 2005 and
2004 was $380,356 and $473,489, respectively for the separation agreement. The
deferred compensation arrangement between the Company and former stockholder of
Westwood was forfeited without recompense. In

45

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connection
with this forfeiture, the Company recorded a contribution to capital of
$1,507,181, net of income tax effect, during the period ended April 16, 2004.

7. Long-Term Debt

The Companys
long-term debt at August 31, consists of the following:

|                                                                             |  |      |           |      |   |           |  
|---------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                                                             |  | 2005 |           | 2004 |  
|                                                                             |  |      |           |      |  
|5% junior
  subordinated notes payable to former stockholders of Westwood    |  | $    | 313,695   |      | $ | 313,695   |  
|8% junior
  subordinated notes payable to former stockholders of Westwood    |  |      | 627,389   |      |   | 941,083   |  
|8% junior
  subordinated note payable to Darr Westwood LLC, a related entity |  |      | 1,102,794 |      |   |          |  
|Subordinate
  note payable to Darr Westwood                                  |  |      |           |      |   |           |  
|Subordinate
  note payable to Darr Westwood LLC, a related entity            |  |      | 750,000   |      |   | 750,000   |  
|Subordinate
  note payable to Four Kings Management, a related entity        |  |      | 714,000   |      |   | 750,000   |  
|GMAC                                                                         |  |      | 27,215    |      |   |          |  
|                                                                             |  |      |           |      |   |           |  
|Total debt                                                                   |  |      | 3,535,093 |      |   | 2,754,778 |  
|Less current
  portion                                                       |  |      | (524,874  | )    |   | (349,694  | )
|                                                                             |  |      |           |      |   |           |  
|Long-term
  debt, net of current portion                                     |  | $    | 3,010,219 |      | $ | 2,405,084 |  
|                                                                             |  |      |           |      |   |           |  

The 5% junior
subordinated notes payable to the former stockholders of Westwood requires
annual principal payments of $94,108 plus accrued interest in April 2006 and
April 2007. Annual principal payments of $62,739 plus accrued interest are due
in April 2008 and April 2009.

The 8% junior
subordinated notes payable to the former stockholders of Westwood require
principal payments of $156,847 plus accrued interest due semiannually
commencing October 2004.

The 8% junior
notes payable to Darr Westwood LLC is due in April 2009 with accrued interest
payable annually in August of 2008 and annually thereafter. These notes were
issued in exchange for 1,000 shares outstanding of series A redeemable
preferred stock of Darr in conjunction with the August 5, 2005 merger.

The
subordinated note payable to Darr Westwood LLC bears interest at a rate equal
to the prime rate, as published in the Wall Street Journal, plus 4%, not to
exceed 10%. Annual principal payments are due in April 2007 ($194,482), April
2008 ($323,859) and April 2009 ($231,659). Accrued interest is payable annually
beginning in March 2007 through April 2009. The Company is obligated under this
note to pay additional interest in the form of a fee based on achieving certain
levels of revenue, as defined. The fee, if any, is limited to $30,000 per
quarter and is payable in March 2008 and April 2009. Interest expense was
$202,870 and $69,879 for the periods ended August 31, 2005 and August 31, 2004,
respectively, all of which is accrued at the end of each respective period.

46

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The
subordinated note payable to Four Kings Management, LLC (Four Kings) bears
interest at a rate equal to the prime rate, as published in the Wall Street
Journal, plus 4%, not to exceed 10%. Interest is payable monthly. Monthly
principal payments of $9,000 began in May 2005 and continue through March 2009.
The remaining balance plus accrued interest is due in April 2009. The Company
is obligated under this note to pay additional interest in the form of a fee
based on achieving certain levels of revenue, as defined. The fee, if any, is
limited to $30,000 per quarter and is payable quarterly. Officers of Westwood
own membership interests in Four Kings. Interest expense was $202,203 and
$69,879 for the periods ended August 31, 2005 and 2004, respectively, of which
$32,198 and $27,217 is accrued at the end of the respective period.

