**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM10-Q**

** **
| **Mark One**                                                                                                                                                                                                               | ** **                                                                                    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                       |                                                                                          |
| **x**                                                                                                                                                                                                                      | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|                                                                                                                                                                                                                       |                                                                                          |
| **For  The Quarterly Period Ended September 30, 2007**                                                                                                                                                                     |
|                                                                                                                                                                                                                       |                                                                                          |
| **o**                                                                                                                                                                                                                      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                 | ** **                                                                                    |
| **For  the Transition Period  from               to               ** |
|                                                                                                                                                                                                                            |                                                                                               |  |

 

**CommissionFile Number 333-125575**

 

**INFOLOGIX,INC.**

(Exact name of registrantas specified in its charter)

 

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

 

**(215)604-0691**

 (Registrant’s telephone number, including areacode)

 

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

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act.

 

Large acceleratedfiler  o       Acceleratedfiler  o       Non-acceleratedfiler  x

 

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

 

The number of shares outstanding of each of the issuer’sclasses of common stock as of the latest practicable date,

 
| **Class**                                   | ** ** | **Outstanding  at November 2, 2007** |
|---------------------------------------------|------------|--------------------------------------|
| Common Stock, $0.00001  par value per share |       | 24,899,301 Shares                    |

 

 

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**TABLE OFCONTENTS**

 
| **PART I —  FINANCIAL INFORMATION** |
|------------------------------------------|
|                                     |   |   |
| Item 1.                                  | Financial  Statements |   |
|                                     |   |   |
|                                     | Consolidated Balance Sheets as of September 30, 2007  (unaudited) and December 31, 2006 | 3 |
|                                     |   |   |
|                                     | Consolidated  Statements of Operations (unaudited) for the three and nine months ended  September 30, 2007 and 2006 | 4 |
|                                     |   |   |
|                                     | Consolidated Statements of Cash Flows (unaudited) for  the nine months ended September 30, 2007 and 2006 | 5 |
|                                     |   |   |
|                                     | Consolidated Statements of Changes in Stockholders’  Equity for the nine months ended September 30, 2007 | 6 |
|                                     |   |   |
|                                     | Notes to Consolidated Financial Statements | 7 |
|                                     |   |   |
| Item 2.                                  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 18 |
|                                     |   |   |
| Item 3.                                  | Quantitative  and Qualitative Disclosures About Market Risk | 25 |
|                                     |   |   |
| Item 4.                                  | Controls and Procedures | 25 |
|                                     |   |   |
| **PART  II — OTHER INFORMATION**    |
| ** **                               | ** ** | ** ** |
| Item 1.                                  | Legal Proceedings | 26 |
| ** **                               | ** ** | ** ** |
| Item  1A.                                | Risk  Factors | 26 |
|                                     |   |   |
| Item 2.                                  | Unregistered  Sales of Equity Securities and Use of Proceeds | 36 |
| ** **                               | ** ** | ** ** |
| Item 6.                                  | Exhibits |   |
|                                     |   |   |
|                                     | Signatures | 38 |

 

2

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**PART I - FINANCIAL INFORMATION**

 

**Item 1. *Financial Statements***

 

**INFOLOGIX,INC.**

**Consolidated Balance Sheets**

** **
| ** **                                                                                                                                                                                   | ** ** | **(Unaudited)**        | ** ** | ** **            | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                   | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                                                                                                   | ** ** | **2007**               | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                                                                                                   |       |                   |       |                  |       |
| Currents assets:                                                                                                                                                                             |       |                   |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                   |       | $                      | 9,661,872  |                  | $          | 12,882,044 |   |
| Accounts and  other receivables (net of allowance for doubtful accounts in the amount of  $188,102 and $120,000 at September 30, 2007 and December 31, 2006,  respectively)                  |       | 18,809,941             |       | 11,797,265            |       |
| Finished goods  inventory, net                                                                                                                                                               |       | 2,357,681              |       | 2,227,201             |       |
| Prepaid expenses  and other current assets                                                                                                                                                   |       | 718,939                |       | 906,793               |       |
| Deferred tax  assets                                                                                                                                                                         |       | 126,142                |       | 311,478               |       |
| Total current  assets                                                                                                                                                                        |       | 31,674,575             |       | 28,124,781            |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Property and  equipment, net                                                                                                                                                                 |       | 1,434,740              |       | 1,200,680             |       |
| Intangible  assets, net                                                                                                                                                                      |       | 13,467,744             |       | 1,111,634             |       |
| Deferred tax  assets                                                                                                                                                                         |       | 2,819,928              |       | 1,375,486             |       |
| Total assets                                                                                                                                                                                 |       | $                      | 49,396,987 |                  | $          | 31,812,581 |   |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                | ** ** | ** **             | ** ** | ** **            | ** ** |
| Accounts payable                                                                                                                                                                             |       | $                      | 8,270,429  |                  | $          | 6,584,489 |   |
| Amounts due  under asset purchase agreement (Note L)                                                                                                                                         |       | 5,104,183              |       | —                |       |
| Line of credit                                                                                                                                                                               |       | 8,187,463              |       | 5,954,672             |       |
| Current portion  of notes payable                                                                                                                                                            |       | 903,384                |       | 833,333               |       |
| Current portion  of capital lease obligations                                                                                                                                                |       | 100,617                |       | 116,973               |       |
| Sales tax  payable                                                                                                                                                                           |       | 230,233                |       | 342,064               |       |
| Accrued expenses                                                                                                                                                                             |       | 2,386,469              |       | 767,967               |       |
| Total current  liabilities                                                                                                                                                                   |       | 25,182,778             |       | 14,599,498            |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Notes payable                                                                                                                                                                                |       | 4,548,933              |       | 1,194,445             |       |
| Capital lease  obligations, net of current maturities                                                                                                                                        |       | 39,235                 |       | 130,378               |       |
| Total  liabilities                                                                                                                                                                           |       | 29,770,946             |       | 15,924,321            |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Commitments and  Contingencies (Note M)                                                                                                                                                      |       |                   |       |                  |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Stockholders’  equity:                                                                                                                                                                  |       |                   |       |                  |       |
| Preferred stock,  par value $0.00001; authorized 10,000,000 shares; none issued or outstanding                                                                                               |       | —                 |       | —                |       |
| Common stock,  par value $0.00001; authorized 100,000,000 shares; issued and outstanding 24,899,301  shares and 23,595,663 shares at September 30, 2007 and December 31, 2006,  respectively |       | 249                    |       | 236                   |       |
| Additional paid  in capital                                                                                                                                                                  |       | 23,473,826             |       | 17,802,373            |       |
| Accumulated  deficit                                                                                                                                                                         |       | (3,848,034             | )          | (1,914,349            | )          |
| Total  stockholders’ equity                                                                                                                                                             |       | 19,626,041             |       | 15,888,260            |       |
|                                                                                                                                                                                         |       |                   |       |                  |       |
| Total  liabilities and stockholders’ equity                                                                                                                                             |       | $                      | 49,396,987 |                  | $          | 31,812,581 |   |

 

The accompanying notesare an integral part of these unaudited consolidated financial statements.

 

3

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**INFOLOGIX,INC.**

 

**UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                    | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                                 | ** ** | **2006**                                                | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues                                      |       | $                                                        | 20,082,738 |                                                    | $          | 15,960,764 |   | $ | 54,370,573 |   | $ | 44,346,412 |   |
|                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Cost of Revenues                              |       | 14,540,238                                               |       | 11,722,144                                              |       | 39,832,971 |   | 33,145,226 |   |
|                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Gross profit                                  |       | 5,542,500                                                |       | 4,238,620                                               |       | 14,537,602 |   | 11,201,186 |   |
|                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Selling, general  and administrative expenses |       | 6,240,159                                                |       | 3,871,800                                               |       | 17,614,729 |   | 10,052,516 |   |
|                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Operating (loss)  income                      |       | (697,659                                                 | )          | 366,820                                                 |       | (3,077,128 | ) | 1,148,670 |   |
|                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Interest income                               |       | 108,435                                                  |       | —                                                  |       | 400,431 |   | — |   |
| Interest expense                              |       | (205,854                                                 | )          | (197,145                                                | )          | (516,094 | ) | (488,444 | ) |
|                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Income (loss)  before income tax benefit      |       | (795,078                                                 | )          | 169,675                                                 |       | (3,192,791 | ) | 660,226 |   |
|                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Income tax  benefit                           |       | 329,087                                                  |       | —                                                  |       | 1,259,106 |   | — |   |
|                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Net (loss)  income                            |       | $                                                        | (465,991   | )                                                       | $          | 169,675 |   | $ | (1,933,685 | ) | $ | 660,226 |   |
|                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| (Loss) earnings  per share:                   |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic                                         |       | $                                                        | (0.02      | )                                                       | $          | 0.01 |   | $ | (0.08 | ) | $ | 0.05 |   |
| Diluted                                       |       | $                                                        | (0.02      | )                                                       | $          | 0.01 |   | $ | (0.08 | ) | $ | 0.05 |   |
|                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Weighted average  shares outstanding:         |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic                                         |       | 24,152,217                                               |       | 12,500,000                                              |       | 23,930,389 |   | 12,500,000 |   |
| Diluted                                       |       | 24,152,217                                               |       | 12,500,000                                              |       | 23,930,389 |   | 12,500,000 |   |

 

The accompanying notesare an integral part of theseunaudited consolidated financial statements.

 

4

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**INFOLOGIX,INC.**

 

**UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS**

** **
| ** **                                                          | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                          | ** ** | **2007**                                                | ** ** | **2006** | ** ** |
| **Operating  activities:**                                          |       |                                                    |       |   |   |
| Net income  (loss)                                                  |       | $                                                       | (1,933,685 | ) | $ | 660,226 |   |
| Adjustments to  reconcile net income (loss) to operating cash flow: |       |                                                    |       |   |   |
| Depreciation and  amortization                                      |       | 1,163,167                                               |       | 873,620 |   |
| Allowance for  doubtful accounts receivable                         |       | 68,102                                                  |       | — |   |
| Share based  compensation                                           |       | 750,003                                                 |       | — |   |
| Deferred income  tax benefit                                        |       | (1,259,106                                              | )          | (112,336 | ) |
| Loss on sale of  property and equipment, net                        |       | 10,082                                                  |       | — |   |
| Inventory  obsolescence                                             |       | 380,000                                                 |       | 123,965 |   |
| Common stock  issued for services                                   |       | 38,200                                                  |       | — |   |
| Changes in:                                                         |       |                                                    |       |   |   |
| Accounts  receivable                                                |       | (4,478,719                                              | )          | (198,104 | ) |
| Finished goods  inventory                                           |       | (510,480                                                | )          | (347,118 | ) |
| Prepaid expenses  and other current assets                          |       | 187,854                                                 |       | (911,566 | ) |
| Accounts payable                                                    |       | 1,685,940                                               |       | (1,244,604 | ) |
| Sales tax  payable                                                  |       | (111,831                                                | )          | 8,943 |   |
| Accrued expenses                                                    |       | 1,153,652                                               |       | 94,895 |   |
| Deferred revenue                                                    |       | —                                                  |       | (186,397 | ) |
| Net cash used in  operating activities                              |       | (2,856,821                                              | )          | (1,238,476 | ) |
|                                                                |       |                                                    |       |   |   |
| **Investing  activities:**                                          |       |                                                    |       |   |   |
| Cash acquisition  of AMT, HIA, DDMS business assets                 |       | (578,410                                                | )          | — |   |
| Acquisition of  property, equipment and intangibles                 |       | (1,334,773                                              | )          | (761,260 | ) |
| Net cash used in  investing activities                              |       | (1,913,183                                              | )          | (761,260 | ) |
|                                                                |       |                                                    |       |   |   |
| **Financing  activities:**                                          |       |                                                    |       |   |   |
| Proceeds from  long-term debt                                       |       | —                                                  |       | 2,500,000 |   |
| Repayment of  long-term debt and capital leases                     |       | (682,960                                                | )          | (1,750,824 | ) |
| Dividends paid  to stockholders                                     |       | —                                                  |       | (740,016 | ) |
| Net borrowings  from line of credit                                 |       | 2,232,792                                               |       | 1,634,566 |   |
| Net cash  provided by financing activities                          |       | 1,549,832                                               |       | 1,643,726 |   |
|                                                                |       |                                                    |       |   |   |
| Net change in  cash and cash equivalents                            |       | (3,220,172                                              | )          | (356,010 | ) |
|                                                                |       |                                                    |       |   |   |
| Cash and cash  equivalents at beginning of year                     |       | 12,882,044                                              |       | 447,901 |   |
|                                                                |       |                                                    |       |   |   |
| Cash and cash  equivalents at end of quarter                        |       | $                                                       | 9,661,872  |   | $ | 91,891 |   |

 

The accompanying notesare an integral part of these unaudited consolidated financial statements.

