**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC20549**

**FORM 10-QSB/A**

| **(Mark One)** |
|----------------|
| **x**          |   | **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **     |   | ** ** |
| ** **     |   | **For the quarterly period ended March 31, 2007.** |
| ** **     |   | ** ** |
| **o**          |   | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF  THE EXCHANGE ACT** |
| ** **     |   | ** ** |
| ** **     |   | **For the transition period  from                    to                    ** |

 

**Commission file number****0-12551**

**ASPYRA,INC.**

(Exact name of small business issuer as specified in itscharter)

| **California**                   |   | **95-3353465**       |
|----------------------------------|--------|----------------------|
| (State  or other jurisdiction of |   | (I.R.S. Employer     |
| incorporation  or organization)  |   | Identification  No.) |

 

**26115-A Mureau Road,Calabasas, California 91302**

(Address of principal executive offices)

**(818) 880-6700**

(Issuer’s telephone number, including area code)

Check whether the Issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

**Yes   **x       No   o

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

**Yes   **o*         *No   x

State the number of shares outstanding of each ofthe issuer’s classes of common equity, as of the latest practicable date:  10,787,150 common shares as of August 17,2007.

Transitional Small Business Disclosure Format (check one):

**Yes   **o*         *No   x

 

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**Explanatory Note**

This amended QuarterlyReport on Form 10-QSB/A for the quarter ended March 31, 2007 is being filed byAspyra, Inc. (the “Company”) for the purposes of correcting informationcontained in the Financial Statements, Management’s Discussion and Analysis orPlan of Operation, and certain other portions of the Company’s Quarterly Reporton Form 10-QSB for the quarter ended March 31, 2007 originally filed by theCompany on May 21, 2007. The corrections pertain to: the accounting forthe Company’s deferred service revenue and auditing expenses; the disclosuresin certain notes to the condensed financial statements; and management’sdiscussion and analysis of certain risk factors, revenues, expenses andliquidity.   Our unaudited financialstatements for the three months ended March 31, 2007 have been restated tocorrect an inadvertent error in recording deferred service revenues and theaccrual of accounting fees for services performed during the quarter endedMarch 31, 2007.  The error resulted in anoverstatement of revenues, an understatement of selling, general andadministrative expenses, an understatement of liabilities, and anunderstatement of net loss and basic and diluted loss per share.

Except as required toreflect the effects of the restatement noted above, no attempt has been made inthis Form 10-QSB/A to modify or update other disclosures presented in theoriginal report on Form 10-QSB. Accordingly, this Form 10-QSB/A, including thefinancial statements and notes thereto included herein, generally do notreflect events occurring after the date of the original filing of the Form10-QSB or modify or update those disclosures affected by subsequent events.Consequently, all other information not affected by the restatement describedabove is unchanged and reflects the disclosures made at the time of theoriginal filing of the Form 10-QSB on May 21, 2007. For a description ofsubsequent events, this Form 10-QSB/A should be read in conjunction with ourfilings made subsequent to the filing of the original Form 10-QSB, includingour Current Reports on Form 8-K filed since May 21, 2007.

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**ASPYRA, INC.**

**FORM10-QSB**

**I N D E X**
| **PART I - Financial  Information:** |       |
|--------------------------------------|------------|
| ** **                           | ** ** | ** ** | ** ** |
| **Item 1.**                          | ** ** | **Financial  Statements (unaudited)** |   |
| ** **                           | ** ** | ** ** | ** ** |
|                                 |       | Condensed  Consolidated Balance Sheets, at March 31, 2007 |   |
|                                 |       |   |   |
|                                 |       | Condensed  Consolidated Statements of Operations for the three months ended March 31,  2007 and March 31, 2006 |   |
|                                 |       |   |   |
|                                 |       | Condensed Consolidated Statements of Cash Flows for  the three months ended March 31, 2007 and March 31, 2006 |   |
|                                 |       |   |   |
|                                 |       | Notes to Condensed Consolidated Financial Statements |   |
|                                 |       |   |   |
| **Item 2.**                          | ** ** | **Management’s  Discussion and Analysis or Plan of Operation** |   |
| ** **                           | ** ** | ** ** | ** ** |
| **Item 3.**                          | ** ** | **Controls and  Procedures** |   |
| ** **                           | ** ** | ** ** | ** ** |
| **PART II - Other  Information:**    |       |
|                                 |       |   |   |
| **Item 6.**                          | ** ** | **Exhibits** |   |
| ** **                           | ** ** | ** ** | ** ** |
| **Signatures**                       |       |
| ** **                           |       |   |   |
| **Exhibit  Index**                   |       |
|                                      |            |  |  |  |  |  |  |

 

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**ASPYRA, INC.**

**PART I - FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**
| ** **                                                                                           | ** ** | **March 31,  2007 **     | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                           | ** ** | **(Unaudited and  Restated)** | ** ** |
| **ASSETS**                                                                                           | ** ** | ** **                         | ** ** |
| CURRENT ASSETS:                                                                                      |       |                               |       |
| Cash                                                                                                 |       | $                                  | 1,466,352  |   |
| Receivables, net                                                                                     |       | 1,190,398                          |       |
| Inventory                                                                                            |       | 166,871                            |       |
| Prepaid expenses and other assets                                                                    |       | 159,238                            |       |
| TOTAL CURRENT  ASSETS                                                                                |       | 2,982,859                          |       |
|                                                                                                 |       |                               |       |
| PROPERTY AND  EQUIPMENT, net                                                                         |       | 1,080,961                          |       |
| OTHER ASSETS                                                                                         |       | 86,465                             |       |
| INVENTORY OF  COMPONENT PARTS                                                                        |       | 110,053                            |       |
| CAPITALIZED  SOFTWARE COSTS, net of accumulated amortization of $977,270                        |       | 2,615,253                          |       |
| INTANGIBLES, net                                                                                     |       | 4,277,357                          |       |
| GOODWILL                                                                                             |       | 7,268,434                          |       |
|                                                                                                 |       | $                                  | 18,421,382 |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                       | ** ** | ** **                         | ** ** |
| CURRENT  LIABILITIES:                                                                                |       |                               |       |
| Notes payable                                                                                        |       | $                                  | 1,426,477  |   |
| Accounts payable                                                                                     |       | 860,770                            |       |
| Accrued liabilities:                                                                                 |       |                               |       |
| Vacation pay                                                                                         |       | 380,624                            |       |
| Accrued payroll                                                                                      |       | 179,138                            |       |
| Accrued interest                                                                                     |       | 99,209                             |       |
| Deferred rent                                                                                        |       | 65,269                             |       |
| Customer deposits                                                                                    |       | 159,230                            |       |
| Other                                                                                                |       | 399,544                            |       |
| Deferred service contract income                                                                     |       | 1,969,104                          |       |
| Deferred revenue on system sales                                                                     |       | 741,095                            |       |
| Capital lease — current portion                                                                 |       | 150,237                            |       |
| TOTAL CURRENT  LIABILITIES                                                                           |       | 6,430,697                          |       |
|                                                                                                 |       |                               |       |
| CAPITAL LEASE,  LESS CURRENT PORTION                                                                 |       | 460,962                            |       |
|                                                                                                 |       |                               |       |
| TOTAL  LIABILITIES                                                                                   |       | 6,891,659                          |       |
|                                                                                                 |       |                               |       |
| SHAREHOLDERS’  EQUITY:                                                                          |       |                               |       |
| Common shares, no par value; 20,000,000 shares  authorized; 10,787,150 shares issued and outstanding |       | 21,046,951                         |       |
| Additional paid-in-capital                                                                           |       | 205,751                            |       |
| Accumulated deficit                                                                                  |       | (9,675,837                         | )          |
| Accumulated other comprehensive loss                                                                 |       | (47,142                            | )          |
| TOTAL  SHAREHOLDERS’ EQUITY                                                                     |       | 11,529,723                         |       |
|                                                                                                 |       |                               |       |
|                                                                                                 |       | $                                  | 18,421,382 |   |

 

**See Notesto Condensed Consolidated Financial Statements.**

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**ASPYRA, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**
| ** **                                      | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | **(Restated)**                                       | ** ** | ** ** | ** ** |
| NET SYSTEM SALES AND  SERVICE REVENUE:          |       |                                                 |       |   |   |
| System sales                                    |       | $                                                    | 571,399    |   | $ | 971,842 |   |
| Service revenue                                 |       | 1,630,569                                            |       | 1,730,233 |   |
|                                            |       | 2,201,968                                            |       | 2,702,075 |   |
|                                            |       |                                                 |       |   |   |
| COSTS OF PRODUCTS AND  SERVICES SOLD:           |       |                                                 |       |   |   |
| System sales                                    |       | 536,525                                              |       | 788,459 |   |
| Service revenue                                 |       | 763,043                                              |       | 758,335 |   |
|                                            |       | 1,299,568                                            |       | 1,546,794 |   |
|                                            |       |                                                 |       |   |   |
| Gross profit                                    |       | 902,400                                              |       | 1,155,281 |   |
|                                            |       |                                                 |       |   |   |
| OPERATING EXPENSES                              |       |                                                 |       |   |   |
| Selling, general  and administrative            |       | 1,620,233                                            |       | 1,952,856 |   |
|                                            |       |                                                 |       |   |   |
| Research and  development                       |       | 566,856                                              |       | 488,468 |   |
|                                            |       |                                                 |       |   |   |
| Total operating  expenses                       |       | 2,187,089                                            |       | 2,441,324 |   |
|                                            |       |                                                 |       |   |   |
| Operating loss                                  |       | (1,284,689                                           | )          | (1,286,043 | ) |
|                                            |       |                                                 |       |   |   |
| INTEREST AND OTHER  INCOME                      |       | 17,321                                               |       | 4,739 |   |
|                                            |       |                                                 |       |   |   |
| INTEREST EXPENSE                                |       | (48,492                                              | )          | (32,414 | ) |
|                                            |       |                                                 |       |   |   |
| Loss before  provision for income taxes         |       | (1,315,860                                           | )          | (1,313,718 | ) |
|                                            |       |                                                 |       |   |   |
| PROVISION FOR INCOME  TAXES                     |       | 603                                                  |       | — |   |
|                                            |       |                                                 |       |   |   |
| NET LOSS                                        |       | $                                                    | (1,315,257 | ) | $ | (1,313,718 | ) |
|                                            |       |                                                 |       |   |   |
| LOSS PER SHARE:                                 |       |                                                 |       |   |   |
|                                            |       |                                                 |       |   |   |
| Basic                                           |       | $                                                    | (.12       | ) | $ | (.15 | ) |
| Diluted                                         |       | (.12                                                 | )          | (.15 | ) |
|                                            |       |                                                 |       |   |   |
| WEIGHTED AVERAGE NUMBER  OF SHARES OUTSTANDING: |       |                                                 |       |   |   |
| Basic                                           |       | 10,784,483                                           |       | 8,489,400 |   |
| Diluted                                         |       | 10,784,483                                           |       | 8,489,400 |   |

 

**See Notesto Condensed Consolidated Financial Statements.**

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**ASPYRA, INC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**Increase(Decrease) in Cash**