Principal
maturities of long-term debt at August 31, 2005 are as follows $524,874,
$719,357, $503,670 and $1,787,192 for the respective years ended August 31,
2006 through August 31, 2009.

8. Income Taxes

Income tax
expense (benefit) for the periods ended August 31, 2005, August 31, 2004, April
16, 2004, and August 31, 2003 consists of the following:

|                              |  |                                 |          |                     |   |                      |  |                                |         |  |   |          |  
|----------------------------- |  | ------------------------------- | -------- | ------------------- | - | -------------------- |  | ------------------------------ | ------- |  | - | -------- | -
|                              |  | Year Ended
  August 31, 
  2005 |          | Successor 
  Period |   | Predecessor
  Period |  | Year Ended
  August 31,
  2003 |        
|                              |  |                                 |          |                     |   |                      |  |                                |        
|                              |  |                                 |          |                     |   |                      |  |                                |        
|                              |  |                                 |          |                     |   |                      |  |                                |        
|Current provision:            |  |                                 |          |                     |   |                      |  |                                |         |  |   |          |  
|Federal                       |  | $                               | 499,144  |                     | $ | 56,208               |  | $                              | 454,620 |  | $ | 381,382  |  
|State                         |  |                                 | 136,284  |                     |   | 16,637               |  |                                | 134,522 |  | $ | 116,882  |  
|                              |  |                                 |          |                     |   |                      |  |                                |         |  |   |          |  
|                              |  |                                 | 635,428  |                     |   | 72,845               |  |                                | 589,142 |  | $ | 498,264  |  
|Deferred provision (benefit): |  |                                 |          |                     |   |                      |  |                                |         |  |   |          |  
|Federal                       |  |                                 | (141,485 | )                   |   | 39,029               |  |                                | 45,019  |  | $ | (157,047 | )
|State                         |  |                                 | (41,393  | )                   |   | 11,549               |  |                                | 13,284  |  | $ | (46,470  | )
|                              |  |                                 |          |                     |   |                      |  |                                |         |  |   |          |  
|                              |  |                                 | (182,878 | )                   |   | 50,578               |  |                                | 58,303  |  | $ | (203,517 | )
|                              |  |                                 |          |                     |   |                      |  |                                |         |  |   |          |  
|                              |  | $                               | 452,550  |                     | $ | 123,423              |  | $                              | 647,445 |  | $ | 294,747  |  
|                              |  |                                 |          |                     |   |                      |  |                                |         |  |   |          |  

A reconciliation of the federal statutory
provision to the provision for financial reporting purposes is as follows:

|                                     |  |                                  |          |                    |   |                      |  |                                |         |  |   |         |  
|------------------------------------ |  | -------------------------------- | -------- | ------------------ | - | -------------------- |  | ------------------------------ | ------- |  | - | ------- | -
|                                     |  | Year
  Ended
  August 31,
  2005 |          | Successor
  Period |   | Predecessor
  Period |  | Year Ended
  August 31,
  2003 |        
|                                     |  |                                  |          |                    |   |                      |  |                                |        
|                                     |  |                                  |          |                    |   |                      |  |                                |        
|                                     |  |                                  |          |                    |   |                      |  |                                |        
|                                    
|Statutory federal tax Provision      |  | $                                | 435,043  |                    | $ | 83,539               |  | $                              | 521,316 |  | $ | 259,127 |  
|State income taxes net of federal    |  |                                  | 69,696   |                    |   | 14,823               |  |                                | 92,503  |  |   | 46,441  |  
|Fair value adjustment of put options |  |                                  | (103,225 | )                  |   |                     |  |                                |        |  |   |        |  
|Other permanent difference           |  |                                  | 51,036   |                    |   | 25,061               |  |                                | 33,626  |  |   | (10,821 | )
|                                     |  |                                  |          |                    |   |                      |  |                                |         |  |   |         |  
|Provision for income taxes           |  | $                                | 452,550  |                    | $ | 123,423              |  | $                              | 647,445 |  | $ | 294,747 |  
|                                     |  |                                  |          |                    |   |                      |  |                                |         |  |   |         |  