 

5

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**INFOLOGIX,INC.**

 

**CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**

**For theNine Months Ended September 30, 2007**

**(unaudited)**

 
| ** **                         | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional**  | ** ** | ** **             | ** ** | **Total**  | ** ** |
|------------------------------------|------------|-----------------------|------------|-------------|------------|-----------------|------------|------------------------|------------|------------|------------|
| ** **                         | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Accumulated** | ** ** | **Stockholder’s** | ** ** |
| ** **                         | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **Deficit**            | ** ** | **Equity** | ** ** |
| Balances,  December 31, 2006       |       | 23,595,663            |       | $           | 236        |            | $          | 17,802,373             |       | $          | (1,914,349 | ) | $ | 15,888,260 |   |
|                               |       |                  |       |        |       |            |       |                   |       |       |       |
| Stock-Based  Compensation          |       | —                |       | —      |       | 750,003         |       | —                 |       | 750,003    |       |
|                               |       |                  |       |        |       |            |       |                   |       |       |       |
| Common Stock  issued DDMS purchase |       | 400,000               |       | 4           |       | 1,519,996       |       | —                 |       | 1,520,000  |       |
|                               |       |                  |       |        |       |            |       |                   |       |       |       |
| Common Stock  issued AMT purchase  |       | 138,160               |       | 1           |       | 500,000         |       | —                 |       | 500,001    |       |
|                               |       |                  |       |        |       |            |       |                   |       |       |       |
| Common Stock  issued HIA purchase  |       | 755,478               |       | 8           |       | 2,863,254       |       | —                 |       | 2,863,262  |       |
|                               |       |                  |       |        |       |            |       |                   |       |       |       |
| Common Stock  issued to advisor    |       | 10,000                |       | 0           |       | 38,200          |       | —                 |       | 38,200     |       |
|                               |       |                  |       |        |       |            |       |                   |       |       |       |
| Net Loss                           |       | —                |       | —      |       | —          |       | (1,933,685             | )          | (1,933,685 | )          |
|                               |       |                  |       |        |       |            |       |                   |       |       |       |
| Balances,  September 30, 2007      |       | 24,899,301            |       | $           | 249        |            | $          | 23,473,826             |       | $          | (3,848,034 | ) | $ | 19,626,041 |   |

 

6

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**INFOLOGIX,INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

The accompanyingunaudited consolidated financial statements of InfoLogix, Inc. andsubsidiaries (collectively, the “Company”) have been prepared in accordancewith United States generally accepted accounting principles (“GAAP”) forinterim financial information and with the instructions for Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all ofthe information and footnotes required by GAAP for complete consolidated financialstatements. In the opinion of management, all adjustments (consisting of normalrecurring accruals) considered necessary for a fair presentation have beenincluded. The notes to the audited consolidated financial statements containedin the Annual Report on Form 10-K for the year ended December 31,2006 should be read in conjunction with these unaudited consolidated financialstatements.  Operating results for the nine and three months endedSeptember 30, 2007 are not necessarily indicative of the results that maybe expected for the year ending December 31, 2007.

 

**NOTEA—MERGER**

 

On November 22,2006, New Age Translation, Inc., a Nevada corporation (“New Age-NV”) wasmerged with and into New Age Translation, Inc., a Delaware corporation (“NewAge-DE”), for the sole purpose of changing the state of incorporation fromNevada to Delaware pursuant to a Certificate of Ownership and Merger datedNovember 22, 2006 and approval by the stockholders on November 22,2006. Under the terms of the Certificate of Ownership, each share of New Age-NVwas exchanged for 3.18877518427542 shares of New Age-DE, or an aggregate of18,539,539 shares. On November 22, 2006, 15,943,876 shares of common stockof New Age-DE were cancelled and 2,595,663 shares of common stock of New Age-DEremained outstanding.

 

On November 29,2006, New Age-DE entered into an Agreement and Plan of Merger (the “MergerAgreement”) with InfoLogix, Inc., a privately held Delaware corporation (“InfoLogix”),and INFLX Acquisition Corp., a newly formed wholly-owned Delaware subsidiary ofNew Age-DE (“Merger Sub”), pursuant to which Merger Sub merged with and intoInfoLogix (the “Merger”) on November 29, 2006. As a result, InfoLogix isnow a wholly owned subsidiary of New Age-DE. In connection with the Merger, NewAge-DE changed its name to “InfoLogix, Inc.” and InfoLogix changed itsname to “InfoLogix Systems Corporation.”

 

Pursuant to the terms andconditions of the Merger Agreement, each share of InfoLogix common stock issuedand outstanding immediately prior to the closing of the Merger was convertedinto the right to receive 25,000 shares of New Age-DE common stock. As aresult, 12,500,000 shares of New Age common stock were issued to thestockholders of InfoLogix. Immediately after closing of the Merger onNovember 29, 2006, there were 15,095,663 shares of New Age-DE common stockissued and outstanding, approximately 82.8% of which shares are currently heldby the former stockholders of InfoLogix.

 

On November 29,2006, concurrent with the Merger, the Company closed on a private placement of8,500,000 shares of its common stock to accredited investors. The shares weresold for an aggregate purchase price of $17,000,000 before costs associatedwith the private placement of $2,020,825.  The private placement wasexempt from registration under the Securities Act of 1933 as amended.

 

The Merger was accountedfor under the purchase method of accounting as a reverse acquisition inaccordance with GAAP. Under this method of accounting, New Age-DE was treatedas the “acquired” company for financial reporting purposes. In accordance withguidance applicable to these circumstances, the Merger was considered to be acapital transaction in substance. Accordingly, for accounting purposes, theMerger was treated as the equivalent of InfoLogix issuing stock for the netmonetary assets of New Age-DE, accompanied by a recapitalization. Allhistorical share and per share amounts have been retroactively adjusted to giveeffect to the reverse acquisition of InfoLogix and related recapitalization.

 

**NOTEB—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

***Nature of business***

 

The Company providesmobile intelligence technology solutions by enabling real time datacommunications anywhere in an enterprise through wireless network design, hardware,software, consulting, system integration and network management solutions.

 

7

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***Principles of consolidation***

 

The consolidatedfinancial statements include the accounts of the Company and its wholly-ownedsubsidiaries. All significant inter-company balances and transactions have beeneliminated in consolidation.

 

***Cash and cash equivalents***

 

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

 

***Fair value of financial instruments***

 

The Company used thefollowing methods and assumptions in estimating the fair value disclosures forfinancial instruments:

 

Cash and cashequivalents: The carrying value approximates fair value due to the currentmaturity of these instruments.

 

Long- and short-termdebt: The carrying value of the debt is considered to approximate fair valuebecause the underlying interest rates approximate market rates at the balancesheet date.

 

***Concentrations of credit risk***

 

Financial instrumentsthat subject the Company to credit risk consist of cash equivalents andaccounts receivable.

 

The Company’s policy isto limit the amount of its credit exposure to any one financial institution,and place investments with financial institutions evaluated as beingcreditworthy, or in short-term money market funds which are exposed to minimalinterest rate and credit risk. The Company maintains its cash primarily ininvestment accounts within large financial institutions. The Federal DepositInsurance Corporation insures these balances up to $100,000 per bank. TheCompany has not experienced any losses on its bank deposits and managementbelieves these deposits do not expose the Company to any significant creditrisk.

 

The Company grantscredit, generally without collateral, to its customers, which are primarily inthe healthcare and commercial markets. Consequently, the Company is subject topotential credit risk related to changes in economic conditions within thosemarkets. However, management believes that its billing and collection policiesare adequate to minimize the potential credit risk.

 

The Company has a policyof reserving for uncollectible accounts based on its best estimate of the amountof probable credit losses in its existing accounts receivable. The Companyperiodically reviews its accounts receivable to determine whether an allowanceis necessary based on an analysis of past due accounts and other factors thatmay indicate that the realization of an account may be in doubt includinghistorical experience and current economic and market conditions. Accountbalances deemed to be uncollectible are charged to the allowance after allmeans of collection have been exhausted and the potential for recovery isconsidered remote.

 

***Inventory***

 

Inventory is stated atthe lower of cost or market. Cost is determined using the first in, first outmethod.

 

***Reclassification***

 

Certain amounts in the December 31, 2006Consolidated Balance Sheet have been reclassified in order to conform to thepresentation as of September 30, 2007.

 

***Property, equipment and intangible assets***

 

Property and equipment,intangible and certain other long-lived assets are depreciated and amortizedover their useful lives. Useful lives are based on management’s estimates ofthe period that the assets will generate revenue. Intangible assets arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. In accordance withStatement of Financial Standards (SFAS) 142, “Goodwill and Other IntangibleAssets” the Company’s unamortized goodwill balance is not being amortized overits estimated useful life; rather, it is being assessed at least annually for impairment.

 

***Software capitalization***

 

The Company capitalizescertain costs related to the acquisition and development of software andamortizes these costs using the straight-line method over the estimated usefullife of the software which is three to five years. In accordance withSFAS 86,**

 

8

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*Accountingfor the Costs of Computer Software to be Sold, Leased or Otherwise Marketed*,the Company expenses as incurred those costs incurred prior to achieving technologicalfeasibility.

 

***Revenue recognition***

 

Revenue consistsprimarily of sales of mobile workstations and other wireless products. Salesrevenue is recognized when both the title and risk of loss transfer to thecustomer, generally upon shipment. The Company also realizes revenue from thesale of component warranties on their wireless mobile products as well as fromthe sale of proprietary learning technologies. Warranty revenue is recognizedupon execution of the warranty agreement. There is no associated warranty riskas the Company has contracted with another party to fully assume all risks andobligations. Revenue from the sale of proprietary learning technologies isrecognized upon delivery and acceptance by the customer. Revenue is alsogenerated from professional services, primarily on a project basis, under whichrevenue is recognized on a fixed fee, time and expense basis or upon acceptanceof our deliverables by clients.

 

Sales tax liability ispresented on a net basis in accordance with Emerging Issues Task Force (EITF)Issue No. 06-03. Sales are not grossed up with the attendant taxes anddeducted as a separate line item.

 

***Advertising costs***

 

Advertising costs areexpensed when incurred and were approximately $32,000 and $93,000 for the threemonths ended September 30, 2007 and 2006, respectively. Advertising costsfor the nine months ended September 30, 2007 and 2006 were approximately$174,000 and $252,000, respectively.

 

In accordance withEITF 02-16,*Accounting by a Customer(Including a Reseller) for Certain Consideration Received from a Vendor*,certain cooperative advertising reimbursements are netted against specific,identifiable costs incurred in connection with the selling of a vendor’sproduct. Cooperative advertising reimbursement was approximately $39,000 and$14,000 for the three months ended September 30, 2007 and 2006,respectively, advertising reimbursement was approximately $74,000 and $81,000for the nine months ended September 30, 2007 and 2006, respectively, andall amounts were recorded as a reduction of advertising expense with the netamount included in selling, general and administrative expenses in theconsolidated statements of operations.

 

***Income taxes***

 

The Company accounts forincome taxes in accordance with SFAS 109,*Accounting for Income Taxes*. SFAS 109 requires that deferredtax assets be reduced by a valuation allowance if it is more likely than notthat some portion or all of the deferred tax asset will not berealized.   For the three months and nine months ended September 30,2007, the Company recorded income tax benefits amounting to $329,087 and$1,259,106 respectively, related primarily to the net operating loss incurredduring this period.

 

The Company adopted theprovisions of Financial Accounting Standards Board (FASB) InterpretationNo. 48,*Accounting for Uncertainty inIncome Taxes*, on January 1, 2007.  FIN 48 prescribesa recognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. As a result of the implementation of FIN 48, the Companydetermined that there were no material liabilities for tax benefits for pastyears and the current period.

 

The Company hasdetermined that any future interest accrued, related to unrecognized taxbenefits, will be included in interest expense. In the event the Company mustaccrue for penalties as a result of FIN 48, they will be included as anoperating expense.

 

Prior to the Mergerdiscussed in Note A, the Company filed its Federal and State Income TaxReturns as a Sub-Chapter S Corporation.  Therefore, any income taxliability from its operations was payable directly by its shareholders. TheCompany’s Sub-Chapter S Corporation status was terminated on November 29,2006, the date of the Merger.  As a result, the results of operations forthe three and nine months ended September 30, 2006 do not include anincome tax provision. The unaudited pro-forma income tax rate for the threemonths and nine months ended September 30, 2006 was 33.3%.

 

***Stock based compensation***

 

Effective January 1,2006, the Company adopted the provisions of SFAS 123(R),*Share-Based Payment*, under the modifiedprospective method which requires that such transactions be accounted for usinga fair-value-based method. Under the modified prospective method, the Companyis required to recognize compensation cost for share-based payments toemployees based on their grant-date fair value from the beginning of the fiscalperiod in which the recognition provisions are first applied.

 

For the three and ninemonths ended September 30, 2007, the recognized compensation cost forstock options and warrants granted to employees during 2006 was $250,001 and$750,003, respectively. In addition, the Company recorded an income taxbenefit 

 

9

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of approximately $97,000and $291,000 for the three and nine month periods ending September 30, 2007,relating to the granting of the nonqualified options and warrants.

 

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

 

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

 

***Earnings per share***

 

The Company has adoptedthe provisions of SFAS 128,*Earningsper Share*. Basic earnings per share is computed by dividing incomeor loss available to common stockholders by the weighted average number ofcommon shares outstanding during the period. SFAS 128 also requires a dualpresentation of basic and diluted earnings per share on the face of thestatement of operations for all companies with complex capital structures.

 

As discussed above, thereis no provision for income taxes for the periods ended September 30,2006.  The unaudited pro-forma results of operations for the nine monthsand three months ended September 30, 2006 and related income per share areas follows:

 
| ** **                                                          | ** ** | **Nine Months Ended** | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|
| **(Unaudited pro-forma results of operations)** | ** ** | **September 30, 2006**          | ** ** | **September 30, 2006**           | ** ** |
| Income before  income taxes                                         |       | $                               | 660,226    |                             | $          | 169,675 |   |
| Pro-forma income  tax expense                                       |       | 219,855                         |       | 56,502                           |       |
| Pro-forma net  income                                               |       | $                               | 440,371    |                             | $          | 113,173 |   |
| Pro-forma  earnings per share:                                      |       |                            |       |                             |       |
| Basic                                                               |       | $                               | .035       |                             | $          | .009 |   |
| Diluted                                                             |       | $                               | .035       |                             | $          | .009 |   |

 

***Use of estimates***

 

The preparation offinancial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenue and expensesduring the reporting period.  Significant estimates are required inaccounting for inventory costing, asset valuations and amortization. Actualresults could differ from those estimates.

 

**NOTE C—PROPERTY AND EQUIPMENT**

 

Property and equipmentconsists of the following:

 
| ** **                              | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Demonstration  and evaluation equipment |       | $                            | 2,943,848  |                        | $          | 2,477,581 |   |
| Equipment                               |       | 766,417                      |       | 593,721                     |       |
| Furniture and fixtures                  |       | 406,073                      |       | 295,425                     |       |
| Leasehold  improvements                 |       | 58,113                       |       | 40,587                      |       |
|                                    |       | 4,174,452                    |       | 3,407,314                   |       |
| Less:  accumulated depreciation         |       | (2,739,712                   | )          | (2,206,634                  | )          |
|                                    |       | $                            | 1,434,740  |                        | $          | 1,200,680 |   |

 

Depreciation expense was$206,764 and $202,166 for the three months ended September 30, 2007 and 2006,respectively. Depreciation expense was $568,485 and $494,291 for the ninemonths ended September 30, 2007 and 2006, respectively.