**(unaudited)**
| ** **                                                                                 | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                                                                 | ** ** | **(Restated)**                                       | ** ** | ** ** | ** ** |
| OPERATING ACTIVITIES                                                                       |       |                                                 |       |   |   |
| Net loss                                                                                   |       | $                                                    | (1,315,257 | ) | $ | (1,313,718 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |       |                                                 |       |   |   |
| Depreciation and  amortization                                                             |       | 283,210                                              |       | 209,014 |   |
| Provision for  doubtful accounts                                                           |       | —                                               |       | 17,019 |   |
| Amortization of  capitalized software costs                                                |       | 102,105                                              |       | 74,636 |   |
| Stock based  compensation                                                                  |       | 45,179                                               |       | 114,553 |   |
| Increase  (decrease) from changes in:                                                      |       |                                                 |       |   |   |
| Receivables                                                                                |       | 143,755                                              |       | (559,401 | ) |
| Inventories                                                                                |       | (40,514                                              | )          | (38,108 | ) |
| Prepaid expenses  and other assets                                                         |       | 88,644                                               |       | 248,515 |   |
| Accounts payable                                                                           |       | (26,247                                              | )          | (216,362 | ) |
| Accrued  liabilities                                                                       |       | 32,295                                               |       | (122,754 | ) |
| Deferred service  contract income                                                          |       | 460,062                                              |       | 769,451 |   |
| Deferred revenue  on system sales                                                          |       | (36,705                                              | )          | 594,270 |   |
| Net cash used in  operating activities                                                     |       | (263,473                                             | )          | (222,885 | ) |
|                                                                                       |       |                                                 |       |   |   |
| INVESTING ACTIVITIES                                                                       |       |                                                 |       |   |   |
| Additions to  property and equipment                                                       |       | (20,424                                              | )          | (113,068 | ) |
| Additions to  capitalized software costs                                                   |       | (230,051                                             | )          | (267,219 | ) |
| Net cash used in  investing activities                                                     |       | (250,475                                             | )          | (380,287 | ) |
|                                                                                       |       |                                                 |       |   |   |
| FINANCING ACTIVITIES                                                                       |       |                                                 |       |   |   |
| Borrowings on  line of credit                                                              |       | 1,026,477                                            |       | 300,000 |   |
| Payments on  notes payable                                                                 |       | (1,023,517                                           | )          | (87,445 | ) |
| Payments on  capital leases                                                                |       | (37,560                                              | )          | — |   |
| Decrease in  restricted cash                                                               |       | 1,000,000                                            |       | — |   |
| Buyback of  fractional shares related to merger                                            |       | —                                               |       | (234 | ) |
| Exercise of  stock options                                                                 |       | 2,880                                                |       | — |   |
| Net cash  provided by financing activities                                                 |       | 968,280                                              |       | 212,321 |   |
| ** **                                                                                 | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| Foreign currency  translation adjustment                                                   |       | (2,612                                               | )          | (4,170 | ) |
| ** **                                                                                 | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| NET INCREASE (DECREASE)  IN CASH                                                           |       | 451,720                                              |       | (395,021 | ) |
| ** **                                                                                 | ** ** | ** **                                           | ** ** | ** ** | ** ** |
| CASH, beginning of  period                                                            |       | 1,014,632                                            |       | 1,329,753 |   |
|                                                                                       |       |                                                 |       |   |   |
| CASH, end of period                                                                        |       | $                                                    | 1,466,352  |   | $ | 934,732 |   |

 

**Seenotes to Condensed Consolidated Financial Statements.**

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**ASPYRA, INC.**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

**Note1-Presentation of Financial Statements**

In the opinion of management of Aspyra, Inc. (the “Company”or “ASPYRA”), the accompanying unaudited condensed consolidated financialstatements reflect all adjustments (which include only normal recurring accruals)necessary to present fairly the Company’s financial position as of March 31,2007, the results of its operations for the three months ended March 31, 2007and 2006, and cash flows for the three months ended March 31, 2007 and2006.  These results have been determinedon the basis of accounting principles generally accepted in the United Statesand practices applied consistently with those used in preparation of theCompany’s Annual Report on Form 10-KSB for the fiscal year ended December 31,2006.

The results of operations for the three months ended March31, 2007 are not necessarily indicative of the results expected for any otherperiod or for the entire year.

**Note 2-Liquidity**

As of March 31, 2007, the Company’s working capital amountedto a deficit of $3,447,838 compared to a deficit of $2,256,352, as of December31, 2006.  At March 31, 2007, theCompany’s credit facilities with its bank consisted of a revolving line ofcredit of $1,300,000, of which $1,026,477 was outstanding. On February 27, 2007,the Company entered into a new banking relationship whereby the bank provided arevolving line of credit in the aggregate amount of $1,300,000.  The revolving line of credit is secured bythe Company’s accounts receivable and inventory and matures on February 27,2008.  The revolving line of credit issubject to certain covenants.  As ofMarch 31, 2007, the Company is in compliance with the covenants.  Advances under the revolving line of creditare on a formula based on eligible accounts receivable and inventorybalances.  At March 31, 2007, the Companyhad $611,199 outstanding on its capital leases of which $150,237 is due in thenext twelve months.  Management isconsidering additional financing to accelerate its business development planswhich in turn may improve its working capital position.

The Company’s primary source of working capital has beengenerated from private placements of securities and from borrowings. TheCompany’s results of operations for the three months ended March 31, 2007produced negative operating cash flow of $263,473.  An unanticipated decline in sales, delays inimplementations where payments are tied to delivery and/or performance ofservices, or cancellations of contracts could have a negative effect on cashflow from operations and could in turn create short-term liquidity problems. Webelieve that our current cash and cash equivalents, and cash flow fromoperations, will be sufficient to meet our current anticipated cash needs,including for working capital purposes, capital expenditures and variouscontractual obligations, for at least the next 12 months. We may, however,require additional cash resources due to changed business conditions or otherfuture developments, including any investments or acquisitions we may decideto pursue. If these sources are insufficient to satisfy our cash requirements,we may seek to sell debt securities or additional equity securities or toobtain a credit facility. The sale of convertible debt securities or additionalequity securities could result in additional dilution to our stockholders. Theincurrence of indebtedness would result in incurring debt service obligationsand could result in operating and financial covenants that would restrict ouroperations. In addition, there can be no assurance that any additionalfinancing will be available on acceptable terms, if at all. Although there areno present understandings, commitments or agreements with respect to theacquisition of any other businesses, applications or technologies, we may, fromtime to time, evaluate acquisitions of other businesses, applications ortechnologies.

**Note3-Inventories**

Inventories consist primarily of computer hardwareheld for resale and are stated at the lower of cost or market (net realizablevalue).  Cost is determined using thefirst-in, first-out method. Supplies are charged to expense as incurred.  The Company also maintains an inventory poolof component parts to service systems previously sold, which is classified asnon-current in the accompanying balance sheets. Such inventory is carried at the lower of cost or market and is chargedto cost of sales based on usage. Allowances are made for quantities on hand in excess of estimated futureusage.  At March 31, 2007, the inventoryallowance was $130,504.

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**Note4-Goodwill and Intangible Assets**

In accordance withStatement of Financial Accounting Standards (“SFAS”) No. 142, goodwill istested for impairment on an annual basis or between annual tests if an eventoccurs or circumstances change that would indicate the carrying amount may beimpaired.  In accordance with SFAS No.144, Accounting for Impairment of Long-Lived Assets, management reviewsdefinite life intangible assets to determine if events or circumstances haveoccurred which may cause the carrying values of intangible assets to beimpaired. The purpose of these reviews is to identify any facts andcircumstances, either internal or external, which may indicate that thecarrying values of the assets may not be recoverable.  There was no impairment when the Company didits annual impairment testing and no events have occurred since that time thatwould trigger a reevaluation.  At March31, 2007, the net carrying value of goodwill and intangible assets were $7,268,434and $4,277,357, respectively.

**Note5-Earnings per Share**

The Company accounts forits earnings per share in accordance with SFAS No.128, which requirespresentation of basic and diluted earnings per share.  Basic earnings per share is computed bydividing income or loss available to common shareholders by the weightedaverage number of common shares outstanding for the reporting period.  Diluted earnings per share reflect thepotential dilution that could occur if securities or other contracts, such as stockoptions, to issue common stock were exercised or converted into common stock.

Earnings per share havebeen computed as follows:
|                                                                                         | ** ** | **Three Months  Ended  March 31, 2007** | ** ** | **Three Months  Ended  March 31, 2006** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
|                                                                                    |       |                                                   |       |                                                   |       |
| NET LOSS, as reported                                                                   |       | $                                                      | (936,591   | )                                                      | $          | (1,313,718 | ) |
| Adjustments(1)                                                                          |       | (378,666                                               | )          | —                                                 |       |
| NET LOSS, as restated                                                                   |       | (1,315,257                                             | )          | (1,313,718                                             | )          |
| Basic weighted average  number of common shares outstanding, as reported and restated   |       | 10,784,483                                             |       | 8,489,400                                              |       |
| Dilutive effect of  stock options, as reported and restated                             |       | —                                                 |       | —                                                 |       |
| Diluted weighted  average number of common shares outstanding, as reported and restated |       | 10,784,483                                             |       | 8,489,400                                              |       |
| Basic and diluted loss  per share, as reported                                          |       | $                                                      | (.09       | )                                                      | $          | (.15 | ) |
| Adjustment to loss per  share                                                           |       | (.03                                                   | )          | —                                                 |       |
| Basic and diluted loss per share, as restated                                           |       | $                                                      | (.12       | )                                                      | $          | (.15 | ) |

 

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| (1) | The adjustment is the result of an inadvertent error  related to $278,666 adjustment in revenue,and $100,000 adjustment in  accounting expense for a total of $378,666. See Note 11. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

For the three monthsended March 31, 2007, options to purchase 575,433 shares of common stock at pershare prices ranging from $1.51 to $2.75 were not included in the computationof diluted loss per share because inclusion would have been anti-dilutive. Forthe three months ended March 31, 2006, options to purchase 521,670 shares ofcommon stock at per share prices ranging from $.72 to $2.75 were not includedin the computation of diluted loss per share because inclusion would have beenanti-dilutive.

**Note6-Debt Obligations**

On February 27, 2007, theCompany entered into a new banking relationship whereby the bank provided arevolving line of credit in the aggregate amount of $1,300,000.  The revolving line of credit is secured bythe Company’s accounts receivable and inventory and matures on February 27,2008.  The revolving line of credit issubject to certain covenants.  At March31, 2007, the Company was in compliance with the covenants.  Advances under the 

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revolving line of creditare on a formula based on eligible accounts receivable and inventorybalances.  The Company used the initialadvance on the revolving line of credit to pay in full a previous note fromanother bank that was secured by a $1,000,000 certificate of deposit as carriedon the December 31, 2006 balance sheet under restricted cash.  The pay off released the certificate ofdeposit previously held by the former bank. On March 31, 2007, the total amount due to the bank was $1,026,477.

The Company acquired anote in conjunction with the merger with Aspyra Diagnostic Solutions, Inc.(formerly StorCOMM, Inc.), with an interest rate of 7% with payments in theamount of $25,000 due monthly.  As ofMarch 31, 2007, the total amount due on this note was $225,922.  The Company also acquired unsecured notes inconjunction with the merger with interest rates ranging from 7% to 8%.  These notes are due upon demand and thebalance outstanding at March 31, 2007 was $174,078.

**Note7-Stock-Based Compensation**

EquityIncentive and Stock Option Plans: At March 31, 2007, the Company has twostock-based compensation plans. Readers should refer to both Item 6, Note 1 andNote 8 of the Company’s financial statements, which are included in the Company’sAnnual Report on Form 10-KSB for the year ended December 31, 2006, foradditional information related to these stock-based compensation plans. There were no options granted in theperiods ending March 31, 2007 and 2006. There was 4,000 option exercised in the period ending March 31, 2007 byone option holder and the Company received $2,880.  No stock options were exercised in the periodending March 31, 2006.  The Companyaccounts for stock option grants in accordance with FASB Statement 123(R),Share-Based Payment. Compensation costs related to share-based paymentsrecognized in the Condensed Statements of Income were $45,179 and $114,553 forthe periods ended March 31, 2007 and 2006, respectively.

**Note8-Commitments and Contingencies**

In accordance with thebylaws of the Company, officers and directors are indemnified for certainevents or occurrences arising as a result of the officer or director’s servingin such capacity.  The term of theindemnification period is for the lifetime of the officer or director.  The maximum potential amount of futurepayments the Company could be required to make under the indemnificationprovisions of its bylaws is unlimited. However, the Company has a director and officer liability insurancepolicy that reduces its exposure and enables it to recover a portion of anyfuture amounts paid.  As a result of itsinsurance policy coverage, the Company believes the estimated exposure for theindemnification provisions of its bylaws is minimal and, therefore, the Companyhas not recorded any related liabilities.