The tax
effects of temporary differences that give rise to significant portions of
deferred tax assets and deferred tax liabilities at August 31, 2005 and 2004
are as follows:

47

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|                                        |  |   |            |   |      |         |  
|--------------------------------------- |  | - | ---------- | - | ---- | ------- | -
|Deferred Tax Assets/(Liabilities)       |  |   | 2005       |   | 2004 |        
|                                        |  |   |            |   |      |        
|Differences between book and tax basis: |  |   |            |   |      |         |  
|Deferred tax assets:                    |  |   |            |   |      |         |  
|Trade receivables                       |  | $ | 249,595    |   | $    | 90,074  |  
|Inventories                             |  |   | 358,996    |   |      | 36,548  |  
|Accrued liabilities                     |  |   | 80,726     |   |      | 45,609  |  
|Goodwill                                |  |   | 74,998     |   |      |        |  
|Property and equipment                  |  |   | 44,113     |   |      |        |  
|Accrued Liabilities                     |  |   | 372,939    |   |      | 189,551 |  
|                                        |  |   |            |   |      |         |  
|                                        |  | $ | 1,181,367  |   | $    | 411,784 |  
|                                        |  |   |            |   |      |         |  
|Deferred tax liabilities:               |  |   |            |   |      |         |  
|Customer Relationships                  |  | $ | (3,330,347 | ) | $    |        |  
|Property and equipment                  |  |   |           |   |      | (35,208 | )
|Deferred revenue                        |  |   | (85,785    | ) |      |        |  
|                                        |  |   |            |   |      |         |  
|                                        |  | $ | (3,416,134 | ) | $    | (35,208 | )
|                                        |  |   |            |   |      |         |  
|Net Deferred tax (liability) asset      |  | $ | (2,234,765 | ) | $    | 376,576 |  
|                                        |  |   |            |   |      |         |  

9. Retirement Plan

The Company
maintains a defined contribution 401(k) pension plan. Contributions are based
on up to 1% of each covered employees salary and totaled $50,448, $13,317,
19,333, and $22,989 for the periods ending August 31, 2005, August 31, 2004,
April 16, 2004 and August 31, 2003, respectively. The expense is included in
selling, general and administrative expenses in the consolidated statement of operations.

The Company
sponsors a 401(k) plan for all employees who are at least 20 years of age with
at least 6 months of service. Eligible employees may contribute 2% to 15% of
their annual compensation to the plan. The Company matches 25% of the first 6%
of employee plan contributions and could contribute additional amounts at its
discretion. Participants are vested 20% for each year of service and are fully
vested after 5 years. The Company adopted the provisions of this plan in
conjunction with the August 5, 2005 merger. There were contributions to this
plan during the period ended August 31, 2005.

10. Stock Option Plan

The Companys
1996 Stock Option Plan (amended in 1999) (the Plan) authorizes the granting of
stock options to directors and eligible employees. The Company has reserved
1,000,000 shares of its common stock for issuance under the Plan at prices not
less than 100% of the fair value of the Companys common stock on the date of
grant over a 4 year period (110% in the case of shareholders owning more than
10% of the Companys common stock). Options under the plan typically terminate
after 5 years and vest over a four year period. Options were issued by Old
Emtec and no other options were issued by the Company. Options outstanding and
exercisable at August 31, 2005 total 92,453 and their estimated weighted
average value is $1.22.

48

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11. Equity

In connection
with the August 5, 2005 merger, the 500 aggregate shares of outstanding Darr
class A and B common stock were exchanged for 9,528,110 shares of the Companys
common stock. The accompanying consolidated financial statements reflect the
retroactive effects of the recapitalization.