 

**NOTED—INTANGIBLE ASSETS**

 

Intangible assets consistof the following:

 

10

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| ** **                        | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Patents                           |       | $                            | 2,384,881  |                        | $          | 639,881 |   |
| Less:  accumulated amortization   |       | (678,672                     | )          | (576,921                    | )          |
|                              |       | 1,706,209                    |       | 62,960                      |       |
| Computer  software                |       | 1,536,113                    |       | 791,708                     |       |
| Less:  accumulated amortization   |       | (509,034                     | )          | (219,843                    | )          |
|                              |       | 1,027,079                    |       | 571,865                     |       |
| Developed  technology             |       | 457,057                      |       | 457,525                     |       |
| Less:  accumulated amortization   |       | (396,588                     | )          | (390,716                    | )          |
|                              |       | 60,469                       |       | 66,809                      |       |
| License fees                      |       | 515,468                      |       | 515,000                     |       |
| Less:  accumulated amortization   |       | (255,188                     | )          | (105,000                    | )          |
|                              |       | 260,280                      |       | 410,000                     |       |
| Customer List                     |       | 956,810                      |       | —                      |       |
| Less:  accumulated amortization   |       | (39,867                      | )          | —                      |       |
|                              |       | 916,943                      |       | —                      |       |
| Non compete  agreement            |       | 75,000                       |       | —                      |       |
| Less:  accumulated amortization   |       | (7,814                       | )          | —                      |       |
|                              |       | 67,186                       |       | —                      |       |
| Goodwill                          |       | 99,341                       |       | —                      |       |
| Other intangible  assets (Note L) |       | 9,330,237                    |       | —                      |       |
| Total net  intangible assets      |       | $                            | 13,467,744 |                        | $          | 1,111,634 |   |

 

Amortization expenserelated to intangible assets was $245,728 and $126,161 for the three monthsended September 30, 2007 and 2006, respectively. Amortization expense relatedto intangible assets was $594,682 and $379,329 for the nine months endedSeptember 30, 2007 and 2006, respectively.

 

**NOTEE—DEBT**

 

In March 2006, theCompany executed a Loan and Security Agreement with a bank. Under the terms ofthe agreement and subsequent amendments, the bank provided the Company with an$8,500,000 line of credit and two term loans amounting to $1,500,000, and$1,000,000 respectively. The proceeds from the loans were used to pay offexisting loans and to provide working capital. The loans are collateralized byall of the tangible and intangible assets of the Company. The Loan and SecurityAgreement contains certain financial covenants which must be complied withincluding: minimum annual and quarterly net income tests, a fixed-chargecoverage ratio, and maximum annual capital expenditures.

 

In connection with theclosing of the acquisition of certain assets of Healthcare InformaticsAssociates, Inc., on September 30, 2007, the Company entered into an amendmentto the Loan and Security Agreement pursuant to which the bank increased theCompany’s line of credit to $11,000,000 and provided a new $2,000,000 termloan. In exchange for the increased line of credit and new term loan, the bankreceived a security interest in a Company investment account in an amount equalto $2,600,000.

 

The bank amended certainloan covenants including: (i) an annual net income requirement of negative$250,000 for the six month period ending December 31, 2007 and $500,000 netincome for the twelve month period ending December 31, 2008 and for each fiscalyear thereafter, (ii) a quarterly net income requirement as adjusted, of atleast negative $350,000 for the three month period ending September, 2007 andnet income of at least $0 as of March 31, 2008 and as of the end of the firstthree fiscal quarters thereafter, (iii) a fixed charge coverage ratio of notless than 1.0 to 1.0 for the six month period ending December 31, 2007 and 1.2to 1.0 as of the end of each fiscal quarter thereafter, and (iv) maintainingcash equivalents of at least $4,000,000 at all times.

 

The line of credit andthe term loans mature on March 16, 2011. The bank agreed to postpone principalpayments for two term loans until a final balloon payment due at maturity, or,based upon available cash, and at the bank’s option, the Company may berequired to make an additional annual principal payment from excess availablecash flow. We are obligated to repay the third term loan in equal consecutivemonthly installments of $55,555 on the first day of each month commencing onMarch 1, 2008 with any remaining balance due on the maturity date. If at anytime the lender does not have a lien against the pledged account, we will 

 

11

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become obligated to repayeach of the other term loans in equal consecutive monthly installments of$41,667 and $27,778 beginning on the first day of the month following the dateon which the lender ceases to have a lien on the account.

 

The Company is incompliance with its financial loan covenants from the bank at September 30,2007.

 

***Lines of credit***

 

At September 30, 2007,the outstanding balance of the line of credit was $8.2 million and bearsinterest at 9.0% which is 1.25% above the bank’s prime rate under the creditfacility (7.75%). At December 31, 2006, the outstanding balance on the line ofcredit was $6.0 million.

 

***Notes and other long-term liabilities***

 

Notes and other long-termliabilities, except for capital lease obligations, consist of the following:

 
| ** **                                                                                                                                                                                                  | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                                                                                                                                                                                        | ** ** | ** **                   | ** ** | ** **                  | ** ** |
| Note payable,  bank, principal payable $41,667 monthly over thirty-five months commencing  March 2006. Interest was payable monthly at the prime rate (7.75% at  September 30, 2007) plus 2.0%         |       | $                            | 750,000    |                        | $          | 1,083,333 |   |
| Note payable,  bank, principal payable $27,778 monthly over thirty-five months commencing  December 2006. Interest was payable monthly at the prime rate (7.75% at  September 30, 2007) plus 1.0% |       | 722,223                      |       | 944,445                     |       |
| Convertible note  payable pursuant to the asset purchase agreement (Note L) with Healthcare  Informatics Associates, Inc. Principal and interest payable at 9.0% is due  September 30, 2010                 |       | 3,500,000                    |       | —                      |       |
| Amounts payable  pursuant to the asset purchase agreement with AMT Systems, Inc. (Note K), in  monthly installments of $8,766, interest included, at a rate of 7.84%,  maturing May 31, 2013                |       | 480,094                      |       | —                      |       |
| Total  liabilities                                                                                                                                                                                          |       | 5,452,317                    |       | 2,027,778                   |       |
| Less: current  maturities                                                                                                                                                                                   |       | 903,384                      |       | 833,333                     |       |
| Total notes and  long-term liabilities                                                                                                                                                                      |       | $                            | 4,548,933  |                        | $          | 1,194,445 |   |

 

***Letter of Credit***

 

In November 2006,the Company issued a letter of credit to a vendor for $243,000 to support acustomer order for products. In June 2007, the Company issued a letter ofcredit to a vendor for $350,000. At September 30, 2007 andDecember 31, 2006 the Company had contingent liabilities under the lettersof credit of $350,000 and $161,458 respectively.

 

**NOTEF—CAPITAL LEASE OBLIGATIONS**

 

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

 
| ** **                                   | ** ** | **Amount** | ** ** |
|----------------------------------------------|------------|------------|------------|
| 2007, remainder  of                          |       | $          | 27,588     |   |
| 2008                                         |       | 110,352    |       |
| 2009                                         |       | 12,646     |       |
| Total                                        |       | $          | 150,586    |   |
| Less: amount  representing interest          |       | 10,734     |       |
| Net present  value of minimum lease payments |       | 139,852    |       |
| Less: current  portion                       |       | 100,617    |       |
|                                         |       | $          | 39,235     |   |

 

The Company leases furniture and fixtures and computerequipment under capital leases.  Assets under capital leases included in 

 

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property and equipmentare as follows:

 
| ** **                      | ** ** | **September 30,  2007** | ** ** | **December 31,   2006** | ** ** |
|---------------------------------|------------|------------------------------|------------|-----------------------------------|------------|
| Equipment                       |       | $                            | 439,031    |                              | $          | 439,031 |   |
| Less:  accumulated depreciation |       | (264,185                     | )          | (188,945                          | )          |
| Net leased  assets              |       | $                            | 174,846    |                              | $          | 250,086 |   |

 

**NOTEG—LEASE COMMITMENTS**

 

The Company leases itsfacilities in Pennsylvania and Connecticut, under agreements expiring between2007 and 2011. Total rent expense was approximately $108,000 and $59,000 forthe three months ended September 30, 2007 and 2006, respectively. Rent for thenine months ended September 30, 2007 and 2006 was $263,000 and $144,000respectively.

 

Future minimum leasepayments required under the operating leases in effect subsequent to September30, 2007 are as follows:  

 
| ** **          | ** ** | **Amount** | ** ** |
|---------------------|------------|------------|------------|
| 2007, remainder  of |       | $          | 107,827    |   |
| 2008                |       | 440,838    |       |
| 2009                |       | 445,262    |       |
| 2010                |       | 236,800    |       |
| 2011                |       | 241,500    |       |
|                     |            |            |            |  |

 

**NOTEH—RELATED PARTY TRANSACTIONS**

 

***Notes payable—stockholders***

 

The Company was indebtedto certain stockholders for notes payable. Interest paid to stockholders was$84,778 at September 30, 2006.  The notes were paid in full in August2006.

 

***Support services***

 

Beginning in 2004, theCompany has an agreement with a stockholder’s company to provide extendedwarranties and technical support services on behalf of certain of the Company’scustomers. Under the agreement, the Company was charged $660,388 and $571,457for the three months ended September 30, 2007 and 2006, respectively, and madepayments under this agreement of $642,098 and $484,804 for the three monthsended September 30, 2007 and 2006, respectively. The Company was charged$1,715,388 and $1,304,721 for the nine months ended September 30, 2007 and2006, respectively, and made payments under this agreement of $1,577,579 and$1,226,447 for the nine months ended September 30, 2007 and 2006, respectively.

 

***Due from related party***

 

There was approximately$1,923,997 and $116,956 due from Corrugated Service Corp. d/b/a Amtech, arelated party, at September 30, 2007 and December 31, 2006 for the sale ofcertain hardware products. These amounts are classified as accounts receivablein the accompanying financial statements.

 

**NOTEI—CUSTOMER AND VENDOR CONCENTRATIONS**

 

The Company had sales to significant customers as follows:

 
| ** ** | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** ** | ** ** | **2007**                                                 | ** ** | **2006**                                                | ** ** | **2007** | ** ** | **2006** | ** ** |
| Customer A |       | 14                                                       | %          | 11                                                      | %          | 15 | % | 14 | % |
| Customer B |       | 0                                                        | %          | 13                                                      | %          | 1 | % | 5 | % |

 

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The Company had a significant vendor providing hardware purchases asfollows:

 
| ** ** | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** ** | ** ** | **2007**                                                 | ** ** | **2006**                                                | ** ** | **2007** | ** ** | **2006** | ** ** |
| Vendor A   |       | 28                                                       | %          | 27                                                      | %          | 33 | % | 31 | % |

 

**NOTE J—ACQUISITION OF DDMS PATENTS**

 

On April 9, 2007, theCompany acquired DDMS Holdings, LLC, a privately held Florida company through amerger of DDMS Holdings, LLC with the Company’s newly formed wholly-ownedsubsidiary InfoLogix-DDMS, Inc. After the merger, InfoLogix-DDMS, Inc. was thesurviving wholly-owned subsidiary of the Company. The acquired assets consistedof five US patents, along with one published US patent application and fourforeign patents issued and five foreign patents that are currently pending.Consideration given for all of the shares of DDMS Holdings, LLC included$200,000 in cash and the issuance of 400,000 shares of the Company’s commonstock. Under the terms of the merger agreement, the Company agreed to commitfunds as it deems necessary toward the maintenance and expansion of the patentsand patent applications acquired in the merger, including a minimum of $250,000before April 9, 2008. The 400,000 shares of common stock are subject to aone-year lock-up period. This acquisition of the DDMS patents was accounted forin accordance with SFAS 142.

 
| Cash paid                             |   | $         | 200,000   |   |
|---------------------------------------|--------|-----------|-----------|--------|
| Common stock  issued (400,000 shares) |   | 1,520,000 |      |
| Acquisition  costs                    |   | 25,000    |      |
|                                  |   | $         | 1,745,000 |   |

 

The value of the commonstock issued above was based on the average closing market price of the Company’scommon stock for the period three days before and three days after the date ofissuance of the common stock.

 

The purchase price was allocated to the assets and based on their fairvalues on the date of acquisition as follows:

 
| Patents and  application |   | $ | 1,745,000 |   |
|--------------------------|--------|---|-----------|--------|

 

The patents acquired arebeing amortized over the average remaining life of sixteen years.

 

**NOTE K —ACQUISITION OF CERTAIN ASSETSOF AMTSYSTEMS, INC.**

 

On May 10, 2007, theCompany, through its wholly-owned subsidiary InfoLogix Systems Corporation,acquired certain assets of AMT Systems, Inc. (“AMT”) pursuant to an assetpurchase agreement.  The acquired assets include the rights to existingrelationships with customers, vendors and partners, and the intellectualproperty rights behind AMT’s clinical and financial mobility solutions forhealthcare.  The purchase price paid by the Company consisted of $100,000in cash, 138,160 shares of the Company’s common stock at closing, and $500,000,payable in 72 equal monthly installments of $8,766 plus interest.  Theissuance of the shares of common stock was unregistered and the shares aresubject to a two-year lock-up. The acquisition was accounted for under SFAS 141“Business Combinations” and results have been included in the statement ofoperations from May 10, 2007 through September 30, 2007.

 
| Cash paid                             |   | $       | 100,000   |   |
|---------------------------------------|--------|---------|-----------|--------|
| Common stock  issued (138,160 shares) |   | 500,000 |      |
| Installment  payments                 |   | 500,000 |      |
| Acquisition  costs                    |   | 135,000 |      |
|                                  |   | $       | 1,235,000 |   |

 

The value of the commonstock issued above was based on the average closing market price of the Company’scommon stock for the ten trading days prior to the closing date per the assetpurchase agreement.

 

14

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The acquired assetsconsisted primarily of software and customer lists. The purchase price wasallocated to the assets and based on their fair values on the date ofacquisition as follows:

 
| Furniture and  Fixtures |   | $       | 3,850     |   |
|-------------------------|--------|---------|-----------|--------|
| Technology              |   | 100,000 |      |
| Customer  Relationships |   | 956,810 |      |
| Non-Compete  Agreement  |   | 75,000  |      |
| Goodwill                |   | 99,340  |      |
|                    |   | $       | 1,235,000 |   |

 

The technology is beingamortized over a three year period, the customer relationships are beingamortized over a ten year period and the non-compete agreement is beingamortized over a four year period.