The Company enters intoindemnification provisions under agreements with various parties in the normalcourse of business, typically with customers and landlords.  Under these provisions, the Company generallyindemnifies and holds harmless the indemnified party for losses suffered orincurred by the indemnified party as a result of the Company’s activities or,in some cases, as a result of the indemnified party’s activities under theagreement.  These indemnificationprovisions often include indemnifications relating to representations made bythe Company with regard to intellectual property rights.  These indemnification provisions generallysurvive termination of the underlying agreement.  The maximum potential amount of futurepayments the Company could be required to make under these indemnificationprovisions cannot be estimated.  TheCompany maintains general liability, errors and omissions, and professionalliability insurance in order to mitigate such risks.  The Company has not incurred material coststo defend lawsuits or settle claims related to these indemnificationagreements.  As a result, the Companybelieves the estimated exposure under these agreements is minimal.  Accordingly, the Company has not recorded anyrelated liabilities.

**Note 9-Income Taxes**

The Company accounts for income taxes in accordancewith SFAS No. 109 “Accounting for Income Taxes,” which requires recognition ofdeferred tax liabilities and assets for the expected future tax consequences ofevents that have been included in the financial statements or tax returns.  Under this method, deferred tax liabilitiesand assets are determined based on the differences between the financialstatements and the tax bases of assets and liabilities using enacted tax ratesin effect for the year in which the differences are expected to reverse.  Valuation allowances are established whennecessary to reduce deferred tax assets to the amount expected to berealized.  Income tax expense representsthe tax payable for the period and the change during the period in deferred taxassets and liabilities.

9

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**Note 10-New Accounting Pronouncements**

In September 2006, the FASBissued SFAS No. 157, Fair Value Measurements. This statement defines fairvalue, establishes a framework for measuring fair value in generally acceptedaccounting principles (“GAAP”), and expands disclosures about fair valuemeasurements. This statement is effective for financial statements issued forfiscal years beginning after November 15, 2007. The Company does notcurrently believe that the adoption of SFAS 157 will have a material impact onthe consolidated financial statements.

In February 2007, the Financial AccountingStandards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities”, which provides companies with anoption to report selected financial assets and liabilities at fair value. Theobjective of SFAS No. 159 is to reduce both complexity in accounting forfinancial instruments and the volatility in earnings caused by measuringrelated assets and liabilities differently. SFAS No. 159 also establishespresentation and disclosure requirements designed to facilitate comparisonsbetween companies that choose different measurement attributes for similartypes of assets and liabilities. SFAS No. 159 is effective for the Companyas of January 1, 2008. We have not completed our evaluation of SFASNo. 159 but do not expect the adoption of SFAS No. 159 to have amaterial effect on our operating results or financial position.

In July 2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes, (“FIN 48”) an interpretationof FASB Statement No. 109, Accounting for Income Taxes. FIN 48requires that a position taken or expected to be taken in a tax return berecognized in the financial statements when it is more likely than not(i.e. a likelihood of more than fifty percent) that the position would besustained upon examination by tax authorities. A recognized tax position isthen measured at the largest amount of benefit that is greater than fiftypercent likely of being realized upon ultimate settlement. Upon adoption, thecumulative effect of applying the recognition and measurement provisions ofFIN 48, if any, shall be reflected as an adjustment to the opening balanceof retained earnings. FIN 48 requires that subsequent to initial adoptiona change in judgment that results in subsequent recognition, derecognition orchange in a measurement of a tax position taken in a prior annual period(including any related interest and penalties) be recognized as a discrete itemin the period in which the change occurs. Currently, we record such changes injudgment, including audit settlements, as a component of the Company’s incometax provision. Thus, the Company’s reported quarterly income tax rate maybecome more volatile upon adoption of FIN 48. This change will not impactthe manner in which we record income tax expense on an annual basis.FIN 48 also requires expanded disclosures including identification of taxpositions for which it is reasonably possible that total amounts ofunrecognized tax benefits will significantly change in the next twelve months,a description of tax years that remain subject to examination by major taxjurisdiction, a tabular reconciliation of the total amount of unrecognized taxbenefits at the beginning and end of each annual reporting period, the totalamount of unrecognized tax benefits that, if recognized, would affect theeffective tax rate and the total amounts of interest and penalties recognizedin the statements of operations and financial position. FIN 48 iseffective for fiscal years beginning after December 15, 2006. The standarddid not have an impact on the Consolidated Financial Statements.

**Note 11- Restatement of FinancialStatements for the Three Months Ended March 31, 2007**

The unaudited consolidated balance sheet as of March 31, 2007, theunaudited consolidated statement of operations for the three months endedMarch 31, 2007 and the unaudited consolidated statement of cash flows forthe three months ended March 31, 2007 have been restated to correct aninadvertent error in recording deferred service revenues and the accrual ofaccounting fees for services performed during the quarter ended March 31, 2007.The error resulted in an overstatement of revenues, an understatement ofselling, general and administrative expenses, an understatement of liabilities,and an understatement of net loss and basic and diluted loss per share.  The condensed notes to the financialstatements for the period ending March 31, 2007 are also restated asrequired to give effect to the correction of this error.

The impact of this restatement has been reflected throughout theunaudited consolidated financial statements and accompanying notes, as follows:

10

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**CONDENSEDCONSOLIDATED BALANCE SHEETS**
| ** **                                                                                            | ** ** | **March 31, 2007  (unaudited)** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                            | ** ** | **Previoustly  Reported**                 | ** ** | **Adjustment** | ** ** | **Restated** | ** ** |
| **ASSETS**                                                                                            | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| CURRENT ASSETS:                                                                                       |       |                                      |       |   |   |   |   |
| Cash                                                                                                  |       | $                                         | 1,466,352  |   |   |   | $ | 1,466,352 |   |
| Receivables, net                                                                                      |       | 1,447,742                                 |       | (257,344 | )(1) | 1,190,398 |   |
| Inventory                                                                                             |       | 166,871                                   |       |   |   | 166,871 |   |
| Prepaid expenses  and other assets                                                                    |       | 159,238                                   |       |   |   | 159,238 |   |
| TOTAL CURRENT ASSETS                                                                                  |       | 3,240,203                                 |       |   |   | 2,982,859 |   |
|                                                                                                  |       |                                      |       |   |   |   |   |
| PROPERTY AND EQUIPMENT,  net                                                                          |       | 1,080,961                                 |       |   |   | 1,080,961 |   |
| OTHER ASSETS                                                                                          |       | 86,465                                    |       |   |   | 86,465 |   |
| INVENTORY OF COMPONENT  PARTS                                                                         |       | 110,053                                   |       |   |   | 110,053 |   |
| CAPITALIZED SOFTWARE  COSTS, net                                                                      |       | 2,615,253                                 |       |   |   | 2,615,253 |   |
| INTANGIBLES, net                                                                                      |       | 4,277,357                                 |       |   |   | 4,277,357 |   |
| GOODWILL                                                                                              |       | 7,268,434                                 |       |   |   | 7,268,434 |   |
|                                                                                                  |       | $                                         | 18,678,726 |   | (257,344 | ) | $ | 18,421,382 |   |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                        | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| CURRENT LIABILITIES:                                                                                  |       |                                      |       |   |   |   |   |
| Notes payable                                                                                         |       | $                                         | 1,426,477  |   |   |   | $ | 1,426,477 |   |
| Accounts payable                                                                                      |       | 860,770                                   |       |   |   | 860,770 |   |
| Accrued  liabilities:                                                                                 |       |                                      |       |   |   |   |   |
| Vacation pay                                                                                          |       | 380,624                                   |       |   |   | 380,624 |   |
| Accrued payroll                                                                                       |       | 179,138                                   |       |   |   | 179,138 |   |
| Accrued interest                                                                                      |       | 99,209                                    |       |   |   | 99,209 |   |
| Deferred rent                                                                                         |       | 65,269                                    |       |   |   | 65,269 |   |
| Customer  deposits                                                                                    |       | 159,230                                   |       |   |   | 159,230 |   |
| Other                                                                                                 |       | 299,544                                   |       | 100,000 | (2) | 399,544 |   |
| Deferred service  contract income                                                                     |       | 1,947,782                                 |       | 21,322 | (1) | 1,969,104 |   |
| Deferred revenue  on system sales                                                                     |       | 741,095                                   |       |   |   | 741,095 |   |
| Capital lease —  current portion                                                                 |       | 150,237                                   |       |   |   | 150,237 |   |
| TOTAL CURRENT  LIABILITIES                                                                            |       | 6,309,375                                 |       | 121,322 |   | 6,430,697 |   |
|                                                                                                  |       |                                      |       |   |   |   |   |
| CAPITAL LEASE, LESS  CURRENT PORTION                                                                  |       | 460,962                                   |       |   |   | 460,962 |   |
|                                                                                                  |       |                                      |       |   |   |   |   |
| TOTAL LIABILITIES                                                                                     |       | 6,770,337                                 |       | 121,322 |   | 6,891,659 |   |
|                                                                                                  |       |                                      |       |   |   |   |   |
| SHAREHOLDERS’ EQUITY:                                                                            |       |                                      |       |   |   |   |   |
| Common shares,  no par value; 20,000,000 shares authorized; 10,787,150 shares issued and  outstanding |       | 21,046,951                                |       |   |   | 21,046,951 |   |
| Additional  paid-in-capital                                                                           |       | 205,751                                   |       |   |   | 205,751 |   |
| Accumulated  deficit                                                                                  |       | (9,297,171                                | )          | (378,666 | )(1)(2) | (9,675,837 | ) |
| Accumulated  other comprehensive loss                                                                 |       | (47,142                                   | )          |   |   | (47,142 | ) |
| TOTAL SHAREHOLDERS’  EQUITY                                                                      |       | 11,908,389                                |       | (378,666 | ) | 11,529,723 |   |
|                                                                                                  |       |                                      |       |   |   |   |   |
|                                                                                                  |       | $                                         | 18,678,726 |   | (257,344 | ) | $ | 18,421,382 |   |

 

----

| (1)    | Adjustment related to correct an inadvertent error  in recording deferred service revenues of which $257,344 was included in  receivables and $21,322 was included in deferred service contract income.  This resulted in an understatement of revenues in the amount of $278,666. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                               |
| (2)    | Adjustment related to the accrual of accounting fees  for services performed during the quarter ended March 31, 2007.                                                                                                                                                              |

 

11

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**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**
| ** **                                      | ** ** | **Three Months Ended March 31, 2007** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                      | ** ** | **(unaudited) **                                          | ** ** |
| ** **                                      | ** ** | **Previoustly  Reported**                                      | ** ** | **Adjustment** | ** ** | **Restated** | ** ** |
| NET SYSTEM SALES  AND SERVICE REVENUE:          |       |                                                           |       |   |   |   |   |
| System sales                                    |       | $                                                              | 571,399    |   |   |   | $ | 571,399 |   |
| Service revenue                                 |       | 1,909,235                                                      |       | (278,666 | )(1) | 1,630,569 |   |
|                                            |       | 2,480,634                                                      |       | (278,666 | ) | 2,201,968 |   |
|                                            |       |                                                           |       |   |   |   |   |
| COSTS OF  PRODUCTS AND SERVICES SOLD:           |       |                                                           |       |   |   |   |   |
| System sales                                    |       | 536,525                                                        |       |   |   | 536,525 |   |
| Service revenue                                 |       | 763,043                                                        |       |   |   | 763,043 |   |
|                                            |       | 1,299,568                                                      |       |   |   | 1,299,568 |   |
|                                            |       |                                                           |       |   |   |   |   |
| Gross profit                                    |       | 1,181,066                                                      |       | (278,666 | ) | 902,400 |   |
|                                            |       |                                                           |       |   |   |   |   |
| OPERATING  EXPENSES                             |       |                                                           |       |   |   |   |   |
| Selling, general and administrative             |       | 1,520,233                                                      |       | 100,000 | (2) | 1,620,233 |   |
|                                            |       |                                                           |       |   |   |   |   |
| Research and development                        |       | 566,856                                                        |       |   |   | 566,856 |   |
|                                            |       |                                                           |       |   |   |   |   |
| Total operating expenses                        |       | 2,087,089                                                      |       | 100,000 |   | 2,187,089 |   |
|                                            |       |                                                           |       |   |   |   |   |
| Operating loss                                  |       | (906,023                                                       | )          | (378,666 | ) | (1,284,689 | ) |
|                                            |       |                                                           |       |   |   |   |   |
| INTEREST AND  OTHER INCOME                      |       | 17,321                                                         |       |   |   | 17,321 |   |
|                                            |       |                                                           |       |   |   |   |   |
| INTEREST EXPENSE                                |       | (48,492                                                        | )          |   |   | (48,492 | ) |
|                                            |       |                                                           |       |   |   |   |   |
| Loss before provision for income taxes          |       | (937,194                                                       | )          | (378,666 | ) | (1,315,860 | ) |
|                                            |       |                                                           |       |   |   |   |   |
| PROVISION FOR  INCOME TAXES                     |       | 603                                                            |       |   |   | 603 |   |
|                                            |       |                                                           |       |   |   |   |   |
| NET LOSS                                        |       | $                                                              | (936,591   | ) | (378,666 | ) | $ | (1,315,257 | ) |
|                                            |       |                                                           |       |   |   |   |   |
| LOSS PER SHARE:                                 |       |                                                           |       |   |   |   |   |
|                                            |       |                                                           |       |   |   |   |   |
| Basic                                           |       | $                                                              | (.09       | ) | (.03 | ) | $ | (.12 | ) |
| Diluted                                         |       | (.09                                                           | )          | (.03 | ) | (.12 | ) |
|                                            |       |                                                           |       |   |   |   |   |
| WEIGHTED AVERAGE  NUMBER OF SHARES OUTSTANDING: |       |                                                           |       |   |   |   |   |
| Basic                                           |       | 10,784,483                                                     |       |   |   | 10,784,483 |   |
| Diluted                                         |       | 10,784,483                                                     |       |   |   | 10,784,483 |   |

 

----

(1)          Adjustmentrelated to correct an inadvertent error in recording deferred service revenuesof which $257,344 was included in receivables and $21,322 was included indeferred service contract income.  Thisresulted in an understatement of revenues in the amount of $278,666.