Concurrent
with the purchase of Westwood, Darr authorized 5,000 shares and issued 1,000
shares of series A redeemable preferred stock for $1,000,000. Series A
redeemable preferred stock was senior to all securities outstanding. The
holders of series A redeemable preferred stock were entitled to dividends at a
rate of 8% per annum. Dividends were cumulative and were due and payable after
April 2008. The series A redeemable preferred stock had no voting rights and
was redeemable at the option of the Company commencing April 17, 2009 at 100%
of its liquidation value. The liquidation value of series A redeemable preferred
stock was equal to $1,000 plus accumulated but unpaid dividends. The
outstanding shares of series A redeemable preferred stock were exchanged for
notes payable in connection with the August 5, 2005 acquisition, total notes
payable issued was $1,102,794, which represented the carrying value of
preferred stock on that date.

12. Supplemental Cash Flow Information

Cash paid for
interest and income taxes for the periods ended August 31, 2005, August 31,
2004, April 16, 2004, and August 31, 2003 were as follows:

| |              |  |                                          | 
| | ------------ |  | ---------------------------------------- | 
| | Interest     |  | $355,474;
  $52,500; $28,000; $42,324    | 
| |              |  |                                          | 
| | Income Taxes |  | $417,056;
  $433,000; $345,000; $318,800 | 

Supplemental
noncash investing and financing activities for the periods ended August 31,
2005, August 31, 2004, April 16, 2004 and August 31, 2003 were as follows:

Capital contribution:
The deferred compensation arrangement between the Company and former
stockholder of Westwood was forfeited without recompense. In connection with
this forfeiture, the Company recorded a contribution to capital of $1,507,181,
net of income tax effect $603,370, during the period ended April 16, 2004.

Notes Receivable Distributed:
Note receivable distributed to the former stockholders in the amount of
$399,587 during the period ended April 16, 2004.

Issuance of long-term debt:
Issuance of long-term debt with a face value of $1,102,794 at an 8% annual rate
to former preferred stockholders in full redemption of preferred stock
previously issued by Darr during the period ended August 31, 2005. Issuance of
$664,567 of notes payable to former stockholders during the period ended August
31, 2004, in connection with the April 16, 2004 acquisition of Westwood.

13. Related Party Transactions

During the
period ended April 16, 2004, the Company held a note receivable from a company
controlled by former stockholders of Westwood which was repaid through periodic
payments.

49

---



The note
receivable was distributed to the former stockholders of Westwood through a
dividend on April 16, 2004. Interest income recorded on this note for the
period ended April 16, 2004 totaled $21,483.

Beginning
April 17, 2004, the Company is charged a monthly management fee of $29,166 by
Darr Global Holdings, Inc. Darr Global Holdings, Inc is a management consulting
company 100% owned by the majority stockholder of Darr Westwood LLC. For the
periods ended August 31, 2005, and August 31, 2004, the Company recorded
$350,000 and $116,664, respectively for this management fee in the accompanying
consolidated statements of operations. At August 31, 2005, and August 31, 2004
$133,333 and $33,333 of the fee is included in accounts payable  related
party.

One of the
Companys facilities is leased under a non-cancelable operating lease agreement
with an entity that is owned by officers of Westwood. Rent expense recorded for
the period ended August 31, 2005, August 31, 2004, April 16, 2004 and August
31, 2003 totaled $180,000, $60,000, $155,333 and $38,833, respectively.

The Company is
occupying approximately 21,000 square feet of office and warehouse space out of
a total of approximately 70,000 square feet. This space is leased from GS&T
Properties, LLC, in which officers of the Company are passive investors, owning
approximately 20% equity interest. The lease term is for 5 years with monthly
base rent of $12,500. During the period ended August 31, 2005, the Company
recorded $14,190 in expense under this lease.