 

**NOTEL—ACQUISITION OF ASSETS OF HEALTHCARE INFORMATICS ASSOCIATES, INC.**

 

On September 30, 2007, the Company, through itswholly-owned subsidiary, InfoLogix Systems Corporation, acquired substantiallyall of the operating assets and assumed certain liabilities of HealthcareInformatics Associates, Inc. (“HIA”) pursuant to an asset purchase agreement.The assets acquired relate to HIA’s business of providing softwareimplementation and consulting services, and included cash, accounts receivable,other current assets, the rights to existing relationships with customers,vendors and partners, certain tangible personal property and certain intangiblerights and property.  The liabilities assumed consist of current accountspayable and accrued expenses.

 

The purchase price paid by the Company consisted ofcash, shares of the Company’s common stock, and a convertible promissory note.In addition, HIA is eligible to receive additional contingent considerationunder an earn out agreement. The acquisition was accounted for under SFAS 141. Allassets and liabilities acquired are reflected on the September 30, 2007 balancesheet. The results of operations from the business acquired from HIA will beincluded in the statement of operations beginning October 1, 2007. The totalpurchase price paid by the Company is as follows:

 
| Cash paid                             |   | $         | 4,583,483  |   |
|---------------------------------------|--------|-----------|------------|--------|
| Common stock  issued (755,478 shares) |   | 2,863,262 |       |
| Convertible note  payable             |   | 3,500,000 |       |
| Acquisition  costs                    |   | 639,110   |       |
|                                  |   | $         | 11,585,855 |   |

 

In addition to the cash paid at closing, on October 1,2007, HIA and the Company deposited $900,000 into an escrow account to fund aportion of certain employee retention payments to be made to HIA’s employeesover a three year period after the closing. In addition, the parties deposited$1,556,586 from the HIA cash account into an escrow account to be used to fundany working capital adjustment payable to the Company, the remainder, if any,of which will be released back to HIA. The Company also deposited $83,483 intoan escrow account, which is payable to HIA upon the collection of certainoutstanding customer invoices due to HIA within 60 days after the closing andremittance of those amounts to the Company.

 

At closing, the Company issued 755,478 shares ofcommon stock, which was valued at $2,863,262 for accounting purposes. Thisvalue of the common stock was based on the average closing market price of theCompany’s common stock from September 26, 2007 through October 3, 2007. Theissuance of the shares of common stock was unregistered and the shares aresubject to a one-year lockup.

 

In addition, the Company issued a convertiblepromissory note (the “Note”) to HIA with a principal amount of$3,500,000.  The Note bears interest at a rate of 9% per annum,compounding annually, from the date of the Note until the principal amount ispaid in full.   The principal amountof the Note and all accrued interest are payable in full on September 30,2010.  The outstanding unpaid principal amount of the Note is convertibleat the option of HIA into unregistered shares of the Company’s common stock ata conversion price of $5.50 per share.

 

The Company may require HIA to convert all or anyportion of the outstanding unpaid principal of the Note into the Company’scommon stock at a conversion price of $5.50 per share if the closing bid priceof the Company’s common stock for at least 45 consecutive trading days equals orexceeds $8.00 per share.  Any accrued but unpaid interest on the Note atthe time of any conversion 

 

15

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will be paid, at theCompany’s option, either in cash or in additional shares of the Company’s commonstock at a conversion price of $5.50 per share.

 

The Note grants HIA the right to require the Companyto redeem a portion of the unpaid and outstanding principal of the Note if theCompany engages in an offering of its equity securities, the primary purpose ofwhich is to raise capital.  HIA may also, at its option, declare theNote payable in full upon the occurrence of a Change of Control (as defined inthe Note) of InfoLogix Systems Corporation.  The Note also containscustomary events of default that would allow HIA to accelerate the amountspayable under the Note, including any default on the Company’s senior debt. TheNote is subject to a subordination agreement with Sovereign Bank, the Company’ssenior lender.

 

The Company and HIA entered into an Earn-out Agreementpursuant to which HIA is eligible to earn additional consideration in respectof the two years (each year, an “Earn Out Period”) after the closing of thetransaction.  HIA can earn up to $2,000,000 in the first Earn Out Periodand up to $2,500,000 in the second Earn Out Period upon satisfaction of certainfinancial milestones described in the Earn Out Agreement.  To the extentHIA exceeds the defined milestones, it may earn additional consideration equalto 25% of such excess. The additional cash consideration will not be accountedfor by the Company until such time as the consideration is earned pursuant tothe terms of the Earn Out Agreement. At the point the consideration is earned,the Company will record the cash paid as an adjustment to the purchase price.

 

The purchase price was allocated to the assetsacquired and liabilities assumed on a preliminary basis based on theirestimated fair values on the date of acquisition, as follows:

 
| Assets acquired,  excluding cash: |   |       |       |
|-----------------------------------|--------|------------|------------|
| Accounts receivable               |   | $          | 2,753,423  |   |
| Computer  equipment               |   | 32,000     |       |
| Intangible  assets                |   | 9,330,237  |       |
| Total assets  acquired            |   | 12,115,660 |       |
| Liabilities  assumed:             |   |       |       |
| Current  liabilities              |   | 529,805    |       |
| Net assets  acquired              |   | $          | 11,585,855 |   |

 

The Company will not finalize its allocation of thepurchase price until an independent third-party appraisal of the fair value ofthe net assets acquired is completed. When finalized, any changes to thepreliminary purchase price allocation will result in changes to the carryingamounts of the net assets acquired. The Company is currently completing proforma calculations to reflect the impact of this acquisition and intends tofile on Form 8-K with the Securities and Exchange Commission within 75 daysfrom the effective date of the HIA transaction.

 

**NOTEM—COMMITMENTS AND CONTINGENCIES**

 

***Litigation***

 

The Company is involvedin disputes or legal actions arising in the ordinary course of business.Management does not believe the outcome of any such pending legal actions willhave a material adverse effect on the Company’s financial position, results ofoperations or cash flows.

 

**NOTEN—NONCASH INVESTING AND FINANCING**

 

Noncash investing and financing activities consist of the following:

 
| Issuance of  shares in connection with DDMS patent acquisition, April 2007 |   | $         | 1,520,000  |   |
|----------------------------------------------------------------------------|--------|-----------|------------|--------|
|                                                                       |   |      |       |
| Acquisition of  AMT Systems, Inc., May 2007                                |   |      |       |
| Issuance of  common shares                                                 |   | $         | 500,000    |   |
| Issuance of  long-term debt                                                |   | 500,000   |       |
|                                                                       |   | $         | 1,000,000  |   |
|                                                                       |   |      |       |
| Acquisition of  HIA, September 2007                                        |   |      |       |
| Issuance of  common shares                                                 |   | $         | 2,863,262  |   |
| Issuance of  long-term debt                                                |   | 3,500,000 |       |
| Amounts due to  seller and others                                          |   | 5,104,183 |       |
|                                                                       |   | $         | 11,467,445 |   |
|                                                                       |   |      |       |
| Common stock  issued for services, July 2007                               |   | $         | 38,200     |   |

 

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**NOTEO—INCOME TAXES**

 

In determining ourcurrent income tax provision, the Company assesses temporary differencesresulting from different treatments of items for tax and accountingpurposes.  These differences result in deferred tax assets andliabilities, which are recorded in the Company’s consolidated balancesheet.  A valuation allowance is provided to the extent tax assets are notlikely to be recovered.  The Company has recorded a valuation allowanceagainst the Company’s gross deferred tax assets of approximately $25,000, whichallowance has remained unchanged since December 31, 2006.

 

As of September 30, 2007,the Company has net operating losses (“NOLs”) of approximately $2,561,941 whichmay be available to offset future taxable income.  Included in the NOLsare losses of $65,000 generated by New Age Translation, Inc. which are subjectto restrictions under Internal Revenue Code Section 382, due to change inownership in that entity.  Therefore, the Company has recorded a valuationallowance against the NOLs generated by New Age Translation, Inc.  If notused, the NOLs will expire beginning after 2024.  The Company’s state NOLswill also be subject to expiration in varying years starting in 2013 through2027.

 

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**Item 2.  *Management’s Discussion and Analysis of Financial Condition and Results ofOperations***

 

The following discussionand analysis of our financial condition and results of operations is intendedto assist you in understanding our financial condition and results ofoperations.  This discussion and analysis should be read in conjunctionwith our unaudited financial statements and the notes thereto includedelsewhere in this report and our annual report filed with the U.S. Securitiesand Exchange Commission on Form 10-K.  Many of the amounts and percentagespresented in this discussion and analysis have been rounded for convenience ofpresentation.

 

**Overview and Outlook**

 

InfoLogix is a provider of enterprise mobility andradio frequency identification (RFID) solutions. Our wholly owned operatingsubsidiary, InfoLogix Systems Corporation, was formed in 2001. On November 292006, InfoLogix Systems Corporation merged with New Age Translation, Inc., apublic reporting company, and New Age Translation Inc. changed its name toInfoLogix, Inc. and became a holding company for InfoLogix Systems Corporation.Concurrent with the merger, InfoLogix, Inc. completed a private placement ofshares of its common stock that resulted in net proceeds of approximately $15.0million. For more information with respect to the merger transaction, see NoteA to our consolidated financial statements included elsewhere in this report.

 

We provide solutions to our customers by utilizing acombination of products and services, including consulting, applicationsoftware, managed services, mobile workstations and devices, and wirelessinfrastructure. Our solutions are designed to allow the real time usage of datathroughout a customer’s enterprise in order to enhance workflow, improve customerservice, increase revenue and reduce costs. We sell wireless communication andcomputing devices, including mobile workstations, that connect to a customer’swireless network so that information can be accessed from any location withinthe enterprise. We also implement customized software applications and provideRFID technology, a data-exchange method using transponders that store andremotely send or retrieve information, to enable the transmission andprocessing of that information between the customer’s information system andits wireless communication and computing devices. We also offer professionalservices that support and complement a customer’s wireless computing systems,including consulting, managed services, training, engineering, technical support,and network monitoring.

 

Historically, the sale of mobile workstations andother wireless devices has represented a majority of our revenues. In the pasttwo years, we have been transitioning our business to provide more softwareapplications and professional services. With our new focus on selling softwareand services, we believe that we can offer more comprehensive enterprisemobility solutions that provide greater value to our customers and generatehigher and more recurring revenue for our business.

 

We conduct substantiallyall of our operations through our wholly-owned subsidiary, InfoLogix SystemsCorporation. We own certain patents and patent applications through ourwholly-owned subsidiaries OPT Acquisition LLC, Embedded Technologies, LLC andInfoLogix-DDMS, Inc. We consolidate OPT Acquisition LLC, Embedded Technologies,LLC, InfoLogix-DDMS, Inc. and InfoLogix Systems Corporation for financialreporting purposes.

 

**2007 Acquisitions**

 

In April 2007, weacquired a portfolio of patents from DDMS Holdings, LLC, a privately heldFlorida company. The acquired assets consist of five US patents issued, andfour patents issued in foreign countries, along with one published US patentapplication and five pending foreign patent applications. We view thisacquisition as strategic to our business by providing us with protectionsrelated to our on-going sales and development of radio frequencyidentification, or RFID, technologies and mobility solutions across ourbusiness.

 

In May 2007, we acquiredcertain assets of AMT Systems, Inc., or AMT.  The acquired assets includethe rights to existing relationships with customers, vendors and partners, andthe intellectual property rights behind AMT’s clinical and financial mobilitysolutions for healthcare. We believe that the addition of professionalstaff from AMT will enable us to enhance our software development capabilitiesand increase our barcode and RFID technology sales. The focus of thisacquisition is on the integration of clinical and financial systems throughsoftware applications that operate on mobile computing devices. Our mobilesolutions are thereby enhanced by supporting materials management, patientcharge capture, and patient identification. We realized revenue and grossprofit in the third quarter of 2007 as the result of our re-selling third-partythermal wristbands and printers to existing and newly acquired healthcarecustomers, and we believe these sales opportunities will continue to expand aswe further develop these offerings.

 

In September 2007, weacquired certain assets and liabilities of Healthcare Informatics Associates,Inc., or HIA. The acquired assets include the rights to existing relationshipswith customers, vendors and partners. All of the employees of HIA weretransitioned

 

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to us. The employees area team of senior healthcare informatics consultants who are also certifiedhealthcare practitioners, and include registered nurses, pharmacists, ancillaryclinicians, physician assistants, revenue cycle personnel, administrativesystems personnel, technical interface/report writing personnel, clinicaltransformation specialists, engineers specializing in return on investment,benefits realization, and work redesign and certified project managers. Weexpect to realize revenue and gross profit in the fourth quarter of 2007 as aresult of this acquisition. We believe the acquisition of HIA will allow us toexpand the products and services we offer to hospitals and other healthcare providers.

 

For more information withrespect to these transactions, see Notes J, K and L to our unauditedconsolidated financial statements included elsewhere in this report.

 

**Characteristics of our revenue andexpenses**

 

We generate our revenueprimarily through the resale of wireless and mobile hardware and systems,including mobile workstations, computers, peripherals, and related productsunder which the revenue is recognized. Sales revenue on product is recognizedwhen both the title and risk of loss transfer to the customer, generally uponshipment. We also generate revenue from the sale of extended warranties oncertain components. Revenue from the sale of component warranties is recognizedupon our customer’s execution of the warranty agreement. There is no associatedwarranty risk as we have contracted with third parties to fully assume allrisks and obligations. We also generate revenue from professional services,primarily on a project basis, under which revenue is recognized on a fixed fee,time and expense basis or upon acceptance of our deliverables by clients.

 

Payments received inadvance of services performed are recorded as deferred revenue.  Certaincontract payment terms may result in customer billing occurring at a paceslower than revenue recognition. The resulting revenue recognized in excess ofamounts billed and project cost is included in accounts receivable and otherreceivables on our balance sheet.

 

Cost of revenue primarilyconsists of all expenses that are directly attributable to our business andinclude the costs associated with professional services, the purchase, forresale, of wireless and mobile hardware and systems, including computers,peripherals, and related products. Fluctuations in our gross margin may occurdue to changes in our sales mix, ability to obtain discounts on product salesor our ability to negotiate higher margins on sales contracts with largecustomers.