(2)          Adjustmentrelated to the accrual of accounting fees for services performed during thequarter ended March 31, 2007.

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**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWSIncrease (Decrease) in Cash**
| ** **                                                                                 | ** ** | **Three Months Ended March 31, 2007** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **(unaudited)**                                                | ** ** |
|                                                                                       | ** ** | ** **                                                     |       |   |   |   |   |
| OPERATING ACTIVITIES                                                                       |       |                                                           |       |   |   |   |   |
| Net loss                                                                                   |       | $                                                              | (936,591   | ) | (378,666 | )(1)(2) | (1,315,257 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |       |                                                           |       |   |   |   |   |
| Depreciation and  amortization                                                             |       | 283,210                                                        |       |   |   | 283,210 |   |
| Provision for  doubtful accounts                                                           |       | —                                                         |       |   |   | — |   |
| Amortization of  capitalized software costs                                                |       | 102,105                                                        |       |   |   | 102,105 |   |
| Stock based  compensation                                                                  |       | 45,179                                                         |       |   |   | 45,179 |   |
| Increase  (decrease) from changes in:                                                      |       |                                                           |       |   |   |   |   |
| Receivables                                                                                |       | (113,589                                                       | )          | 257,344 | (1) | 143,755 |   |
| Inventories                                                                                |       | (40,514                                                        | )          |   |   | (40,514 | ) |
| Prepaid expenses  and other assets                                                         |       | 88,644                                                         |       |   |   | 88,644 |   |
| Accounts payable                                                                           |       | (26,247                                                        | )          |   |   | (26,247 | ) |
| Accrued  liabilities                                                                       |       | (67,705                                                        | )          | 100,000 | (2) | 32,295 |   |
| Deferred service  contract income                                                          |       | 438,740                                                        |       | 21,322 | (1) | 460,062 |   |
| Deferred revenue  on system sales                                                          |       | (36,705                                                        | )          |   |   | (36,705 | ) |
| Net cash used in  operating activities                                                     |       | (263,473                                                       | )          |   |   | (263,473 | ) |
|                                                                                            |            |                                                                |            |  |  |  |  |  |

 

----

(1)          Adjustmentrelated to correct an inadvertent error in recording deferred service revenuesof which $257,344 was included in receivables and $21,322 was included indeferred service contract income.  Thisresulted in an understatement of revenues in the amount of $278,666.

(2)          Adjustmentrelated to the accrual of accounting fees for services performed during thequarter ended March 31, 2007.

There were nochanges to previously reported cash flows from investing and financingactivities.

**Item2.            Management’s Discussionand Analysis or Plan of Operation**

The SEC encouragescompanies to disclose forward-looking information so that investors can betterunderstand a company’s future prospects and make informed investment decisions.This Quarterly Report on Form 10-QSB contains such “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995,Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934.

Words such as “anticipate,”“believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “will”and words and terms of similar substance used in connection with any discussionof future events, operating or financial performance, financing sources,product development, capital requirements, market growth and the like, identifyforward-looking statements. Forward-looking statements are merely predictionsand therefore inherently subject to uncertainties and other factors which couldcause the actual results to differ materially from the forward-looking statement.  These forward-looking statements include,among others:

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·                    projections ofrevenues and other financial items;

·                    statements ofstrategies and objectives for future operations;

·                    statementsconcerning proposed applications or services;

·                    statements regardingfuture economic conditions, performance or business prospects;

·                    statementsregarding competitors or competitive actions; and

·                    statements ofassumptions underlying any of the foregoing.

Allforward-looking statements are present expectations of future events and aresubject to a number of factors and uncertainties that could cause actualresults to differ materially from those described in the forward-lookingstatements. The risks related to ASPYRA’s business discussed under “RiskFactors” of this Quarterly Report on Form 10-QSB, among others, could causeactual results to differ materially from those described in the forward-lookingstatements.  Such risks include, amongothers: the competitive environment; unexpected technical and marketing difficultiesinherent in major product development efforts; the potential need for changesin our long-term strategy in response to future developments; future advancesin clinical information technology and procedures, as well as potential changesin government regulations and healthcare policies, both of which couldadversely affect the economics of the products offered by ASPYRA; and rapidtechnological change in the microelectronics and software industries.

The Company makesno representation as to whether any projected or estimated information orresults contained in any forward-looking statements will be obtained orachieved. Shareholders are cautioned not to place undue reliance on theforward-looking statements, which speak only as of the date of this QuarterlyReport on Form 10-QSB. The Company is under no obligation, and it expresslydisclaims any obligation, to update or alter any forward-looking statementsafter the date of this Quarterly Report on Form 10-QSB, whether as a result ofnew information, future events or otherwise.

**Management’s Discussion and Analysis of Financial Conditionand Results of Operations**

**Overview**

The followingdiscussion relates to the business of ASPYRA, which includes the operations ofits wholly owned subsidiaries Aspyra Diagnostic Solutions, Inc. (ADSI)(formerly StorCOMM, Inc.) and Aspyra Technologies, Ltd. (ATI) (formerlyStorCOMM Technologies, Ltd.).  Themerger, which resulted in the acquisition of ADSI, was consummated on November22, 2005.

ASPYRAoperates in one business segment determined in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 131, and generates revenues primarilyfrom the sale of its Clinical and Diagnostic Information Systems (CIS and DIS),which includes the license of proprietary application software, and may includethe sale of servers and other hardware components to be integrated with itsapplication software. In connection with its sales of its products, the Companyprovides implementation services for the installation, integration, andtraining of end users’ personnel. The Company also generates sales of ancillarysoftware and hardware, to its customers and to third parties. We recognizethese revenues under system sales in our financial statements.  The Company also generates recurring revenuesfrom the provision of comprehensive post implementation services to itscustomers, pursuant to extended service agreements. We recognize these revenuesunder service revenues in our financial statements.  This service relationship is an importantaspect of our business as the Company’s products are “mission critical” systemsthat are used by healthcare providers in most cases 24 hours per day and 7 daysper week. The ability to provide comprehensive services is crucial to obtainingnew customers and maintaining existing customers.  In order to retain this service relationshipwe must keep our products current for competitive, clinical, diagnostic, andregulatory compliance.  Enhancements toour products in the form of software upgrades are an integral part of ourbusiness model and are included as a contract obligation in our warranty andextended service agreements.  In order togenerate such revenue opportunities our investment in software enhancements issignificant and is a key component of our on going support obligations.

Becauseof the nature of our business, ASPYRA makes significant investments in researchand development for new products and enhancements to existing products.Historically, ASPYRA has funded its research and development programs throughcash flow primarily generated from operations. Management anticipates thatfuture expenditures in research and development will either continue at currentlevels or may increase for the foreseeable future, and will be funded primarilyout of the Company’s cash flow from operations.

14

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ASPYRA’s results of operation for the first fiscalquarter ended March 31, 2007 were marked by a decrease in sales and a decreasein operating loss that are more fully discussed in the following section “Resultsof Operations.”  The Company’s decreasein revenues was due to the Company concluding sales late in the quarter, which,due to timing issues, were not fully implemented and recognized in thequarter.  At March 31, 2007, the Companyhad $741,095 in deferred revenue as well as a backlog of approximately $590,000in backlog system sales which were received in the first quarter but will beprocessed and included in the fiscal quarter ended June 30, 2007.  Generally, sales cycles for CIS and DISproducts are lengthy and on average exceed six months from inception toclosure.  Because of the complexity ofthe sales process, a number of factors that are beyond the control of theCompany can delay the closing of transactions. Furthermore, the Company has been primarily reliant on distributors andchannel partners for the sales of its diagnostic systems and has been subjectto inconsistencies in the performance of such third parties and the timelyconsummation of orders.  ASPYRA completeda unification of its sales force to focus more on a direct sales model for someof the diagnostic system products to supplement the distribution and channelnetwork so that it will be less reliant on third parties for the sale of itsdiagnostic systems.  ASPYRA also hascompleted new versions of its laboratory and radiology information systemsproducts, as well as its new AccessRAD Radiology Information System (“RIS”) /Picture Archive Communication Systems (“PACS”) which it has begun marketing andanticipates increased sales related to such new product releases in the future.

The operating losses incurred by the Company duringthe fiscal quarter ended March 31, 2007 were attributable to the uneven salesperformance previously discussed.  TheCompany completed the integration and restructuring of the merged businessesand incurred certain costs associated with such activities which were onlypartially offset by reductions in redundant personnel and other expenses duringthe quarter ended March 31, 2007.

**Resultsof Operations**

Thefollowing table sets forth certain line items in our condensed consolidatedstatement of operations as a percentage of total revenues for the periodsindicated:

|                                         | ** ** | **Three Months  Ended  March 31, 2007** | ** ** | **Three Months  Ended  March 31, 2006** | ** ** |
|-----------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Revenues:                               |       |                                                   |       |                                                   |       |
| System sales                            |       | 25.9                                                   | %          | 36.0                                                   | %          |
| Service revenues                        |       | 74.1                                                   |       | 64.0                                                   |       |
| Total revenues                          |       | 100.0                                                  |       | 100.0                                                  |       |
| Cost of products  and services sold:    |       |                                                   |       |                                                   |       |
| System sales                            |       | 24.3                                                   |       | 29.2                                                   |       |
| Service revenues                        |       | 34.7                                                   |       | 28.0                                                   |       |
| Total cost of  products and services    |       | 59.0                                                   |       | 57.2                                                   |       |
| Gross profit                            |       | 41.0                                                   |       | 42.8                                                   |       |
| Operating  expenses:                    |       |                                                   |       |                                                   |       |
| Selling, general and administrative     |       | 73.6                                                   |       | 72.3                                                   |       |
| Research and development                |       | 25.7                                                   |       | 18.1                                                   |       |
| Total operating  expenses               |       | 99.3                                                   |       | 90.4                                                   |       |
| Operating loss                          |       | (58.3                                                  | )          | (47.6                                                  | )          |
|                                    |       |                                                   |       |                                                   |       |
| Loss before  provision for income taxes |       | (59.7                                                  | )          | (48.6                                                  | )          |
| Provision for  income taxes             |       | —                                                 |       | —                                                 |       |
|                                    |       |                                                   |       |                                                   |       |
| Net loss                                |       | (59.7                                                  | )          | (48.6                                                  | )          |

 

*Revenues*

Salesfor the fiscal quarter ended March 31, 2007 decreased to $2,201,968, ascompared to $2,702,075 for the comparable quarter ended March 31, 2006, anoverall decrease of $500,107 or 18.5%. When analyzed by revenue category for the quarter, sales of CIS and DISproducts decreased by $400,443, or 41.2%. Service revenues decreased by $99,664 or 5.8%.  The decrease in sales of CIS and DIS productswas primarily attributable to the completion of sales late in the quarter 

15

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for which theCompany was unable to recognize revenue due to the timing of the sale,described above under “Overview”.  Thedecrease in service revenues is primarily attributable to a reduced level ofpost-implementation services provided during the period.  Service revenues are expected to continue toincrease as and when the Company’s installed base of CIS and DIS installationsincreases.