14. Accrued Expenses

Accrued
expenses consisted of the following at August 31:

|                                 |  |      |           |      |   |           | 
|-------------------------------- |  | ---- | --------- | ---- | - | --------- | 
|                                 |  | 2005 |           | 2004 |  
|                                 |  |      |           |      |  
|                                 |  |      |           |      |  
|Accrued payroll                  |  | $    | 1,042,864 |      | $ | 263,952   | 
|Accrued commissions              |  |      | 511,858   |      |   | 334,551   | 
|Accrued state sales taxes        |  |      | 579,056   |      |   |          | 
|Accrued third party service fees |  |      | 627,526   |      |   |          | 
|Industrial funding fee           |  |      | 216,126   |      |   |          | 
|Other accrued expenses           |  |      | 1,213,298 |      |   | 423,491   | 
|                                 |  |      |           |      |   |           | 
|                                 |  | $    | 4,190,728 |      | $ | 1,021,994 | 
|                                 |  |      |           |      |   |           | 

50

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15. Quarterly Financial Information 
(Unaudited)

|                               |  |                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |             | 
|------------------------------ |  | ---------------------------- | ---------- | ---------------- | - | ---------------- |  | ----------------- | ---------- | -------------- | - | ---------- |  | - | ----------- | 
|                               |  | Period ended August 31, 2005 |           
|                               |  |                              |           
|                               |  | First 
  Quarter             |            | Second
  Quarter |   | Third 
  Quarter |  | Fourth 
  Quarter |            | Fiscal 
  2005 |  
|                               |  |                              |            |                  |   |                  |  |                   |            |                |  
|                               |  |                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |             | 
|Revenue                        |  | $                            | 45,528,612 |                  | $ | 44,821,474       |  | $                 | 29,886,006 |                | $ | 42,395,951 |  | $ | 162,632,042 | 
|                               |  |                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |             | 
|Gross Profit                   |  | $                            | 3,753,505  |                  | $ | 3,376,432        |  | $                 | 3,069,503  |                | $ | 3,845,160  |  | $ | 14,44,600   | 
|                               |  |                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |             | 
|Net Income
  (Loss)            |  | $                            | 472,111    |                  | $ | 225,824          |  | $                 | 62,726     |                | $ | 66,324     |  | $ | 826,985     | 
|                               |  |                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |             | 
|Net Income
  (Loss) per share: |  |                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |             | 
|Basic and Diluted              |  | $                            | 0.05       |                  | $ | 0.02             |  | $                 | 0.01       |                |   | 0.01       |  | $ | 0.08        | 

|                                  |  |                                                                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |            | 
|--------------------------------- |  | ---------------------------------------------------------------------------- | ---------- | ---------------- | - | ---------------- |  | ----------------- | ---------- | -------------- | - | ---------- |  | - | ---------- | 
|                                  |  | Predecessor and Successor periods ended April 16, 2004 and
  August 31, 2004 |           
|                                  |  |                                                                              |           
|                                  |  | First 
  Quarter                                                             |            | Second
  Quarter |   | Third 
  Quarter |  | Fourth 
  Quarter |            | Fiscal 
  2004 |  
|                                  |  |                                                                              |            |                  |   |                  |  |                   |            |                |  
|                                  |  |                                                                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |            | 
|Revenues -
  Predecessor          |  | $                                                                            | 54,525,132 |                  | $ | 21,989,226       |  | $                 | 11,715,361 |                | $ |           |  | $ | 88,229,719 | 
|Revenues -
  Successor            |  | $                                                                            |           |                  | $ |                 |  | $                 | 12,313,070 |                | $ | 29,328,534 |  | $ | 41,641,604 | 
|                                  |  |                                                                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |            | 
|Gross Profit
  - Predecessor      |  | $                                                                            | 4,834,128  |                  | $ | 2,619,462        |  | $                 | 1,179,761  |                | $ |           |  | $ | 8,633,351  | 
|Gross
  Profit- Successor         |  | $                                                                            |           |                  | $ |                 |  | $                 | 1,389,473  |                | $ | 2,634,271  |  | $ | 4,023,744  | 
|                                  |  |                                                                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |            | 
|Net Income
  (Loss) - Predecessor |  | $                                                                            | 683,152    |                  | $ | 46,507           |  | $                 | 156,178    |                | $ |           |  | $ | 885,837    | 
|Net Income
  (Loss) - Successor   |  | $                                                                            |           |                  | $ |                 |  | $                 | 44,606     |                | $ | 77,675     |  | $ | 122,281    | 
|                                  |  |                                                                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |            | 
|Combined net
  income             |  | $                                                                            | 683,152    |                  | $ | 46,507           |  | $                 | 200,784    |                | $ | 77,675     |  | $ | 1,008,118  | 
|                                  |  |                                                                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |            | 
|Net
  Income(Loss) per share:     |  |                                                                              |            |                  |   |                  |  |                   |            |                |   |            |  |   |            | 
|Basic and Diluted                 |  | $                                                                            | 0.07       |                  | $ | 0.00             |  | $                 | 0.02       |                |   | 0.01       |  | $ | 0.11       | 