 

Sales and marketingexpenses primarily consist of the salaries, benefits, travel and other costs ofour sales and marketing teams, as well as marketing initiatives and businessdevelopment expenses.  General and administrative expenses primarilyconsist of the costs attributable to the support of our operations, such ascosts related to information systems, salaries, expenses and office space costsfor executive management, customer service, warehousing, technical support,financial accounting, purchasing, administrative and human resources personnel,insurance, recruiting fees and legal, accounting and other professionalservices.

 

**Critical Accounting Estimates andPolicies**

 

Our consolidatedfinancial statements are prepared in conformity with accounting principlesgenerally accepted in the United States of America (GAAP), which requires us tomake estimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting periods.  Critical accountingpolicies are those that require the application of management’s most difficult,subjective, or complex judgments, often because of the need to make estimatesabout the effect of matters that are inherently uncertain and that may changein subsequent periods. Actual results may differ from these estimates. Inaddition, other companies may utilize different estimates, which may impact thecomparability of our results of operations to those of companies in similarbusinesses.

 

In making the complex orsubjective assumptions and judgments with respect to applying its criticalaccounting policies, management considers, among other factors:

 

•             eventsand changes in market and economic conditions;

 

•             estimated future cashflows from operations; and

 

•             the risk of loss onspecific accounts or amounts.

 

The estimates andassumptions made by management in applying critical accounting policies havenot changed materially during 2007, and none of these estimates or assumptionshave proven to be materially incorrect or resulted in our recording anysignificant adjustments related to prior periods. We will continue to monitorthe key factors underlying our estimates and judgments, but no change iscurrently expected. Please refer to our Annual Report on Form 10-K for asummary of the accounting policies that 

 

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management believes are critical to the preparation of the consolidatedfinancial statements.

 

**Results of Operations**

 

***Three Months endedSeptember 30, 2007 compared with the Three Months ended September 30, 2006***

 

Revenues were $20.1million for the three months ended September 30, 2007, compared to $16.0million for the three months ended September 30, 2006, an increase of $4.1million or 25.8%. Revenue increased as the result of increases in sales ofmobile and stationary workstations, third-party wireless hardwareimplementations, managed services including help-desk and software support, andthird-party extended product warranties, which sales were partiallyattributable to an increase in our sales force.

 

Our cost of sales was$14.5 million for the three months ended September 30, 2007, compared to $11.7million for the three months ended September 30, 2006, an increase of $2.8million or 24.0%. Our gross profit was $5.5 million for the three months ended September30, 2007, compared to $4.2 million for the three months ended September 30,2006, an increase of $1.3 million or 30.8%, resulting in a gross margin of27.6% at September 30, 2007, up from 26.6% at September 30, 2006. The increasein our gross margin is the result of increased margins earned from our mobilesolutions sales, a change in our sales mix, and the increased sales volume ofour higher margin third-party warranty sales, which sales were partiallyattributable to an increase in our sales force.

 

Our selling, general andadministrative expenses were $6.2 million for the three months ended September30, 2007, compared with $3.9 million for the three months ended September 30,2006, an increase of $2.4 million, or 61.2%.  Selling expenses increasedto $2.5 million in the three months ended September 30, 2007 from $1.6 millionin the three months ended September 30, 2006, an increase of $0.9 million, or59.3%, as the result of an expansion of our sales force. Our general andadministrative expenses increased to $3.7 million in the three months endedSeptember 30, 2007 from $2.3 million in the three months ended September 30,2006, an increase of $1.4 million, or 62.4%. General and administrativeexpenses increased as the result of an increased level of management personneland administrative support, marketing campaigns and public relationsconsulting, professional fees associated with our investor relations programs,internal controls and compliance requirements, and FAS 123R compensationexpenses incurred as the result of incentive stock options granted toemployees.

 

Our interest expense, which is derived from our creditline, term loan and stockholders’ loans was $206 thousand for the three monthsended September 30, 2007, compared to approximately $197 thousand for the threemonths ended September 30, 2006, an increase of $9.0 thousand, or 4.4%, as theresult of higher amounts outstanding under our loan agreements with our seniorlender. Our interest earned on cash and cash equivalents was approximately $108thousand for the three months ended September 30, 2007, compared to $0 for thethree months ended September 30, 2006, an increase of $108 thousand. Interest income in the three months ended September 30, 2007 was the result ofan increase in cash due to the net proceeds from the private placementcompleted in November 2006.

 

Our depreciation andamortization expense increased to $452 thousand for the three months endedSeptember 30, 2007 from $328 thousand for the three months ended September 30,2006, an increase of $124 thousand, or 37.8%, as the result of intangibleassets acquired in the acquisition of DDMS Holdings and certain assets of AMT,a greater number of demonstration units deployed to our expanded sales forceand additional investments in computer equipment and software.

 

Our net loss was $0.5million for the three months ended September 30, 2007, compared with net incomeof $0.2 million for the three months ended September 30, 2006, a decreaseof $0.7 million. Net income declined primarily due to increased sellingexpenses related to our expanded sales force, increased levels of managerialand support staff, costs related to professional services associated withpublic company disclosure requirements, and FAS 123R compensation expensesincurred as the result of issuing incentive stock options to employees.

 

Prior to November 29,2006, InfoLogix Systems Corporation was a Sub-chapter S Corporation. Inaccordance with SFAS 109, when a company changes its tax status from anontaxable corporation to a taxable corporation, deferred tax assets andliabilities are recognized for timing differences at the date that a nontaxableenterprise becomes a taxable enterprise. We recorded a net deferred taxasset of approximately $0.3 million with the offset being recorded as an incometax benefit in the statement of operations for the quarter ended September 30,2007. No net income tax benefit or offsetting net deferred tax asset wasrecorded in the third quarter ended September 30, 2006 since InfoLogix SystemsCorporation elected to be taxed under the provisions of Sub-Chapter S forfederal and state income tax purposes, so that the corporation was not subjectto income taxes and, instead, its individual stockholders reported their shareof the corporate income and loss, if any, on their personal federal and stateincome tax returns.

 

As of September 30, 2007,we had net operating losses (“NOLs”) of approximately $2.6million which will be available to offsetfuture taxable income.  Included in the NOLs are losses of $65,000generated by New Age Translation, Inc., the predecessor to InfoLogix, Inc.,which are subject to restrictions under Internal Revenue Code Section 382, dueto the change in ownership in that 

 

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entity. Therefore, werecorded a valuation allowance against the NOLs generated by New AgeTranslation, Inc.  If not used, the NOLs will expire beginning in the year2024.  Our state NOLs will also be subject to expiration in varying yearsstarting in 2013 through 2027.

 

***Nine Months endedSeptember 30, 2007 compared with the Nine Months ended September 30, 2006***

 

Revenues were $54.4million for the nine months ended September 30, 2007, compared to $44.3 millionfor the nine months ended September 30, 2006, an increase of $10.0 million or22.6%. Revenue increased as the result of a greater number of mobileworkstations that shipped in the comparable periods, an increase in the numberof third-party wireless hardware implementations delivered, sales generatedfrom former AMT customers and an increase in our managed services and help desksolutions.

 

Our cost of sales was$39.8 million for the nine months ended September 30, 2007, compared to $33.1million for the nine months ended September 30, 2006, an increase of $6.7million or 20.2%. Our gross profit was $14.5 million for the nine months endedSeptember 30, 2007, compared to $11.2 million for the nine months endedSeptember 30, 2006, an increase of $3.3 million or 29.8%, resulting in a grossmargin of 26.7% at September 30, 2007, up from 25.3% at September 30, 2006. Theincrease in our gross margin is the result of increased margins earned from ourmobile solutions sales, and the increased sales volume of our higher marginthird-party warranty sales.

 

Our selling, general andadministrative expenses were $17.6 million for the nine months ended September30, 2007, compared with $10.1 million for the nine months ended September 30,2006, an increase of $7.6 million, or 75.2%.  Selling expenses increasedto $7.2 million in the nine months ended September 30, 2007 from $3.8 millionin the nine months ended September 30, 2006, an increase of $3.4 million, or91.0%, as the result of our expanded sales force. Our sales force increasedfrom 25 to 41 in the comparable periods. Our general and administrativeexpenses increased to $10.4 million in the nine months ended September 30, 2007from $6.3 million in the nine months ended September 30, 2006, an increase of$4.1 million, or 65.7%, as the result of an increased level of management andadministrative support staff, higher professional fees associated with ourinternal controls, asset purchases and compliance requirements andapproximately $0.8 million of FAS 123R compensation expenses incurred as theresult of incentive stock options granted to employees.

 

Our interest expense,which is derived from our credit line, term loans and stockholders’ loans was$516 thousand for the nine months ended September 30, 2007, compared toapproximately $488 thousand for the nine months ended September 30, 2006, anincrease of $28 thousand or 5.7%. Our interest earned on cash and cashequivalents was approximately $400 thousand for the nine months ended September30, 2007, compared to $0 for the nine months ended September 30, 2006, anincrease of $400 thousand.  Interest income in the nine months endedSeptember 30, 2007 was the result of an increase in cash due to the netproceeds from the private placement completed in November 2006.

 

Our depreciation andamortization expense increased to $1.2 million for the nine months endedSeptember 30, 2007 from $0.9 million for the nine months ended September 30,2006, an increase of $3.0 million, or 33.1%, as the result of intangible assetsacquired in the acquisition of DDMS Holdings and certain assets of AMT, agreater number of demonstration units deployed to our expanded sales force andadditional investments in computer equipment and software.

 

Our net loss was $1.9million for the nine months ended September 30, 2007, compared with net incomeof $0.7 million for the nine months ended September 30, 2006, a decreaseof $2.6 million. Net income declined primarily due to increased sellingexpenses related to our expanded national sales force, increased levels ofprofessional services associated with public company disclosure requirements,and FAS 123R compensation expenses incurred as the result of issuing incentivestock options to employees.

 

Prior to November 29,2006, InfoLogix Systems Corporation was a Sub-chapter S Corporation. Inaccordance with SFAS 109, when a company changes its tax status from anontaxable corporation to a taxable corporation, deferred tax assets andliabilities are recognized for timing differences at the date that a nontaxableenterprise becomes a taxable enterprise. We recorded a net deferred tax assetof approximately $1.2 million with the offset being recorded as an income taxbenefit in the statement of operations for the nine months ended September 30,2007. No net income tax benefit or offsetting net deferred tax asset wasrecorded in the first nine months ended September 30, 2006 since InfoLogixSystems Corporation elected to be taxed under the provisions of Sub-Chapter Sfor federal and state income tax purposes, so that the corporation was notsubject to income taxes; instead, its individual stockholders reported theirshare of the corporate income and loss, if any, on their personal federal andstate income tax returns.

 

***Liquidity and Capital Resources***

 

At September 30, 2007, wehad cash and cash equivalents of $9.7 million, compared to $12.9 million atDecember 31, 2006.  

 

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Under our loan andsecurity agreement with Sovereign Bank, we are required to maintain a minimumbalance of $2.6 million in an investment account in which Sovereign Bank has asecurity interest. We have used, and plan to use, our unrestricted cash forgeneral corporate purposes, including working capital as well as acquisitions.We have funded our growth primarily through the private sale of equitysecurities and through long term debt and working capital. At September 30,2007, our total liabilities was $29.8 million and was comprised mostly of termdebt and borrowings outstanding under our credit line, amounts owing under theasset purchase agreement with HIA and outstanding accounts payable. Net cashused in operating activities for the nine months ended September 30, 2007 was$3.0 million, primarily the result of net losses from operations and investmentin accounts receivable due to higher revenue. Net cash used in investingactivities was $1.9 million for the nine months ended September 30, 2007,primarily used to acquire the patent portfolio from DDMS Holdings, LLC andbusiness assets from AMT Systems, Inc. and HIA, as previously described, topurchase additional  demonstrationequipment, and to increase investment in software and technology.  Netcash provided by financing activities was $1.5 million for the nine monthsended September 30, 2007, primarily due to net borrowings from the line ofcredit partially offset by principal payments under the terms of oursenior-secured notes.

 

On September 30, 2007, we acquired substantially allof the assets of HIA. The purchase price paid included $5.5 million in cash. OnOctober 1, 2007, we and HIA deposited $0.9 million from the cash proceeds ofthe transaction into an escrow account to fund a portion of certainpre-acquisition employee retention payments to be made to HIA’s employees overa three year period after the closing. In addition, the parties deposited $1.6million from the HIA cash account into an escrow account to be used to fund anyworking capital adjustment payable to us, if any, and the remainder of whichwill be released back to HIA, plus we deposited $83 thousand into the escrowaccount, payable to HIA upon the collection of certain outstanding customerinvoices due to HIA within 60 days after the closing and remittance of thoseamounts to us. Approximately $4.5 million of the cash purchase price was paidusing a combination of the $2.0 million term loan received from Sovereign Bankand a $2.5 million draw under our line of credit with Sovereign Bank.

 

Given the amount of our current cash and cashequivalents, short-term investments, accounts receivable and funds availableunder our line of credit, we believe that we will have sufficient liquidity tomeet our capital requirements for at least the next 12 months. We may increaseour expenditures consistent with the anticipated growth of our business and wemay seek to acquire complementary businesses or technologies, which may requireus to raise additional funds sooner than expected. We may seek to raiseadditional funds through the sale of equity or debt securities or obtainingadditional credit facilities. The sale of equity securities or issuance ofequity securities in future acquisitions could result in dilution to ourstockholders and the incurrence of debt would result in an increase in ourinterest expense. Any debt financing obtained by us in the future could involverestrictive covenants similar to those contained in our current loan andsecurity agreement relating to capital raising activities and other financialand operational matters that might make it more difficult for us to pursuebusiness opportunities, including potential acquisitions. There can be noassurance that we will be able to sell additional equity or debt securities, orbe able to obtain financing, on acceptable terms, if at all.

 

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

 

In March 2006, weexecuted a Loan and Security Agreement with a bank. Under the terms of theagreement and subsequent amendments, the bank provided us with an $8.5 millionline of credit and two term loans amounting to $1.5 million, and $1.0 millionrespectively. The proceeds from the loans were used to pay off existing loansand to provide working capital. The loans are collateralized by all of thetangible and intangible assets of the Company. The Loan and Security Agreementcontains certain financial covenants with which we must comply including: minimum annual and quarterly net income tests, a fixed-charge coverage ratio,and maximum annual capital expenditures.