TheCompany continues to invest in sales and marketing activities focused onincreasing its transaction pipeline and transitioning to more of a direct salesmodel to supplement the third party sales of its CIS and DIS products while newand improved product versions are being introduced.  While this transition is being completed,management is cautiously optimistic about the near-term outlook for its salesof CIS and DIS products.  The Company hasinvested additional funds into marketing activities to further build its salespipeline as well as to launch the company into new market opportunities.  The Company’s future operating results willcontinue to be subject to quarterly variations based upon a wide variety offactors, including the volume mix and timing of orders received during anyquarter, and the temporary delays in the closing of new CIS and DIS sales.  In addition, the Company’s revenuesassociated with CIS and DIS sales may be delayed due to client related issuessuch as client staff availability for training, information technologyinfrastructure readiness, and the performance of third party contractors, allof which are issues outside of the control of ASPYRA.

*Costsof products and services sold*

Costof sales for the quarter ended March 31, 2007 decreased by $247,226 or 16.0% to$1,299,568, as compared to $1,546,794 for the same quarter of fiscal 2006.  The decrease in cost of sales was primarilyattributable to a decrease in labor costs of $108,070 or 13.3%, a decrease inmaterial costs of $140,743 or 57.5%, which was partially offset by a slightincrease in other costs.  The decrease inlabor costs was attributable to the reduction of personnel as a result ofintegration of our business since the merger in November 2005. For the currentquarter, cost of sales as a percentage of sales was 59% as compared to 57% forthe comparable period of 2006.  Theoverall percentage increase in cost of sales, as a percentage of sales, wasattributable to the volume and mix of sales and the reduction of staff andother overhead during the quarter.  TheCompany could potentially experience quarterly variations in gross margin as aresult of the factors discussed above.

*Selling,general and administrative expenses*

Selling,general and administrative expenses decreased by $332,623 or 17.0% for thecurrent fiscal quarter ended March 31, 2007 as compared to the same quarter infiscal 2006.  The decreases in selling,general and administrative expenses were primarily attributable to thereduction of expenses as a result of the integration of the business as discussedabove.  The reduction of expenses wasprimarily attributable to a decrease compared to the same quarter in fiscal2006 of approximately $255,000 related to salaries, $72,000 related to usersymposium expenses, $76,000 in tradeshow expenses, , and $10,000 related toconsulting expenses partially offset by an increase in legal and accountingexpenses of $80,000.  Managementcontinues to evaluate cost reductions in some of its selling, general andadministrative expenses while it also continues to plan further investment inits marketing programs during the balance of its 2007 fiscal year.

*Researchand development expenses*

Researchand development expenses increased by $78,388, or 16.0% for the current fiscalquarter ended March 31, 2007 as compared to the same period in fiscal2006.  The increase is primarilyattributable to increases in salaries and expenses of new personnel in productdevelopment.  For the comparable first quartersof 2007 and 2006, the Company capitalized software costs of $230,051 and$267,219, respectively, which are generally amortized over the estimated usefullife, not to exceed five years.  Suchcosts were attributable to the development of AccessRAD the new RIS/PACSplatform that integrates the Company’s radiology information system CyberRADwith its AccessNET PACS system, and enhancements and new modules for theCompany’s CIS and DIS products.  TheCompany plans to continue significant product development activities at currentexpense levels throughout the 2007 fiscal year.

*InterestExpense*

Interest expensefor the current quarter ended March 31, 2007 increased by $16,078 or 49.6% ascompared to the same quarter of fiscal 2006. The increase is a primarily result of the increased borrowings duringthe current quarter as compared to the same period of fiscal 2006.

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*Netincome (loss)*

As aresult of the factors discussed above, the Company incurred a net loss of$1,315,257 or basic and diluted loss per share of $.12 in the first fiscalquarter of 2007 as compared to a net loss of $1,313,718 or basic and dilutedloss per share of $.15 for the same quarter of 2006.

**Liquidityand Capital Resources**

Historically,the Company’s primary need for capital has been to invest in softwaredevelopment, and in computers and related equipment for the Company’s internaluse.  The Company invested $230,051 and$267,219 respectively during the three months ended March 31, 2007 and 2006 insoftware development.  These expendituresrelated to investment in the Company’s new RIS/PACS integrated system AccessRAD,enhancements to AccessNET, the new browser version of the Company’s LISproduct, CyberLAB, and other product enhancements.  The Company anticipates expending additionalsums during the remainder of fiscal 2007 on product enhancements to all its productsand the further development of AccessRAD and CyberLAB.  During the three months ended March 31, 2007and 2006, the Company invested an aggregate of $20,424 and $113,068,respectively, in fixed assets primarily consisting of computers, network infrastructure,telephone and data communications systems, and software.

Asof March 31, 2007, the Company’s working capital amounted to a deficit of$3,447,838 compared to a deficit of $2,256,352, as of December 31, 2006.  At March 31, 2007, the Company’s creditfacilities with its bank consisted of a revolving line of credit of $1,300,000,of which $1,026,477 was outstanding. On February 27, 2007, the Company enteredinto a new banking relationship whereby the bank provided a revolving line ofcredit in the aggregate amount of $1,300,000. The revolving line of credit is secured by the Company’s accountsreceivable and inventory and matures on February 27, 2008.  The revolving line of credit is subject tocertain covenants.  At March 31, 2007,the Company was in compliance with the covenants.  Advances under the revolving line of creditare on a formula based on eligible accounts receivable and inventorybalances.  At March 31, 2007, the Companyhad $611,199 outstanding on its capital leases of which $150,237 is due in thenext twelve months.  Management isconsidering additional financing to accelerate its business development planswhich in turn may improve its working capital position.

Cashused in operating activities was $263,473 for the three months ended March 31,2007 compared to cash used of $222,885 for the comparable period of fiscal2006.  The increase in cash used foroperating activities was primarily attributable to the net change in accruedreceivables, inventories, payables and deferred revenues compared to the sameperiod of fiscal 2006.

Netcash used in investing activities totaled $250,475 for the three months endedMarch 31, 2007, compared to $380,287 used in investing activities during thecomparable period of fiscal 2006.  Thedecrease in cash used in investing activities was due to the reduction ininvestment in capitalized software and fixed assets.

Cashflows from financing activities amounted to $968,280 during the three monthsended March 31, 2007 compared to $212,321 provided during the comparable periodof fiscal 2006.  The increase wasprimarily attributable to borrowings on its revolving line of credit with thebank and the release of its restricted cash partially offset by payments onnotes payable.

TheCompany’s primary source of working capital has been generated from privateplacements of securities and from borrowings. The Company’s results ofoperations for the three months ended March 31, 2007 produced negativeoperating cash flow of $263,473.  Anunanticipated decline in sales, delays in implementations where payments aretied to delivery and/or performance of services, or cancellations of contractscould have a negative effect on cash flow from operations and could in turncreate short-term liquidity problems. We believe that our current cash and cashequivalents, and cash flow from operations, will be sufficient to meet ourcurrent anticipated cash needs, including for working capital purposes, capitalexpenditures and various contractual obligations, for at least the next 12 months.We may, however, require additional cash resources due to changed businessconditions or other future developments, including any investments oracquisitions we may decide to pursue. If these sources are insufficient tosatisfy our cash requirements, we may seek to sell debt securities oradditional equity securities or to obtain a credit facility. The sale ofconvertible debt securities or additional equity securities could result inadditional dilution to our stockholders. The incurrence of indebtedness wouldresult in incurring debt service obligations and could result in operating andfinancial covenants that would restrict our operations. In addition, there canbe no assurance that any additional financing will be available on acceptableterms, if at all. Although there are no present understandings, commitments oragreements with respect to the acquisition of any other businesses,applications or technologies, we may, from time to time, evaluate acquisitionsof other businesses, applications or technologies.

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**Seasonality, Inflation and Industry Trends**

The Company’ssales are generally higher in the winter and spring.  Inflation has not had a material effect onthe Company’s business since the Company has been able to adjust the prices ofits products and services in response to inflationary pressures.  Management believes that most phases of thehealthcare segment of the computer industry will continue to be highlycompetitive, and that potential healthcare reforms including those promulgatedby Health Insurance Portability and Accountability Act may have a long-termpositive impact on its business.  The keyissues driving demand for ASPYRA’s products are industry concerns about patientcare and safety issues, development of a national standard for the electronichealth record that will affect all clinical data, a paradigm shift from analogto digital imaging technologies, and regulatory compliance.  The Company has continued to invest heavilyin new application modules to assist its customers in addressing theseissues.  Management believes that newapplication modules and features that concentrate on such issues will be keyselling points and will provide a competitive advantage.  In addition, management believes that thehealthcare information technology industry will be marked with more significanttechnological advances, which will improve the quality of service and reducecosts.  The Company anticipates it willbe able to meet these challenges.

**Critical Accounting Policies and Estimates**

Management’sdiscussion and analysis of ASPYRA’s financial condition and results ofoperations are based upon the condensed consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States.  Thepreparation of these financial statements requires management to make estimatesand judgments that affect the reported amounts of assets, liabilities, revenuesand expenses, and related disclosures of contingent assets and liabilities.  On an on-going basis, management evaluatesestimates, including those related to the valuation of inventory and theallowance for uncollectible accounts receivable. We base our estimates onhistorical experience and on various other assumptions that are believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions. We believe the following critical accountingpolicies affect our more significant judgments and estimates used in thepreparation of our consolidated financial statements:

*Inventory*

TheCompany’s inventory is comprised of a current inventory account that consistsof items that are held for resale and a long-term inventory account thatconsists of items that are held for repairs and replacement of hardwarecomponents that are serviced by the Company under long-term Extended ServiceAgreements with some of its customers. Current inventory is valued at the lower of cost to purchase or thecurrent estimated market value of the inventory items.  Inventory is evaluated on a continual basisand adjustments to recorded costs are made based on management’s estimate offuture sales value, or in the case of the long-term component inventory, onmanagement’s estimation of the usage of specific inventory items and netrealizable value.  Management reviewsinventory quantities on hand and makes a determination of the excess orobsolete items in the inventory, which, are specifically reserved.  In addition, adjustments are made for thedifference between the cost of the inventory and the estimated market value andcharged to operations in the period in which the facts that give rise to theadjustments become known.  At March 31,2007, the inventory reserve was approximately $130,500.

*Accounts Receivable*

Accountsreceivable balances are evaluated on a continual basis and allowances areprovided for potentially uncollectible accounts based on management’s estimateof the collectability of customer accounts. If the financial condition of acustomer were to deteriorate, resulting in an impairment of their ability tomake payments, an additional allowance may be required. Allowance adjustmentsare charged to operations in the period in which the facts that give rise tothe adjustments become known.  Theaccounts receivable balance at March 31, 2007 was $1,190,398, net of anallowance for doubtful accounts of approximately $82,840.

*RevenueRecognition*

Revenuesare derived primarily from the sale of CIS and DIS products and the provisionof services.  The components of thesystem sales revenues are the licensing of computer software, installation, andthe sale of computer hardware and sublicensed software. The components ofservice revenues are software support and hardware maintenance, training, andimplementation services.  The Companyrecognizes revenue in accordance with the provisions of Statement of Position(SOP) No. 97-2, “Software Revenue Recognition,” as amended by SOP No. 98-4, SOP98-9 and clarified by Staff Accounting Bulletin (SAB) 104 “Revenue Recognitionin Financial Statements.”  SOP No 97-2,as amended, generally 

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requires revenueearned on software arrangements involving multiple-elements to be allocated toeach element based on the relative fair values of those elements.  The Company allocates revenue to each elementin a multiple-element arrangement based on the element’s respective fair value,with the fair value determined by the price charged when that element is soldseperately and specifically defined in a quotation or contract.  Deferred revenue related to CIS and DIS salesare comprised of deferrals for license fees, hardware, and other services forwhich the implementation has not yet been completed and revenues have not beenrecognized.  Revenues are presented netof discounts.  At March 31, 2007 deferredrevenue was $741,095.