Earnings
per share for the third quarter ended May 31, 2004 is calculated based on the
combined net income from the predessor and successor periods for the quarter.

51

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16. Accounts Receivable and Inventory Allowances

The following
table provides information regarding accounts receivable and inventory
valuation allowance activity for the periods ending August 31, 2005, August 31,
2004, April 16, 2004 and August 31, 2003:

|                                |  |                         |         |                        |   |         | 
|------------------------------- |  | ----------------------- | ------- | ---------------------- | - | ------- | 
|                                |  | Receivable 
  Allowance |         | Inventory 
  Allowance |  
|                                |  |                         |         |                        |  
|                                |  |                         |         |                        |   |         | 
|Balance,
  September 1, 2002    |  | $                       | 180,000 |                        | $ |        | 
|                                |  |                         |         |                        |   |         | 
|Charged to
  costs and expenses |  |                         | 20,000  |                        |   |        | 
|Write-offs                      |  |                         |        |                        |   |        | 
|                                |  |                         |         |                        |   |         | 
|                                |  |                         |         |                        |   |         | 
|Balance,
  August 31, 2003      |  | $                       | 200,000 |                        |   |        | 
|                                |  |                         |         |                        |   |         | 
|Charged to
  costs and expenses |  |                         | 25,000  |                        |   | 120,000 | 
|Write-offs                      |  |                         |        |                        |   |        | 
|                                |  |                         |         |                        |   |         | 
|                                |  |                         |         |                        |   |         | 
|Balance,
  April 16, 2004       |  | $                       | 225,000 |                        | $ | 120,000 | 
|Charged to
  costs and expenses |  |                         |        |                        |   |        | 
|Write-offs                      |  |                         |        |                        |   |        | 
|                                |  |                         |         |                        |   |         | 
|                                |  |                         |         |                        |   |         | 
|Balance,
  August 31, 2004      |  | $                       | 225,000 |                        | $ | 120,000 | 
|Charged to
  costs and expenses |  |                         |        |                        |   | 180,138 | 
|Write-offs                      |  |                         |        |                        |   |        | 
|                                |  |                         |         |                        |   |         | 
|Balance,
  August 31, 2005      |  | $                       | 225,000 |                        | $ | 300,138 | 
|                                |  |                         |         |                        |   |         | 

17. Subsequent Event

Pursuant to
the August 5, 2005 merger agreement, the Company initiated a self tender offer
on September 7, 2005 to repurchase up to 2,864,584 shares of its then issued and
outstanding common stock having an aggregate purchase price of up to $5.5
million at a price of $1.92 per share. The tender offer closed on October 4,
2005. In the tender offer 4,984,185 shares were properly tendered and not
withdrawn. Because the number of shares of common stock tendered exceeded the
number of shares that the Company offered to purchase 57.473 percent of the
shares that were tendered were repurchased by the Company. The Company funded
the payment for the 2,864,584 shares of common stock validly tendered and
accepted under the tender offer from borrowings of $5.5 million under its
revolving credit facility made prior to August 31, 2005.

52

---



SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

|       |              |             |                                        | 
|------ | ------------ | ----------- | -------------------------------------- | 
|Dated: | July 7, 2006 |             |                                        | 
|      
|       |              | EMTEC, INC. |                                       
|       |              |             |                                        | 
|       |              | By:         | /s/ Dinesh
  R. Desai                  | 
|       |              |             |                                        | 
|       |              |             | Dinesh R.
  Desai                     
|       |              |             | Chairman and
  Chief Executive Officer



53

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