 

In connection with theclosing of the acquisition of HIA, on September 30, 2007, we entered into anamendment to the Loan and Security Agreement pursuant to which the bankincreased our line of credit to $11.0 million and provided a new $2.0 millionterm loan. In exchange for the increased line of credit and new term loan, thebank received a security interest in a Company investment account in an amountequal to $2.6 million.

 

The bank  amended certain loan covenants including: (i)an annual net income requirement of negative $250,000 for the six month periodending December 31, 2007 and $500,000 net income for the twelve month periodending December 31, 2008 and for each fiscal year thereafter, (ii) a quarterlynet income requirement of at least negative $350,000 for the three month periodending September, 2007 and net income of at least $0 as of March 31, 2008 andas of the end of the first three fiscal quarters thereafter, (iii) a fixedcharge coverage ratio of not less than 1.0 to 1.0 for the six month periodending December 31, 2007 and 1.2 to 1.0 as of the end of each fiscal quarterthereafter, and (iv) maintaining cash equivalents of at least $4.0 million atall times.

 

The line of credit andthe term loans mature on March 16, 2011. The bank agreed to postpone principalpayments for two term loans until a final balloon payment due at maturity, or,based upon available cash, and at the bank’s option, the Company may berequired to make an additional annual principal payment form excess availablecash flow. We are obligated to repay the third term loan in equal consecutivemonthly installments of $55,555 on the first day of each month commencing onMarch 1, 2008 with any remaining balance due on the maturity date. If at anytime the lender does not have a lien against the pledged account, we willbecome obligated to repay each of the other term loans in equal consecutivemonthly installments of $41,667 and $27,778 beginning on the first day of themonth following the date on which the lender ceases to have a lien on theaccount.

 

We are in compliance withfinancial loan covenants from the bank at September 30, 2007.

 

***Off Balance Sheet Arrangements***

 

We do not currently haveany off-balance sheet arrangements.

 

***New Accounting Standards***

 

Several new accountingstandards have been issued and as yet not adopted

 

In September 2006, the FASBissued SFAS No. 157,*Fair ValueMeasurements*. SFAS 157 defines fair value, establishes aframework for measuring fair value and expands disclosures about fair valuemeasurements. SFAS 157 is effective for financial statements issued for fiscalyears beginning after November 15, 2007 and interim periods within thosefiscal years. We are in the process of evaluating the impact SFAS 157 will haveon our consolidated financial statements.

 

In February 2007, theFASB issued SFAS No. 159,*The FairValue Option for Financial Assets and Financial Liabilitie*s. SFAS159 allows entities to voluntarily choose to measure certain financial assetsand liabilities at fair value (“fair value option”). The fair value option maybe elected on an instrument-by-instrument basis and is irrevocable, unless anew election date occurs. If the fair value option is elected for aninstrument, SFAS 159 specifies that unrealized gains and losses for thatinstrument shall be reported in earnings at each subsequent reporting date. SFAS159 is effective January 1, 2008. We are in the process of evaluating theimpact that SFAS 159 will have on our consolidated financial statements.

 

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*Forward-LookingStatements*

 

This report contains “forward-lookingstatements” that are based on our current expectations, estimates, forecastsand projections about our company and our industry. These forward-lookingstatements reflect our current views about future events and can be identifiedby terms such as “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,”“should,” “project,” “plan” and similar expressions, although not allforward-looking statements contain such identifying words. You are cautionednot to place undue reliance on these forward-looking statements. Theseforward-looking statements are not guarantees of future events and involverisks and uncertainties that are difficult to predict and are based uponassumptions that may prove to be incorrect.

 

Important factors that may cause actual results todiffer from projections include the following, among other factors:

 

•        our limited operating history and thelimited information available to evaluate our business;

 

•        our ability to operate profitably andmanage the growth of our business;

 

•        changes in economic, business orindustry conditions;

 

•        our ability to find additional financingnecessary to support our operations;

 

•        our ability to successfully integrateacquisitions with our existing operations;

 

•        our ability to retain, replace and hireexperienced senior management;

 

•        our relationships with our customers,key industry relationships and other third parties on which we rely;

 

•        competition in the industries in whichwe compete;

 

•        our ability to introduce new productsand services and maintain products and service quality;

 

•        our ability to protect our intellectualproperty rights; and

 

•        restrictions on our operations containedin our loan and security agreement.

 

We have disclosed additional important factors thatcould cause actual outcomes and results to differ materially from theforward-looking statements under Item 1A “Risk Factors” included in Part II ofthis report. All forward-looking statements speak only as of the date of thisreport and we do not undertake any obligation to update or revise anyforward-looking statements to reflect new information, future events orotherwise, except as required by federal securities laws.

 

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**Item3.  Quantitative and Qualitative Disclosures About Market Risk**

 

The primary objective ofour investment activities is to preserve principal. Our funds are currentlyheld in checking accounts and money market funds which do not subject us torisk of a loss of principal due to changes in prevailing interest rates and ina portfolio of cash and cash equivalents that include investments ininvestment-grade securities, such as commercial paper, money market funds,government debt securities and certificates of deposit with maturities of less thannine months. Some of these securities may be subject to market risk due tochanges in prevailing interest rates, which may cause fluctuations in marketvalue.

 

Two of the main risksassociated with these investments are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in themarket value of debt securities.  Fluctuations in interest rates would nothave a material effect on our financial statements because of the short-termnature of the securities in which we invest and our intention to hold thesecurities to maturity.  Credit risk refers to the possibility that theissuer of the debt securities will not be able to make principal and interestpayments.  We have limited the investments to investment grade orcomparable securities and have not experienced any losses on our investments todate due to credit risk.

 

The fair value of ourcash and short-term investment portfolio at September 30, 2007, approximatedits carrying value due to the short-term maturities of these investments. Thepotential decrease in fair value resulting from a hypothetical 10% increase ininterest rates at year-end for our investment portfolio is not material.

 

The fair value of ourlong-term debt at September 30, 2007, including current maturities, wasapproximately $5.4 million. Our long-term bank debt is set at the bank’s primerate (7.75%) plus 1.0% to 2.0%, or 9.75% at September 30, 2007. The balance ofour other long term liabilities consists of an installment obligation under theAMT Systems asset purchase agreement which bears interest at 7.84% per annumand a convertible note payable under the HIA asset purchase agreement whichbears interest at 9.0% per annum.

 

**Item4.  Controls and Procedures**

 

We maintain disclosure controlsand procedures that are designed to ensure that information required to bedisclosed in our reports filed under the Securities Exchange Act of 1934, asamended, is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms and that such information isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow for timelydecisions regarding required disclosure. In designing and evaluating thedisclosure controls and procedures, management recognizes that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement is required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

 

As required by SEC Rule13a-15(b), we carried out an evaluation, under the supervision and with theparticipation of our management, including the Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures as of the end of the period covered bythis report. Based on the foregoing, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures wereeffective to provide reasonable assurance that we would meet our disclosureobligations.

 

There was no change inour internal controls over financial reporting that occurred during the periodcovered by this report that has materially affected, or is reasonably likely tomaterially affect, our internal controls over financial reporting.

 

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**PART II — OTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

In the normal course of business, we have become andmight in the future become involved in legal actions relating to our business.In management’s opinion, the resolution of any such pending legal actions arenot expected to have a material adverse effect on our consolidated financialposition or results of operations.

 

**Item1A.  Risk Factors**

 

*An investment in our common stock involves a number of risks.Before deciding to invest in us or to maintain or increase your investment, ,you should carefully consider the risks described below, in addition to theother information contained in this report and other reports we have filed withthe Securities and Exchange Commission. The risks and uncertainties describedbelow are not the only risks facing our company. Additional risks anduncertainties not presently known to us or that we currently deem immaterialmay also affect our business operations. If any of these risks are realized,our business, financial condition or results of operations could be seriouslyharmed. In that event, the market price for our common stock could decline andyou may lose all or part of your investment.*

 

**Risks Relating to our Businessand Industry**

 

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

 

Our operating company,InfoLogix Systems Corporation, was formed in 2001. There is limited operatingand financial information to evaluate our historical performance and our futureprospects. We face the risks and difficulties of an early-stage company,including the uncertainties of competition, cost increases and delays inachieving business objectives. There can be no assurance that we will succeedin addressing any or all of these risks or that our efforts will generatesignificant revenue or achieve future profitability. The failure to do so wouldhave an adverse effect on our business, financial condition and operatingresults.

 

***We haveincurred losses in the past and our ability to operate profitably in the futureis uncertain.***

 

For the year ended December31, 2006 we generated revenues of $60.8 million and incurred net losses of $1.9million. For the nine months ended September 30, 2007 we generated revenues of$54.4 million and incurred net losses of $1.9 million. We have incurred netlosses in two out of the last five fiscal years and we may incur additionallosses in the future. Even if we achieve profitability, we may not be able tosustain or increase our profitability on a quarterly or annual basis. If ourbusiness and revenues grow more slowly than we anticipate, our operatingexpenses exceed our expectations, we are unable to sell our products andservices at acceptable prices relative to our costs, or we fail to develop andintroduce on a timely basis new products and services from which we can deriveadditional revenues, our financial results will suffer.

 

***We may needadditional financing to fund our operations and finance our growth; we may beunable to obtain financing on terms acceptable to us.***

 

Although we believe that ourcredit facilities and our anticipated cash flows from operations will besufficient to meet our operating and capital requirements for at least the next12 months, we may be required to raise additional capital through either equityor debt financing to fund our operations, including any operating losses, andto implement our current or future strategies, including strategic acquisitions.Factors that could increase our need to seek additional financing includedecreased demand and market acceptance for our products and services, theinability to successfully develop new products and services, competitivepressures resulting in lower pricing, new products and services offered by ourcompetitors, and acquisition opportunities. In addition, when our existingcredit facilities expire, we may need to obtain replacement debt financing. Therecan be no assurance that additional or replacement debt financing will beavailable to us on commercially reasonable terms or at all. If we incuradditional debt, our interest expense would increase. If we raise capitalthrough the sale of equity securities, the percentage ownership of our existingstockholders would be diluted and any new equity securities may have rights, preferencesor privileges senior to those of our common stock. If we are unable to obtainadditional or replacement financing when we need it, our ability to fund ouroperations and meet our plans for expansion would be adversely affected.

 

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***Our revenuesand profitability may be affected by changes in economic, business or industryconditions.***

 

If the economic climate inthe U.S. or abroad deteriorates, customers or potential customers could reduceor delay their technology investments. Reduced or delayed technologyinvestments could decrease our sales and profitability. In such an environment,our customers may experience financial difficulty, cease operations or fail tobudget or reduce budgets for the purchase of our products and professionalservices. This may lead to longer sales cycles, delays in purchase decisions,payment and collection, and may also result in downward price pressures,causing our sales and profitability to decline. In addition, general economicuncertainty and general declines in capital spending in the informationtechnology sector make it difficult to predict changes in the purchasingrequirements of our customers and the markets we serve. There are many otherfactors that could affect our revenuesand profitability, including:

 

•                  the introduction and market acceptance of newtechnologies, products and services;

•                  new competitors and new forms of competition;

•                  the size and timing of customer orders;

•                  the size and timing of capital expendituresby our customers;

•                  adverse changes in the credit quality of ourcustomers and suppliers;

•                  changes in the pricing policies of, or theintroduction of, new products and services by us or our competitors;

•                  changes in the terms on which we do businesswith our customers, suppliers or key relationships;

•                  the availability, pricing, quality, anddelivery time of products from our suppliers; and

•                  variations in costs for products and servicesand the mix of products and services sold.

 

These trends and factorscould adversely affect our business, profitability and financial condition anddiminish our ability to achieve our strategic objectives.

 

***Increasing ourprofitability and managing our growth are necessary to achieve our strategicobjectives.***

 

The industries in which weoperate are highly competitive. To meet our growth objectives, we believe thatwe need to continue to add and increasingly emphasize higher-value, proprietarysolutions, including software applications and professional services. There canbe no assurance that we will effectively deploy our initiatives or besuccessful in obtaining customer acceptance of our current and anticipatedhigher margin products and services or developing new products and serviceswith higher margins, and if we do not, we would not meet our strategicobjectives.

 

In addition, theimplementation of our strategic initiatives to improve profitability may havethe unintended effect of straining our operations, increasing operatingexpenses, and adversely affecting our profitability, even if such initiativesare successful. The difficulties associated with implementing these initiativesand integrating businesses we acquire may place a significant burden on ourmanagement and our operational and financial resources. If we fail tosuccessfully implement these initiatives or integrate these businesses, orencounter unexpected difficulties in that process, our business and results ofoperations could be adversely affected.

 

Also, to manage any futuregrowth of our business, we will need to hire, integrate and retain highlyskilled and motivated employees. We will also need to continue to improve ourfinancial and management controls, reporting and operational systems andprocedures. If we do not effectively manage our growth we may not be able tomeet our customers’ needs, thereby adversely affecting our results ofoperations, or be able to meet our strategic objectives.

 

***We may engagein acquisitions that could disrupt our business, could be difficult tointegrate with our existing operations, cause dilution to our stockholders andharm our business, operating results and financial condition.***

 

As part of our acquisitionstrategy, we acquired the businesses and certain assets of AV Partners, LLC,DDMS Holdings, LLC, AMTSystems, Inc. and Healthcare Informatics Associates,Inc. during 2007. While these acquisitions and any future acquisitions maypresent us with growth opportunities, they involve numerous risks, including:

 

•                  problems combining the acquired operations,technologies or products;

•                  unanticipated costs;

•                  diversion of management’s time and attentionfrom our core business;

•                  adverse effects on existing businessrelationships with customers and suppliers;

•                  risks associated with entering markets inwhich we have no or limited prior experience; and

•                  potential loss of key employees, particularlythose of the acquired business.

 

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We have limited historicalexperience with the integration of acquired companies and there can be noassurance that we will be able to manage the integration of acquired businesseseffectively or be able to retain and motivate key personnel from thesebusinesses. Any difficulties we encounter in the integration process coulddivert management from day-to-day responsibilities, increase our expenses andhave a material adverse effect on our business, financial condition and resultsof operations.