PostImplementation software and hardware maintenance services are marketed undermonthly, quarterly and annual arrangements and are recognized as revenueratably over the contracted maintenance term as services are provided.  The Company determines the fair value of themaintenance portion of the arrangement based on the renewal price of themaintenance charged to customers, professional services portion of thearrangement, other than installation services, based on hourly rates which theCompany charges for these services when sold apart from a software license, andthe hardware and sublicense of software based on the prices for these elementswhen they are sold separately from the software.  At March 31, 2007, deferred service contractincome was $1,969,104.

*SoftwareDevelopment Costs*

Costsincurred internally in creating computer software products are expensed untiltechnological feasibility has been established upon completion of a programdesign. Thereafter, applicable software development costs are capitalized andsubsequently reported at the lower of amortized cost or net realizablevalue.  Capitalized costs are amortizedbased on current and expected future revenue for each product with minimumannual amortization equal to the straight-line amortization over the estimatedeconomic life of the product, not to exceed five years.  For the three months ended March 31, 2007 and2006, the Company capitalized $230,051 and $267,219, respectively.  At March 31, 2007, the balance of capitalizedsoftware costs was $2,615,253, net of accumulated amortization of $977,270.

*IntangibleAssets*

Intangibleassets, with definite and indefinite lives, consist of acquired technology,customer relationships, channel partners, and goodwill.  They are recorded at cost and are amortized,except goodwill, on a straight-line basis based on the period of time the assetis expected to contribute directly or indirectly to future cash flows, whichrange from four to 15 years.

Inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 142,goodwill is tested for impairment on an annual basis or between annual tests ifan event occurs or circumstances change that would indicate the carrying amountmay be impaired.  In accordance with SFASNo. 144, Accounting for Impairment of Long-Lived Assets, management reviewsdefinite life intangible assets to determine if events or circumstances haveoccurred which may cause the carrying values of intangible assets to beimpaired. The purpose of these reviews is to identify any facts orcircumstances, either internal or external, which may indicate that thecarrying value of the assets may not be recoverable.

*Stock-basedCompensation*

We have two stock-basedcompensation plans, the 2005 Equity Incentive Plan and the 1997 Stock OptionPlan, under which we may issue shares of our common stock to employees,officers, directors and consultants. Upon effectiveness of the 2005 EquityIncentive Plan on November 22. 2005, the 1997 Stock Option Plan was terminatedfor purposes of new grants.  Both ofthese plans have been approved by our shareholders.

Priorto January 1, 2006, we accounted for those plans under the recognition andmeasurement provisions of APB Opinion No. 25, Accounting for Stock Issuedto Employees, and related Interpretations, as permitted by SFAS No. 123,Accounting for Stock-Based Compensation. Effective January 1, 2006, we adopted the fair value recognitionprovisions of SFAS No. 123(R), Share-Based Payment, using themodified-prospective-transition method. Under that transition method,compensation cost recognized in the three months ended March 31, 2007 includes;(a) compensation cost for all share-based payments granted prior to, butnot yet vested as of January 1, 2006, based on the grant date fair valueestimated in accordance with the original provisions of SFAS No. 123, and (b) compensationcost for all share-based payments granted subsequent to January 1, 2006,based on the grant-date fair value estimated in accordance with the provisionsof SFAS No. 123(R). Results for prior periods have not been restated.

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SFASNo 123(R) requires us to make certain assumptions and judgments regarding thegrant date fair value. These judgments include expected volatility, risk freeinterest rate, expected option life, dividend yield and vesting percentage.These estimations and judgments are determined by us using many differentvariables that in many cases are outside of our control. The changes in thesevariables or trends, including stock price volatility and risk free interestrate may significantly impact the grant date fair value resulting in asignificant impact to our financial results.

*IncomeTaxes*

TheCompany accounts for income taxes in accordance with SFAS No. 109 “Accountingfor Income Taxes,” which requires recognition of deferred tax liabilities andassets for the expected future tax consequences of events that have beenincluded in the financial statements or tax returns.  Under this method, deferred tax liabilitiesand assets are determined based on the differences between the financial statementsand the tax bases of assets and liabilities using enacted tax rates in effectfor the year in which the differences are expected to reverse.  Valuation allowances are established whennecessary to reduce deferred tax assets to the amount expected to berealized.  Income tax expense representsthe tax payable for the period and the change during the period in deferred taxassets and liabilities.

### **Risk Factors**

Inevaluating the Company, various risk factors and other information should becarefully considered.  The risks anduncertainties described below are not the only ones that impact theCompany.  Additional risks anduncertainties not presently known to us or that we currently deem immaterialmay also have an adverse impact on us. Among other things, this discussion contains forward-looking statementsthat are based on certain assumptions about future risks anduncertainties.  We believe that ourassumptions are reasonable.  Nonetheless,it is likely that at least some of these assumptions will not come true.

***We have incurred losses recently that may adversely impactliquidity.***

Wehave experienced operating losses and cash outflows.  For the three months ended March 31, 2007,our net loss was $1,315,257.  At March31, 2007, our cash and cash equivalents totaled $1,466,352 and our workingcapital deficit was $3,447,838.  Wecannot be certain that ASPYRA will become profitable and sustainprofitability.  If ASPYRA does not becomeprofitable and sustain profitability, the market price of our common stock willdecline.  The Company’s primary source ofworking capital has been generated from the private placements andborrowings.  The Company’s results ofoperations for the three months ended March 31, 2007 produced negativeoperating cash flow of approximately $263,473. Any decline in sales, delays in implementations where payments are tiedto delivery and/or performance of services or cancellations of contracts couldhave a negative effect on cash flow from operations and could in turn increaseour liquidity problem.  If sales are notas expected, the Company will consider certain cost cutting measures.  We may require additional cash resources tosustain our business.  The sale ofconvertible debt securities or additional equity securities could result inadditional dilution to our shareholders. The incurrence of additional indebtedness would result in incurring debtservice obligations and could result in operating and financial covenants thatwould restrict our operations.  There canbe no assurance that any additional financing will be available on acceptableterms, if at all.

***If ASPYRA and Aspyra Diagnostic Solutions, Inc. fail toeffectively integrate their operations, the combined company may not realizethe potential benefits of the merger.***

Theintegration of ASPYRA and Aspyra Diagnostic Solutions, Inc. (ADSI) has been atime consuming and expensive process and may disrupt the combined company’soperations if it is not completed in a timely and efficient manner. Theintegration is still in process.  If thisintegration effort is not successful, the combined company’s results ofoperations could be harmed, employee morale could decline, key employees couldleave, customers could cancel existing orders or choose not to place new onesand the combined company could have difficulty complying with regulatoryrequirements. In addition, the combined company may not achieve anticipatedsynergies or other benefits of the merger. ASPYRA and ADSI must operate as acombined organization utilizing common information and communication systems,operating procedures, financial controls and human resources practices. Thecombined company may encounter the following difficulties, costs and delaysinvolved in integrating their operations:

·      failure to successfully managerelationships with customers and other important relationships;

·      failure of customers to accept newservices or to continue using the products and services of the combinedcompany;

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·      difficulties in successfully integratingthe management teams and employees of ASPYRA and Aspyra Diagnostic Solutions,Inc.;

·      challenges encountered in managing larger,more geographically dispersed operations;

·      the loss of key employees;

·      diversion of the attention of managementfrom other ongoing business concerns;

·      potential incompatibilities of technologiesand systems;

·      potential difficulties integrating andharmonizing financial reporting systems; and

·      potential incompatibility of businesscultures.

If the combinedcompany’s operations do not meet the expectations of customers of ASPYRA orADSI then these customers may cease doing business with the combined companyaltogether, which would harm the results of operations and financial conditionof ASPYRA.

If the anticipatedbenefits of the merger are not realized or do not meet the expectations offinancial or industry analysts, the market price of ASPYRA common stock maydecline. The market price of ASPYRA common stock may decline as a result of themerger if:

·      the integration of ASPYRA and ADSI isunsuccessful;

·      the combined company does not achieve theexpected benefits of the merger as quickly as anticipated or the costs of oroperational difficulties arising from the merger are greater than anticipated;

·      the combined company’s financial resultsafter the merger are not consistent with the expectations of financial orindustry analysts;

·      the anticipated operating and productsynergies of the merger are not realized; or

·      the combined company experiences the lossof significant customers or employees as a result of the merger.

***We face intense competition from both established entitiesand new entries in the market that may adversely affect our revenues andprofitability.***

Our markets arecompetitive. There are many companies with active research and developmentprograms both in and outside of the healthcare information technologyindustry.  Many of these companies haveconsiderable experience in areas of competing interest to us.  Additionally, we cannot determine if other firmsare conducting potentially competitive research, which could result in thedevelopment and introduction of products that are either comparable or superiorto the products we sell.  Further, newproduct introductions, product enhancements and the use of other technologiesby our competitors could lead to a loss of market acceptance and cause adecline in sales or gross margins.

If we are unableto anticipate or react to competition or if existing or new competitors gainmarket share, our sales may decline or be impaired and we may experience adecline in the prices we can charge for our products, which could adverselyaffect our operating results. Our competitive position depends on severalfactors, including:

·      our ability to adapt effectively to thecontinued development, acquisition or licensing of technology or product rightsby our competitors;

·      our ability to enhance our products ordevelop new products;

·      our ability to adapt to changingtechnological demands; and

·      our strategic decisions regarding the bestallocation of our limited resources.

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Several of ourcurrent and potential competitors have greater financial, technical, sales,marketing and other resources than we do and consequentially may have anability to influence customers to purchase their products that compete withours. Our future and existing competitors could introduce products withsuperior features, scalability and functionality at lower prices than ourproducts, and could also bundle existing or new products with other moreestablished products in order to compete with us. Our competitors could alsogain market share by acquiring or forming strategic alliances with our othercompetitors. If we do not adapt our business in the face of this competition,our business and operating results may be harmed.

***Any failure to successfully introduce future products intothe market could adversely affect our business.***

The commercialsuccess of future products depends upon their acceptance by the medicalcommunity.  Our future product plansinclude capital-intensive clinical information systems.  We believe that these products cansignificantly reduce labor costs, improve patient care and offer otherdistinctive benefits to the medical community. However, there is often market resistance to products that requiresignificant capital expenditures or which eliminate jobs through automation. Wecan make no assurance that the market will accept our future products andsystems, or those sales of our future products and systems will grow at therates expected by our management.

***If we fail to meet changing demands of technology, we maynot continue to be able to compete successfully with competitors.***

The market for ourproducts is characterized by rapid technological advances, changes in customerrequirements and frequent new product introductions and enhancements.  Our future success depends upon our abilityto introduce new products that keep pace with technological developments,enhance current product lines and respond to evolving client requirements.  ASPYRA has incurred, and we will need tocontinue to incur, significant research and development expenditures in futureperiods as we strive to remain competitive. Our failure to meet these demands could result in a loss of our marketshare and competitiveness and could harm our revenues and results ofoperations.

***Our success depends on our ability to attract, retain andmotivate management and other skilled employees.***

Our future successand growth depend on the continued services of our key management andemployees, including Steven M. Besbeck, Bruce M. Miller, and James R.Helms.  The loss of the services of anyof these individuals or any other key employee could materially affect ourbusiness. Our future success also depends on our ability to identify, attractand retain additional qualified personnel. Competition for employees in ourindustry is intense and we may not be successful in attracting or retainingthem.  There are a limited number ofpeople with knowledge of, and experience in, our industry.  We do not have employment agreements withmost of our key employees.  However, wegenerally enter into agreements with our employees regarding patents,confidentiality and related matters.  Wedo not maintain life insurance polices on our employees.  Our loss of key personnel, especially withoutadvance notice, or our inability to hire or retain qualified personnel, couldhave a material adverse effect on sales and our ability to maintain ourtechnological edge.  We cannot guaranteethat we will continue to retain our key management and skilled personnel, orthat we will be able to attract, assimilate and retain other highly qualifiedpersonnel in the future.

***If we do not protect our proprietary information and preventthird parties from making unauthorized use of our products and technology, ourfinancial results could be harmed.***

We rely on acombination of confidentiality agreements and procedures and copyright, patent,trademark and trade secret laws to protect our proprietary information.However, all of these measures afford only limited protection and may bechallenged, invalidated, or circumvented by third parties. Third parties maycopy aspects of our products or otherwise obtain and use our proprietaryinformation without authorization. Third parties may also develop similar orsuperior technology independently, including by designing around our patents.Furthermore, the laws of some foreign countries do not offer the same level ofprotection of our proprietary rights as the laws of the United States, and wemay be subject to unauthorized use of our products in those countries. Anylegal action that we may bring to protect proprietary information could beexpensive and may distract management from day-to-day operations. Unauthorizedcopying or use of our products or proprietary information could result inreduced sales of our products.

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***Third parties claiming that we infringe their proprietaryrights could cause us to incur significant legal expenses and prevent us fromselling our products.***

From time to time,we have received claims that we have infringed the intellectual property rightsof others and may receive additional claims in the future.  Any such claim, with or without merit, could:

·      be time consuming to defend;

·      result in costly litigation;

·      divert management’s time and attentionfrom our business;

·      require us to stop selling, to delayshipping or to redesign our products; or

·      require us to pay monetary amounts asdamages to our customers.

In addition, welicense and use software from third parties in our business. These third partysoftware licenses may not continue to be available to us on acceptable terms.Also, these third parties may from time to time receive claims that they haveinfringed the intellectual property rights of others, including patent andcopyright infringement claims, which may affect our ability to continuelicensing their software. Our inability to use any of this third party softwarecould result in disruptions in our business, which could materially andadversely affect our operating results.

***ASPYRA operates in a consolidating industry which createsbarriers to market penetration.***

The healthcareinformation technology industry in recent years has been characterized byconsolidation by both healthcare providers who are our customers and by thosecompanies that we compete against. Large hospital chains and groups ofaffiliated hospitals prefer to negotiate comprehensive contracts for all oftheir system needs with larger vendors who offer broader product lines andservices. The conveniences offered by these large vendors are administrative andfinancial incentives that we cannot offer our customers.

***Our productsmay be subject to government regulation in the future that could impair ouroperations.***

Our products could be subject to stringentgovernment regulation in the United States and other countries in the future.Furthermore, we expect that the integration of our product and service offeringwill require us to comply with regulatory requirements and that we will devotesignificant time and resources to this effort. These regulatory processes can be lengthy, expensive and uncertain.Additionally, securing necessary clearances or approvals may require thesubmission of extensive data and other supporting information.

Failure to comply with applicable requirementscould result in fines, recall, total or partial suspension of distribution,withdrawal of existing product or our inability to integrate our service andproduct offerings. If any of these things occur, it could have a materialadverse impact on our business.

***Changes ingovernment regulation of the healthcare industry could adversely affect ourbusiness.***

Federal and state legislative proposals are periodically introduced orproposed that would affect major changes in the healthcare system, nationally,at the state level or both. Future legislation, regulation or payment policiesof Medicare, Medicaid, private health insurance plans, health maintenanceorganizations and other third-party payers could adversely affect the demandfor our current or future products and our ability to sell our products on aprofitable basis. Moreover, healthcare legislation is an area of extensive anddynamic change, and we cannot predict future legislative changes in thehealthcare field or their impact on our industry or our business.

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***We are subject to the Health Insurance Portability andAccountability Act (HIPAA) and the cost of complying with HIPAA may negativelyimpact our net income.***

Our business issubstantially impacted by the requirements of HIPAA and our products mustmaintain the confidentiality of a patient’s medical records and information.These requirements also apply to most of our customers.  We believe our products meet the standards ofHIPAA and may require our customers to upgrade their systems, but our customers’preoccupation with HIPAA may adversely impact sales of our products, and thecosts of compliance with HIPAA could have an impact on our product margins andselling, general and administrative expenses incurred by us and couldnegatively impact our net income.

***Defective products or product failure may subject us toliability and could substantially increase our costs.***

Our products areused to gather information for professionals to make medical decisions,diagnosis, and treatment.  Accordingly,the manufacture and sale of our products entails an inherent risk of productliability arising from an inaccurate, or allegedly inaccurate, test orprocedure result.  In the past, ASPYRAhas discovered errors and failures in certain of our product offerings aftertheir introduction and have experienced delayed or lost revenues during theperiod required to correct these errors. Errors and failures in products released by us could result in negativepublicity, product returns, loss of or delay in market acceptance of our products,loss of competitive position or claims by customers or others.  Alleviating any of these problems couldrequire significant expenditures of our capital and resources and could causeinterruptions, delays or cessation of our sales, which could cause us to loseexisting or potential customers and would adversely affect our operatingresults.  We may be subject to productliability claims as a result of any failure or errors in our products.  If a customer is successful in proving itsdamages, it could prove expensive and time-consuming to defend against theseclaims, and we could be liable for the damages suffered by our customers andother related expenses, which could adversely affect our operatingresults.  We currently maintain productliability insurance coverage for up to $2 million per incident and up to anaggregate of $4 million per year. Although management believes this liability coverage is sufficientprotection against future claims, there can be no assurance of the sufficiencyof these policies.  We have not receivedany indication that our insurance carrier will not renew our product liabilityinsurance at or near current premiums; however, we cannot guarantee that thiswill continue to be the case.

***System or network failures could reduce our sales, increasecosts or result in a loss of customers.***

We rely on ourmanagement information systems to operate our business and to track ouroperating results. Our management information systems will require modificationand refinement as we grow and our business needs change. If we experience asignificant system failure or if we are unable to modify our managementinformation systems to respond to changes in our business needs, then ourability to properly run our business could be adversely affected and could leadto a reduction in our sales, increase costs and a loss of customers.

***Our evaluation of internal controls and remediation ofpotential problems will be costly and time consuming and could expose weaknessin our financial reporting.***

While we believethat we currently have adequate internal control procedures in place, we arestill exposed to potential risks from recent legislation requiring companies toevaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002. We areevaluating our internal controls system in order to allow management to reporton, and our independent registered public accounting firm to attest to, ourinternal controls over financial reporting, as required by Section 404 of theSarbanes-Oxley Act of 2002 beginning in our fiscal year 2008.

***Factors outside of our control may adversely affect ouroperations and operating results.***

Our operations andoperating results may be adversely affected by many different factors which areoutside of our control, including:

·      deterioration in economic conditions inany of the healthcare information technology industry, which could reducecustomer demand and ability to pay for our products and services;

·      political and military instability, whichcould slow spending within our target markets, delay sales cycles and otherwiseadversely affect our ability to generate revenues and operate effectively;

·      budgetary constraints of customers, whichare influenced by corporate earnings and spending objectives;

·      earthquakes, floods or other naturaldisasters affecting our headquarters located in Calabasas, California, an areaknown for seismic activity, or our other locations worldwide;

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·      acts of war or terrorism; and

·      inadvertent errors.

Any of thesefactors could result in a loss of revenues and/or higher expenses, which couldadversely affect our financial results.

***Our international operations involve special risks thatcould increase our expenses, adversely affect our operating results and requireincreased time and attention of our management.***

We expect togenerate approximately 10% of our revenues from customers located outside ofthe United States in the fiscal year ending December 31, 2007.  We expect to expand our internationaloperations and such expansion is contingent upon the successful growth of ourinternational revenues. Our international operations are subject to risks inaddition to those faced by our domestic operations, including:

·      potential loss of proprietary informationdue to piracy, misappropriation or laws that may be less protective of ourintellectual property rights;

·      imposition of foreign laws and othergovernmental controls, including trade and employment restrictions;

·      enactment of additional regulations orrestrictions on imports and exports;

·      fluctuations in currency exchange ratesand economic instability such as higher interest rates and inflation, whichcould make our products more expensive in those countries;

·      limitations on future growth or inabilityto maintain current levels of revenues from international sales if we do notinvest sufficiently in our international operations;

·      longer payment cycles for sales in foreigncountries and difficulties in collecting accounts receivable;

·      difficulties in staffing, managing andoperating our international operations;

·      difficulties in coordinating theactivities of our geographically dispersed and culturally diverse operations;and

·      political unrest, war or terrorism,particularly in areas in which we have facilities.

A portion of theCompany’s transactions outside of the United States are denominated in foreigncurrencies. Our functional currency is the U.S. dollar.  Accordingly, our future operating resultswill continue to be subject to fluctuations in foreign currency rates. Hedgingforeign currency transaction exposures is complex and subject to uncertainty.We may be negatively affected by fluctuations in foreign currency rates in thefuture, especially if international sales continue to grow as a percentage ofour total sales.

***Changes to financial accounting standards and new exchangerules could make it more expensive to issue stock options to employees, whichwould increase compensation costs and may cause us to change our businesspractices.***

We prepare ourfinancial statements to conform with generally accepted accounting principles,(“GAAP”), in the United States. These accounting principles are subject tointerpretation by the Public Company Accounting Oversight Board, the SEC andvarious other bodies. A change in those policies could have a significanteffect on our reported results and may affect our reporting of transactionscompleted before a change is announced.

For example, wehave used stock options and other long-term equity incentives as a fundamentalcomponent of our employee compensation packages. We believe that stock optionsand other long-term equity incentives directly motivate our employees tomaximize long-term shareholder value and, through the use of vesting, encourageemployees to remain with our Company. The Financial Accounting Standards Boardhas issued Statement of Financial Accounting Standards 123R that will requireus to record a charge to earnings for employee stock option grants. Inaddition, regulations implemented by the American Stock Exchange generallyrequire shareholder approval for all stock option plans, which could make itmore 

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difficult or expensivefor us to grant stock options to employees. We may, as a result of thesechanges, incur increased compensation costs, change our equity compensationstrategy or find it difficult to attract, retain and motivate employees, eachof which could materially and adversely affect our business, operating resultsand financial condition.

***ADSI currently relies on third party distributionarrangements to distribute its products. The loss of any of these relationships, or a material change in any ofthem, could materially harm our business.***

For the threemonths ended March 31, 2007 and 2006, ADSI received approximately 80% of itsrevenues through third party distribution arrangements. We expect that we willcontinue to generate a significant portion of our revenues through a limitednumber of distribution arrangements for the foreseeable future. A significantportion of the Company’s outstanding accounts receivable is with such thirdparty distributors, which will result in a concentration of our credit risk. Ifany of these third party distributors decides not to market or distribute ourproducts or decides to terminate or not renew its agreement with us, we may beunable to replace the affected agreements with acceptable alternatives, whichcould materially harm our business, operating results and financial condition.

**RisksRelated to Our Common Stock**

***Future sales of our common stock could adversely affect ourstock price.***

Future sales ofsubstantial amounts of shares of our common stock in the public market, or theperception that these sales could occur, may cause the market price of ourcommon stock to decline. In addition, we may be required to issue additionalshares upon exercise of previously granted options or warrants such as thewarrants to purchase up to 1,650,000 shares of ASPYRA common stock that ASPYRAissued in two private placements completed in November 2005 and May 2006.  Increased sales of our common stock in themarket after exercise of stock options or warrants could exert significantdownward pressure on our stock price. These sales also might make it moredifficult for us to sell equity or equity-related securities in the future at atime and price we deem appropriate.

***Our stock price may be volatile in the future, and you couldlose the value of your investment.***

The market pricesof the common stock for ASPYRA have experienced significant fluctuations andour stock price may continue to fluctuate significantly, and you could lose thevalue of your investment. The market price of our common stock may be affectedby a number of factors, including:

·      announcements of quarterly operatingresults and revenue and earnings forecasts by us, our competitors or our customers;

·      failure to achieve financial forecasts,either because expected sales do not occur or because they occur at lowerprices or on terms that are less favorable to us;

·      rumors, announcements or press articlesregarding changes in our management, organization, operations or priorfinancial statements;

·      changes in revenue and earnings estimatesby securities analysts;

·      announcements of planned acquisitions byus or by our competitors;

·      announcements of new or planned productsby us, our competitors or our customers;

·      gain or loss of a significant customer;

·      inquiries by the SEC, American StockExchange, law enforcement or other regulatory bodies; and

·      acts of terrorism, the threat of war andeconomic slowdowns in general.