 

For future acquisitions, wemay not be able to find suitable acquisition candidates and we may not be ableto complete acquisitions on favorable terms, if at all. If we do completeacquisitions, we may not maintain or may weaken our competitive position or maynot achieve our goals, or may be viewed negatively by customers, financialcommentators or investors. Acquisitions may disrupt our ongoing operations,divert management from day-to-day responsibilities, increase our expenses andadversely impact our business, operating results and financial condition.Future acquisitions may reduce our cash available for operations and other usesand could result in an increase in amortization expense related to identifiableassets acquired, potentially dilutive issuances of equity securities or theincurrence of debt.

 

***We depend onretaining our existing senior management team and recruiting and retainingadditional senior managers in order to be successful, and the loss of orfailure to recruit key executives could materially and adversely affect ourbusiness.***

 

Our current and futureperformance depends, in significant part, upon retaining our existing seniormanagement team and recruiting and retaining qualified senior managers, whoseknowledge, leadership and technical abilities would be difficult to replace. Oursuccess also depends in part upon the ability of our executives to workeffectively together and with the rest of our employees to continue to developour technologies and services and to manage the operation and potential growthof our business. We also must continue to develop and retain a strong core groupof senior executives in order to realize our goal of growing our business andsustaining profitability. We cannot assure you that we will be successful inour efforts. The unplanned loss of the services of one or more of ourexecutives could have an adverse effect on our business and profitability.

 

***We aredependent on our allied customers and key industry relationships.***

 

We maintain importantrelationships with hardware and software technology leaders. We regard theserelationships as more than traditional customer/supplier relationships andbelieve they represent an important lead referral source and sales channel forus.

 

There can be no assurancethat we or our key relationships can continue to be successful in maintainingrelationships with customers or that we or our allied customers could findadequate replacements if needed. The loss of any of these allied customers orkey relationships could result in the temporary or permanent cessation of agroup of products or solutions and result in the loss of a portion of ourexisting and anticipated customer base and related revenue.

 

***We depend onthird-party suppliers and manufacturers to manufacture our products. If thesethird parties experience any delay, disruption or quality control problems intheir operations, or cease manufacturing our products, we could lose marketshare and revenues, and our reputation may be harmed.***

 

A substantial portion of ourproducts are manufactured, assembled, tested and packaged by third parties. Werely on several suppliers and manufacturers to procure components and variousproducts that we sell and, in some cases, subcontract engineering work. Some ofour products are manufactured by a single manufacturer and, if we were to losethe services of this manufacturer, finding a suitable replacement could proveparticularly difficult. In most cases, we do not have long-term contracts withthese third parties. If our suppliers and manufacturers encounter financial orother business difficulties, if their strategic objectives change, or if theyperceive us to no longer be an attractive customer, they may cease tomanufacture our products and our business could be harmed.

 

The loss of the services ofany of our primary manufacturers or a material change in the terms on which wedo business with them could cause a significant disruption in operations anddelays in product shipments, which could adversely impact our cash flow. Qualifyinga new manufacturer and commencing volume production is expensive and timeconsuming.

 

Our reliance on third-partysuppliers and manufacturers also exposes us to the following risks over whichwe have limited control:

 

•                  inability to procure key required componentsfor our finished products to meet our customers’ demands;

•                  unexpected increases in manufacturing andrepair costs;

•                  unexpected reductions in payment terms;

•                  interruptions in shipments if one of ourmanufacturers is unable to complete production;

•                  inability to control the quality of finishedproducts;

 

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•                  inability to control delivery schedules;

•                  inability to obtain favorable pricing;

•                  unpredictability of manufacturing yields; and

•                  potential lack of adequate capacity tomanufacture all or a part of the products we require.

 

***If we are unableto provide our third-party suppliers and manufacturers with an accurate andtimely forecast of our component and material requirements, we may experiencedelays in the manufacturing of our products and the costs of our products mayincrease.***

 

We provide our third-partysuppliers and manufacturers with forecasts of our demand that they use todetermine their material and component requirements. Lead times for orderingmaterials and components vary significantly and depend on various factors, suchas the specific supplier, contract terms and demand and supply for a componentat a given time. Some of our components require substantial lead times. If ourforecasts are less than our actual requirements, or are not delivered in atimely manner, our manufacturers may not be able to manufacture enough productsto meet our needs. If our forecasts are too high, our suppliers andmanufacturers may be unable to use all of the components they have purchased onour behalf. Therefore, the cost per unit of producing products for us may behigher and those costs may be passed through to us. This could reduce ourmargins or raise our produce prices relative to our competitors. Moreover, ifthey are unable to use certain components, we may be required to reimburse themfor any losses they incur.

 

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

 

Our industry is highly competitiveand is influenced by many factors, including the following:

 

•                  advances in technology;

•                  introduction of new products and services;

•                  evolving industry standards;

•                  product improvements;

•                  rapidly changing customer needs;

•                  intellectual property invention andprotection;

•                  marketing and distribution capabilities;

•                  competition from highly capitalizedcompanies;

•                  competition from companies with strongerbrand recognition;

•                  entrance of new competitors;

•                  customer budget pressure on informationtechnology spending; and

•                  price competition.

 

If we do not keep pace withproduct and technology advances, our products and services could be renderedobsolete, which would have a material adverse effect on our competitiveposition, revenues and prospects for growth. There is also likely to becontinued pricing pressure as competitors attempt to maintain or increasemarket share.

 

The products manufacturedand marketed by us and our competitors are becoming more complex. As thetechnological and functional capabilities of future products increase, theseproducts may begin to compete with products being offered by companies thathave substantially greater financial, technical, marketing and manufacturingresources than we do. We may not be able to compete successfully against thesecompetitors, and competitive pressures may result in a material adverse effecton our business, revenues, growth rates, market share and profitability.

 

We also compete with certainof our key relationships from time to time. If we are unable to maintain ourrelationships with them, we may be forced to compete directly with them forcustomers that we previously had served through our relationships. We may alsolose our key relationships as customers. Our key relationships generally have substantiallygreater financial, technical, marketing and manufacturing resources than we doand may be able to directly offer their customers solutions similar to those weoffer.

 

***If we fail tocontinue to introduce new products and services that achieve sufficient marketacceptance on a timely basis, we will not be able to compete effectively and wewill be unable to increase or maintain revenues and profitability.***

 

Our future success dependson our ability to develop and introduce new products,  and services and   technology enhancements that achieve sufficient market acceptance. If we are unable to develop and introduce newproducts and services that respond to 

 

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emergingtechnological trends and customers’ critical needs, our profitability andmarket share may suffer. The process of developing new technology and relatedservices is complex and uncertain, and if we fail to accurately predictcustomers’ changing needs or emerging technological trends, our business couldbe harmed. We must commit significant resources to developing new productsbefore knowing whether our investments will result in products the market willaccept. We may encounter delays in deploying new or improved products oroffering new or improved services. If we expend a significant amount ofresources and our efforts do not lead to the successful introduction of new orimproved products or services, there could be a material adverse effect on ourbusiness, profitability, financial condition and market share. We may encounterdelays in manufacturing and producing new products and our new products may notbe commercially successful.

 

Demand for existing productsmay decrease following the announcement of new or improved products. Further, sinceproducts under development are often announced before introduction, theseannouncements may cause customers to delay purchases of our products, even ifnewly introduced, until new or improved versions of those products areavailable. If customer orders decrease or are delayed during a producttransition, we may experience a decline in revenue. Our profitability mightdecrease if customers, who may otherwise choose to purchase existing products,instead choose to purchase lower priced models of new products. Delays ordeficiencies in the development, manufacturing, and delivery of, or demand for,our new or improved products could have a negative effect on our business andprofitability.

 

***If we areunsuccessful in expanding our professional services, we may fail to achieve ourobjectives.***

 

We are in the process ofexpanding our professional services and enhancing our technical knowledge inorder to broaden our service offerings. We hope to accomplish that byincreasing our in-house talent pool and introducing new models for support andprofessional services, including through acquisitions of businesses that webelieve complement our existing services. We look to leverage new employeesthat are skilled in our business to reduce our dependence on outside assistance.Our initiatives will include reducing dependence on outside suppliers,determining specific methodologies and processes for meeting customer needs,conducting in-house training sessions, and leveraging business partnerships toincrease professional services opportunities. These initiatives have required,and will continue to require, significant investment by us, including expensesrelating to the recruiting and training of these new employees. There is noassurance that the expansion will improve the sales and profitability of ourprofessional services.

 

***Any failure inour ability to offer high-quality support and other services could have amaterial adverse effect on our sales and results of operations.***

 

Once our products areintegrated within our customers’ hardware and software systems, our customersmay depend on our support organization to manage those systems and resolve anyissues that may arise. A high level of support is critical for the successfulmarketing and sale of our solutions. If we do not effectively assist ourcustomers in deploying our products, succeed in helping our customers quicklyresolve post-deployment issues, and provide effective ongoing support, ourability to sell our solutions to existing customers could be adversely affected,and our reputation with potential customers could be harmed. In addition, as weexpand our operations internationally, our support organization will faceadditional challenges, including those associated with delivering support,training and documentation in languages other than English. Our failure tomaintain high-quality support and services, or to adequately assist our keyrelationships in providing high-quality support and services, could result incustomers choosing to use our competitors’ products and services instead ofours in the future.

 

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

 

We compete for customersbased in part on the flexibility and sophistication of our informationtechnology systems. The failure of the hardware or software that supports thesesystems, the loss of data contained in the systems or the inability to accessor interact with our website or connect with our customers electronically,could significantly disrupt our operations, prevent customers from placingorders with us or cause us to lose customers. Although we have redundantsystems at a separate location to back up our primary application systems,there can be no assurance that these redundant systems will operate properly ifand when required. If our information technology systems are unable to handleadditional volume as our business and scope of professional services grows, ourservice levels and operating efficiency will likely decline. In addition, weexpect that our customers will continue to demand increasingly sophisticatedinformation technology systems from us. If we fail to hire or retain qualifiedpersons to implement, maintain and protect our information technology systems,or if we fail to upgrade or replace these systems to handle increased volumesand levels of complexity and meet the increased demands of our customers, ourbusiness and profitability may be adversely affected.

 

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Our information technologysystems are dependent upon global communications providers, web browsers,telephone systems and other aspects of Internet infrastructure which arevulnerable to a variety of threats, including computer viruses and naturaldisasters. There can be no guarantee that the steps we have taken to protectagainst those threats will be effective. Any disruption to or infiltration ofour information technology systems could significantly harm our business andprofitability.

 

***If we areunable to protect our intellectual property rights or if third parties assertwe are in violation of their intellectual property rights, we could beprevented from selling our products, the time and attention of management couldbe diverted from operating our business and our ability to attract newcustomers and retain current customers could be hampered, any of which couldhave a material adverse effect on our business, financial condition and resultsof operations.***

 

We have 19 issued patents in the U.S. and four foreignpatents issued related to wearable computers and RFID technology that managesmedication delivery and administration. We also have 15 patent applicationspending with the U.S. Patent and Trademark Office and five foreign patentapplications related to medication delivery and administration and aproprietary power solution specifically designed for mobile workstations, asystem and method for live interactive distance learning, and related mobilewireless computer systems.  The patents for which we have received a finalissuance have remaining legal lives that vary from 5 to 17 years.

 

We have also developed otherproprietary solutions, including form-factor PC technologies designedspecifically for low power consumption, handheld and kiosk point of sale devicesand several customized software applications. We seek to protect ourproprietary information and technology through licensing agreements,third-party nondisclosure agreements and other contractual provisions, as wellas through patent, trademark, copyright and trade secret laws in the U.S. andsimilar laws in other countries. There can be no assurance that theseprotections will be available in all cases or will be adequate to prevent ourcompetitors from copying, reverse engineering or otherwise obtaining and usingour technology, proprietary rights or products.

 

There can be no assurancethat our competitors will not independently develop technologies that aresubstantially equivalent or superior to our technology or design around ourproprietary rights. In each case, our ability to compete and to receivelicensing revenues could be significantly impaired. To prevent substantialunauthorized use of our intellectual property rights, it may be necessary toprosecute actions for infringement and/or misappropriation of our proprietaryrights against third parties. Any such action could result in significant costsand diversion of our resources and management’s attention, and there can be noassurance that we will be successful in any such action. In addition, thirdparties may seek to challenge, invalidate or circumvent our patents,trademarks, copyrights and trade secrets, or applications for any of theforegoing. Furthermore, the laws of certain countries in which our products areor may be licensed do not protect our proprietary rights to the same extent asthe laws of the U.S.

 

Third parties may assertclaims of infringement of intellectual property rights against us or againstour partners for which we may be liable under certain indemnification arrangements.The failure to obtain a license on commercially reasonable terms or the entryof an injunction that impairs our ability to market certain products orservices could have a material adverse effect on our business, reputation,profitability or financial condition. Any litigation regarding patent and otherintellectual property rights could have a material adverse effect on ourbusiness and our ability to compete.

 

We may also be subject toclaims from customers for indemnification. Any resulting litigation, regardlessof its resolution, could result in substantial costs and diversion of resources.If it were determined that our products infringe upon the intellectual propertyrights of others, we would need to obtain licenses from these parties or reengineerour products in order to avoid infringement. We might not be able to obtain thenecessary licenses on acceptable terms or at all, or to reengineer our productssuccessfully. Moreover, if we are sued for infringement and lose the suit, wecould be required to pay substantial damages or be enjoined from licensing orusing the infringing products or technology, or both. Any of the foregoingcould cause us to incur significant costs and prevent us from selling ourproducts and could have material adverse effect on our business and our abilityto compete.

 

***We rely uponthird parties for technology that is critical to our products, and if we areunable to continue to use this technology and future technology our ability tooffer competitive products could be harmed and our costs of production couldincrease.***

 

We obtain non-exclusivesoftware license rights to technologies from third parties that areincorporated into and necessary for the operation and functionality of certainof our products. Because the intellectual property for which we have obtainedlicenses is available from third parties, barriers to entry for our competitorsmay be lower than if we owned exclusive rights to these technologies. On theother hand, if a competitor enters into an exclusive arrangement with any ofour third-party technology providers, our ability to develop and sell productscontaining that technology could be severely limited. Our success depends inpart on our continued ability to have access to these technologies on commerciallyreasonable terms. If we do not continue to hold or obtain licenses to usenecessary technologies, we may be forced to acquire or develop alternativetechnology that may be of lower 

 

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qualityor performance standards. This could limit and delay our ability to offercompetitive products and increase our costs of production. As a result, ourprofitability and market share could be harmed.