The stock markethas experienced extreme price volatility, which has adversely affected and maycontinue to adversely affect the market price of our common stock for reasonsunrelated to our business or operating results.

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***Fluctuations in our quarterly financial results have affectedthe stock prices of ASPYRA in the past and could affect our stock price in thefuture.***

The quarterlyfinancial results of ASPYRA have fluctuated in the past, and the quarterlyfinancial results of the combined company are likely to vary significantly in thefuture. A number of factors associated with the operations of our business maycause our quarterly financial results to fluctuate, including our ability to:

·      effectively align sales resources to meetcustomer needs and address market opportunities;

·      effectively respond to competitivepressures; and

·      effectively manage our operating expenselevels.

A number offactors associated with our industry and the markets for our products, many ofwhich are outside our control, may cause our quarterly financial results tofluctuate, including:

·      reduced demand for any of our products;

·      timing and amount of orders by customersand seasonality in the buying patterns of customers;

·      cancellation, deferral or limitation oforders by customers;

·      fluctuations in foreign currency exchangerates; and

·      weakness or uncertainty in generaleconomic or industry conditions.

Quarterly changesin our financial results could cause the trading price of our common stock tofluctuate significantly after the merger. If our quarterly financial results or our predictions of futurefinancial results fail to meet the expectations of securities analysts andinvestors, our stock price could be negatively affected. Any volatility in ourquarterly financial results may make it more difficult for us to raise capitalin the future or pursue acquisitions that involve issuances of our stock orsecurities convertible into or exercisable for our stock. You should not relyon the results of prior periods as predictors of our future performance.

### **New Accounting Pronouncements**

In September 2006, theFASB issued SFAS No. 157, Fair Value Measurements. This statement definesfair value, establishes a framework for measuring fair value in generallyaccepted accounting principles (“GAAP”), and expands disclosures about fairvalue measurements. This statement is effective for financial statements issuedfor fiscal years beginning after November 15, 2007. The Company does notcurrently believe that the adoption of SFAS 157 will have a material impact onthe consolidated financial statements.

In February 2007, the Financial Accounting Standards Board (“FASB”)issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities”, which provides companies with an option to reportselected financial assets and liabilities at fair value. The objective of SFASNo. 159 is to reduce both complexity in accounting for financialinstruments and the volatility in earnings caused by measuring related assetsand liabilities differently. SFAS No. 159 also establishes presentationand disclosure requirements designed to facilitate comparisons betweencompanies that choose different measurement attributes for similar types ofassets and liabilities. SFAS No. 159 is effective for the Company as of January 1,2008. We have not completed our evaluation of SFAS No. 159 but do notexpect the adoption of SFAS No. 159 to have a material effect on ouroperating results or financial position.

In July 2006, theFASB issued FASB Interpretation No. 48, Accounting for Uncertainty inIncome Taxes, (“FIN 48”) an interpretation of FASB Statement No. 109,Accounting for Income Taxes. FIN 48 requires that a position taken orexpected to be taken in a tax return be recognized in the financial statementswhen it is more likely than not (i.e. a likelihood of more than fiftypercent) that the position would be sustained upon examination by taxauthorities. A recognized tax position is then measured at the largest amountof benefit that is greater than fifty percent likely of being realized uponultimate settlement. Upon adoption, the cumulative effect of applying therecognition and measurement provisions of FIN 48, if any, shall be 

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reflected as anadjustment to the opening balance of retained earnings. FIN 48 requiresthat subsequent to initial adoption a change in judgment that results insubsequent recognition, derecognition or change in a measurement of a taxposition taken in a prior annual period (including any related interest andpenalties) be recognized as a discrete item in the period in which the changeoccurs. Currently, we record such changes in judgment, including auditsettlements, as a component of the Company’s income tax provision. Thus, theCompany’s reported quarterly income tax rate may become more volatile uponadoption of FIN 48. This change will not impact the manner in which werecord income tax expense on an annual basis. FIN 48 also requiresexpanded disclosures including identification of tax positions for which it isreasonably possible that total amounts of unrecognized tax benefits willsignificantly change in the next twelve months, a description of tax years thatremain subject to examination by major tax jurisdiction, a tabularreconciliation of the total amount of unrecognized tax benefits at the beginningand end of each annual reporting period, the total amount of unrecognized taxbenefits that, if recognized, would affect the effective tax rate and the totalamounts of interest and penalties recognized in the statements of operationsand financial position. FIN 48 is effective for fiscal years beginningafter December 15, 2006. The standard did not have an impact on theConsolidated Financial Statements.

**Item 3.            Controls and Procedures**

Attached asexhibits to this Quarterly Report on Form 10-QSB/A are certifications of ASPYRA’sChief Executive Officer and Chief Financial Officer, which are required inaccordance with Rule 13a-14 of the Securities Exchange Act of 1934, asamended (the “Exchange Act”). This “Controls and Procedures” section includes informationconcerning the controls and controls evaluation referred to in thecertifications.  This section should beread in conjunction with the certifications for a more complete understandingof the topics presented.

**Restatementof Previously Issued Financial Statements**

As disclosed inthe Company’s original 10-QSB filing for the period ended March 31, 2007, theCompany had previously carried out an evaluation of the effectiveness of thedesign and operation of the disclosure controls and procedures and hadpreviously concluded that such disclosure controls and procedures wereeffective. Subsequent to Company’s original 10-QSB filing, the Company hasrestated its condensed consolidated financial statements for the three monthsended March 31, 2007 as discussed in Note 11 to the unaudited condensedconsolidated financial statements included with Part I, Item 1 ofthis report.

As a result, theCompany has reassessed its evaluation, under the supervision and with theparticipation of the Company’s management, including the Chief ExecutiveOfficer and the Chief Financial Officer, of the effectiveness of the design andoperation of the disclosure controls and procedures, as defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,as amended (the “Exchange Act”). Based upon its reassessed evaluation,management, including the Company’s Chief Executive Officer and Chief FinancialOfficer concluded that the Company’s disclosure controls and procedures werenot effective as of March 31, 2007. There are inherent limitations to the effectiveness of any system ofdisclosure controls and procedures, including cost limitations, judgments usedin decision making, assumptions regarding the likelihood of future events,soundness of internal controls, fraud, the possibility of human error and thecircumvention or overriding of the controls and procedures. Management hasconcluded that as of March 31, 2007, the Company did not maintain effectivecontrols over the preparation and review of its consolidated financialstatements.  Specifically, the Companydid not maintain effective controls to appropriately report deferred servicerevenues and accrued accounting expenses. This control deficiency resulted in the restatement of the Company’scondensed consolidated financial statements for the period ended March 31,2007, as reflected in this amended Quarterly Report on Form 10-QSB/A.Accordingly, management has determined this control deficiency constitutes amaterial weakness.

**Changesin Internal Control over Financial Reporting**

Except as notedbelow there was no change in internal control over financial reporting duringthe most recently completed fiscal quarter that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

In an effort toremediate the material weakness in the Company’s internal control overfinancial reporting described above, management has subsequently implemented arevised process to reconcile the deferred service revenues and accruedaccounting expenses. Accordingly, management believes this process hasremediated the material weakness discussed above.

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**PART II — OTHER INFORMATION**
| **Item 1.**                                                                                                                                                  | ****Legal  Proceedings****                                                                                                   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                   | **** ****                                                                                                               |
|                                                                                                                                                         | None.                                                                                                                        |
|                                                                                                                                                         |                                                                                                                         |
| **Item 2.**                                                                                                                                                  | ****Unregistered  Sales Of Equity Securities And Use Of Proceeds.****                                                        |
| ** **                                                                                                                                                   | **** ****                                                                                                               |
|                                                                                                                                                         | None.                                                                                                                        |
|                                                                                                                                                         |                                                                                                                         |
| **Item 3.**                                                                                                                                                  | ****Defaults Upon  Senior Securities.****                                                                                    |
| ** **                                                                                                                                                   | **** ****                                                                                                               |
|                                                                                                                                                         | None.                                                                                                                        |
|                                                                                                                                                         |                                                                                                                         |
| **Item 4.**                                                                                                                                                  | ****Submission Of  Matters To A Vote Of Security Holders.****                                                                |
| ** **                                                                                                                                                   | **** ****                                                                                                               |
|                                                                                                                                                         | None.                                                                                                                        |
|                                                                                                                                                         |                                                                                                                         |
| **Item 5.**                                                                                                                                                  | ****Other  Information.****                                                                                                  |
| ** **                                                                                                                                                   | **** ****                                                                                                               |
|                                                                                                                                                         | None.                                                                                                                        |
|                                                                                                                                                         |                                                                                                                         |
| **Item 6.**                                                                                                                                                  | **Exhibits**                                                                                                                 |
| ** **                                                                                                                                                   | ** **                                                                                                                   |
| Exhibit 3.1                                                                                                                                                  | Restated Articles of Incorporation, as Amended  (previously filed as an exhibit to the Company’s Registration Statement |
| on Form S-18 dated September 22, 1983, SEC File No.  2-85265 and incorporated herein by reference).                                                          |
|                                                                                                                                                         |                                                                                                                         |
| Exhibit 3.2                                                                                                                                                  | Amendment to the Restated Articles of Incorporation  (incorporated by reference to Annex E to the joint proxy                |
| statement/prospectus that is part of the Company’s  Registration Statement on Form S-4, originally filed on October 3, 2005, SEC  file No. 333-128795). |
|                                                                                                                                                         |                                                                                                                         |
| Exhibit 3.3                                                                                                                                                  | By-Laws, as amended (previously filed as an exhibit  to the Company’s Registration Statement on Form S-18 dated         |
| September 22, 1983, SEC File No. 2-85265 and  incorporated herein by reference).                                                                             |
|                                                                                                                                                         |                                                                                                                         |
| Exhibit 31.1                                                                                                                                                 | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934.*                |
|                                                                                                                                                         |                                                                                                                         |
| Exhibit 31.2                                                                                                                                                 | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934.*                |
|                                                                                                                                                         |                                                                                                                         |
| Exhibit 32.1                                                                                                                                                 | Certification of Chief Executive Officer pursuant to  Rule 13a-14(b) of the Securities Exchange Act of 1934.*                |
|                                                                                                                                                         |                                                                                                                         |
| Exhibit 32.2                                                                                                                                                 | Certification of Chief Financial Officer pursuant to  Rule 13a-14(b) of the Securities Exchange Act of 1934.*                |

 

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*** Filedherewith.**

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**SIGNATURES**

In accordance withthe requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.
| ASPYRA, INC.          |   |                                                   |
|-----------------------|--------|--------------------------------------------------------|
| (Registrant)          |   |                                                   |
|                  |   |                                                   |
|                  |   |                                                   |
| Date: August 20, 2007 |   | /S/ Steven M. Besbeck                                  |
|                  |   | Steven M. Besbeck, President and                       |
|                  |   | Chief Executive Officer (Principal Executive  Officer) |
|                  |   |                                                   |
|                  |   |                                                   |
| Date: August 20, 2007 |   | /S/ Anahita Villafane                                  |
|                  |   | Anahita Villafane,                                     |
|                  |   | Chief Financial Officer (Principal Financial and       |
|                  |   | Accounting Officer)                                    |

 

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**EXHIBITINDEX**
| 3.1    | Restated Articles of Incorporation, as Amended  (previously filed as an exhibit to the Company’s Registration Statement on  Form S-18 dated September 22, 1983, SEC File No. 2-85265).                                                                                |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                       |
| 3.2    | Amendment to the Restated Articles of Incorporation  (incorporated by reference to Annex E to the joint proxy statement/prospectus  that is part of the Company’s Registration Statement on Form S-4, originally  filed on October 3, 2005, SEC file No. 333-128795). |
|   |                                                                                                                                                                                                                                                                       |
| 3.3    | By-Laws, as amended (previously filed as an exhibit  to the Company’s Registration Statement on Form S-18 dated September 22,  1983, SEC File No. 2-85265).                                                                                                           |
|   |                                                                                                                                                                                                                                                                       |
| 31.1   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934.*                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                       |
| 31.2   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934.*                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                       |
| 32.1   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(b) of the Securities Exchange Act of 1934.*                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                       |
| 32.2   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(b) of the Securities Exchange Act of 1934.*                                                                                                                                                              |

 

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* Filed herewith.

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