 

***Our productsare complex and may contain undetected and unexpected defects, errors orfailures.***

 

Substantial product defectscould result in product recalls, repairs, warranties or an increased amount ofproduct returns, loss of market acceptance and damage to our reputation, whichin turn could increase our costs, cause us to lose sales and have a materialadverse effect on our profitability. Product defects might also result inclaims against us by our customers or others. In addition, the occurrence ofany defects or errors in these products could result in a failure to achievemarket acceptance and loss of market share, cancellation of orders, difficultyin collecting accounts receivable, increased service and warranty costs inexcess of our estimates, diversion of resources, and increased insurance costsand other losses to our business or to end-users.

 

Incompatibilities, defectsor bugs in our products may not be detected until our customers begin toinstall the products or thereafter. We may need to modify the design of our newor improved products if they have incompatibilities, defects or bugs, whichcould result in significant expenditures, delays in product purchases orcanceled orders.

 

***Becausewe often sell our products on a purchase order basis, we are subject touncertainties and variability in demand from our customers.***

 

We sell our mobile workstations and other devices on apurchase order basis rather than pursuant to long-term contracts or contractswith minimum purchase requirements. Consequently, the level and timing of oursales are subject to variations in demand from our customers. Orders can becancelled, reduced or delayed due to customer budget cycles, the introductionor anticipated introduction of new products or technologies or general economicconditions. Generally, sales are sequentially down in the first quarter fromthe fourth quarter, higher in the second quarter, flat or slightly higher orlower in the third quarter, and strongest in the fourth quarter. If we areunable to anticipate and respond to the demands of our customers, our business,financial position and operating results may be adversely affected.

 

***Our productsare subject to certain government regulations and noncompliance with, or achange in, those regulations could have a material adverse effect on ourbusiness, financial condition, and results of operations.***

 

Our products are subject toregulation by federal, state and local agencies in the U.S. and agencies incertain foreign countries where our products are manufactured or sold. Therecan be no assurance that we will be able to maintain compliance with theseregulations, particularly if they were to change. Regulatory changes mayrequire us to make modifications to certain of our products in order for us tocontinue to be able to manufacture and market our products, which could resultin unanticipated costs and delays. Noncompliance with respect to theseregulations, or delays resulting from modifications in order to come intocompliance, could have a material adverse effect on our business, financialcondition and results of operations.

 

***Our growthobjectives may depend on our ability to manage successfully potentialinternational expansion.***

 

We intend to expand ourgeographic presence to non-U.S. markets, including Europe, the Middle East,Asia, and other emerging centers of healthcare and commercial activity. Thisexpansion will require significant management attention and financial resources.We currently have limited experience in marketing and distributing our productsinternationally and in developing versions of products that comply with localstandards and languages. We may also not be able to maintain or increaseinternational market demand for our products. International operations aresubject to other inherent risks, including foreign government regulation oftechnology or unexpected changes in regulatory and customs requirements,difficulty and delays in accounts receivable collection, difficulties and costsof staffing and managing foreign operations, reduced protection forintellectual property rights, foreign currency exchange rate fluctuations, andtax consequences.

 

***Armedhostilities, terrorism, natural disasters, or public health issues could harmour business.***

 

Armed hostilities,terrorism, natural disasters, or public health issues, whether in the U.S. orabroad, could cause damage or disruption to us, our suppliers or customers, orcould create political or economic instability, any of which could harm ourbusiness. Any such events could, among other things, cause further instabilityin financial markets and could directly, or indirectly through reduced demand,negatively affect our facilities and operations or those of our customers orsuppliers. If our customers experience any disruptions in the solutions that weprovide to them as a result of any such events, we may not be successful inalleviating any such disruptions, particularly if many customers are affectedby any of these events.

 

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***Our directorsand executive officers beneficially own a substantial number of shares of ourcommon stock, which give them significant control over certain major decisions.***

 

As of****September 30, 2007, our directors andexecutive officers beneficially own, in the aggregate, approximately 43.3% ofour outstanding common stock, excluding shares of common stock issuable uponthe exercise of options, warrants and other derivative securities. Theinterests of these stockholders may differ from the interests of otherstockholders. As a result, these stockholders will have significant controlover all corporate actions requiring stockholder approval, irrespective of howour other stockholders may vote, including the following actions:

 

•                  electing or defeating the election of ourdirectors;

•                  amending or preventing amendment of ourcertificate of incorporation or bylaws;

•                  effecting or preventing a merger, sale ofassets or other corporate transaction; and

•                  controlling the outcome of any other mattersubmitted to our stockholders for a vote.

 

The stock ownership of ourdirectors and executive officers may discourage a potential acquiror frommaking a tender offer or otherwise attempting to obtain control of us, which inturn could reduce our stock price or prevent our stockholders from realizing apremium over the market price of our stock.

 

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***We recentlybecame subject to the reporting requirements of the Securities Exchange Act of1934, which can be expensive.***

 

We recently became a publicreporting company and, accordingly, we are subject to the information andreporting requirements of the Securities Exchange Act of 1934 and other federalsecurities laws, including compliance with the Sarbanes-Oxley Act. The costs ofpreparing and filing annual, quarterly and periodic reports, proxy statementsand other information required by the SEC (including legal and accounting fees)and furnishing audited reports to stockholders have caused our expenses to behigher than they would have been if we were a privately-held company. Inaddition, we will incur substantial expenses in connection with the preparationof this registration statement.

 

It may be time consuming,difficult and costly for us to implement the internal controls and reportingprocedures required by the Sarbanes-Oxley Act. We may need to hire additionalfinancial reporting, internal controls and other finance personnel in order toimplement and sustain required internal controls and reporting procedures. Ifwe are unable to comply with the internal controls requirements of theSarbanes-Oxley Act, we may not be able to obtain the independent accountantcertifications required by the Sarbanes-Oxley Act.

 

**Risks Relating to ourIndebtedness**

 

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

 

We have entered into a loanand security agreement that provides us with an $11.0 million line of credit aswell as three term loans with an aggregate principal amount of $4.5 million. Theline of credit must be repaid on March 16, 2009. The term loans are repayablein equal consecutive monthly installments with a final balloon payment due onMarch 16, 2011. The loan and security agreement contains restrictions andcovenants and requires us to maintain specified financial ratios and tests. Forexample, the loan and security agreement restricts our ability, among otherthings, to incur additional indebtedness, to acquire other companies or theassets of other companies and to pay dividends without the lender’s consent. Ifwe fail to meet or satisfy any of the restrictions, covenants, financial ratiosor financial tests, we would be in default under the loan and securityagreement. The loans are secured by all of our assets and the assets of oursubsidiaries, as well as a pledge of the common stock of InfoLogix SystemsCorporation (which is the entity through which we conduct substantially all ofour operations). We have also provided the lender with a securityinterest in a company investment account pursuant to which we are required tomaintain a minimum balance of $2.6 million. An event of default under the loan and security agreement would give thelender the right to declare all amounts outstanding under the credit facility dueand payable and enforce its rights to foreclose on the collateral securing theloans.

 

The restrictions containedin the loan and security agreement could inhibit our ability to obtainfinancing and engage in other business activities that are important to ourbusiness and growth strategies, which could inhibit our ability to operate ourbusiness and increase our revenues.

 

***Ourindebtedness could adversely impact our financial condition.***

 

As of September 30, 2007, wehad approximately $29.8 million of total indebtedness, including short-termdebt and approximately $8.2 million under our credit facility. We may increasethe amount of our indebtedness in the future, which could have an importantimpact on our stockholders. An increase in our indebtedness could:

 

•                  cause us to violate certain provisionscontained in our credit facility;

•                  make us more vulnerable to economic downturnsand limit our flexibility to plan for or react to changes in business andeconomic conditions;

•                  limit our ability to withstand competitivepressures through increases in our cost of capital; and

•                  harm our ability to obtain additional debt orequity financing in the future.

 

If any of the foregoing wereto occur, our ability to execute our growth strategy would be impaired and ourresults of operations could be harmed.

 

**Risks Relating to our CommonStock**

 

***Applicable SECrules governing the trading of “penny stocks” may limit the liquidity of ourcommon stock which may affect its trading price.***

 

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Our common stock may beconsidered a “penny stock” and be subject to SEC rules and regulations thatimpose limitations upon the manner in which our shares may be publicly traded. Theseregulations require the delivery, before any transaction involving a pennystock, of a disclosure schedule explaining the penny stock market and theassociated risks. Under these regulations, certain brokers who recommend suchsecurities to persons other than established customers or certain accreditedinvestors must make a special written suitability determination regarding thepurchaser and receive the purchaser’s written agreement to a transaction beforea sale. These regulations could have the effect of limiting the tradingactivity of our common stock and reducing the liquidity of an investment in ourcommon stock. Therefore, our stockholders may find it difficult to obtainaccurate quotations of our common stock and/or to sell their shares.

 

***The marketprice of our common stock is likely to be highly volatile and subject to widefluctuations.***

 

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

 

•                  announcements of new products or services byour competitors;

•                  quarterly variations in our revenues andoperating expenses;

•                  our announcements of technologicalinnovations or new products or professional services; and

•                  sales of common stock by our directors andmanagement or other selling stockholders named in this report.

 

***If a substantial number of our shares of common stock becomeavailable for sale and are sold in a short period of time, the market price ofour shares of common stock could decline.***

 

We have approximately 2.6million shares of common stock that were available to be publicly traded. Although our common stock is listed on theNASDAQ Capital Market, it does not have a high average trading volume. Forexample, since we became listed on NASDAQ in September 2007, our average dailytrading volume has been approximately 17,148 shares. Prior to our listing onNASDAQ, we were traded on the Over-the-Counter Bulletin Board and our averagedaily trading volume from January 1, 2007 through the date of our listing onNASDAQ was 15,706 shares. Our low trading volume may cause the price of ourcommon stock to be volatile.

 

Certain of our directors,executive officers, advisors and existing stockholders are subject toagreements that restrict their ability to transfer all or a portion of theirshares until November 28, 2007. David Gulian, Richard Hodge, Craig Wilensky andcertain of our existing stockholders become eligible to transfer, subject tocompliance with applicable securities laws, up to 50% of the sharesbeneficially owned by them on November 28, 2007, but remain subject tocontractual restrictions affecting their ability to sell the remaining sharesowned by them until November 28, 2008. We may waive these restrictions andallow these stockholders to sell their shares at any time. After all of theseagreements expire, an aggregate of approximately 6.7 million sharescurrently subject to such lock-ups will be eligible for sale, excluding sharesthat they may acquire upon the exercise of warrants and options. The marketprice of our shares of common stock may drop significantly when therestrictions lapse. A decline in the price of shares of our common stock mightimpede our ability to raise capital through the issuance of additional sharesof our common stock or other equity securities.

 

***There may be alimited public market for our securities.***

 

Althoughwe are listed on the NASDAQ Capital Market, there can be no assurance that thetrading of our common stock will be sustained. If our common stock fails toqualify for continued listing on the NASDAQ Capital Market or for listing onanother registered stock exchange, trading, if any, in our common stock wouldbe conducted on the Over-the-Counter Bulletin Board or in what are commonlyreferred to as “pink sheets.”  As aresult, our stockholders may find it more difficult to dispose of, or to obtainaccurate quotations as to the market value of our common stock, and our commonstock would become substantially less attractive for margin loans, forinvestment by financial institutions, as consideration in future capitalraising transactions or other purposes. An active public market for shares ofour common stock may not develop, or if one should develop, it may not besustained. Therefore, our stockholders may not be able to find purchasers fortheir shares of our common stock.

 

***We do notexpect to pay dividends for the foreseeable future.***

 

Wecurrently intend to retain any future earnings to support the development andexpansion of our business and do not anticipate paying cash dividends in theforeseeable future. Any payment of future dividends will be at the discretionof our board of directors after taking into account various factors, includingbut not limited to our financial condition, operating results, cash needs,growth plans and the terms of any credit agreements that we may be a party toat the time. Our loan agreement with Sovereign Bank 

 

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currentlyrestricts our ability to pay dividends on our common stock. Accordingly, ourstockholders must rely on sales of their common stock after price appreciation,which may never occur, as the only way to make a positive return on theirinvestment. Investors seeking cash dividends should not purchase our commonstock.

 

***Failure toachieve and maintain effective internal controls could have a material adverseeffect on our business, operating results and stock price.***

 

Effectiveinternal controls, particularly those related to revenue recognition, arenecessary for us to produce reliable financial reports and are important inhelping prevent financial fraud. If we are unable to achieve and maintainadequate internal controls, our business and operating results could be harmed.We are also beginning to evaluate how to document and test our internal controlprocedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Actof 2002 and the related rules of the Securities and Exchange Commission, whichrequire, among other things, our management to assess annually the effectivenessof our internal controls over financial reporting beginning with our Form 10-Kfor the year ended December 31, 2007 and our registered public accounting firmto issue a report on that assessment beginning with our Form 10-K for the yearended December 31, 2008. During the course of this documentation and testing,we may identify deficiencies that we may be unable to remediate before therequisite deadline for those reports. If our management or our registeredpublic accounting firm were to conclude in their reports that our internalcontrol over financial reporting was inadequate, our stockholders could loseconfidence in our reported financial information and the trading price of ourstock could drop significantly.

 

***Provisions inour organizational documents and under Delaware law may delay or preventattempts by our stockholders to change our management and hinder efforts toacquire a controlling interest in us.***

 

Certainprovisions of our bylaws are intended to strengthen our board of director’sposition in the event of a hostile takeover attempt. These provisions have theeffect of providing our board of directors with the sole power to fillvacancies on our board of directors and providing that stockholders may onlycall a special meeting by the request, in writing, of stockholders owningindividually or together ten percent or more of our entire capital stockoutstanding and entitled to vote.

 

Inaddition, Section 203 of the Delaware General Corporation Law prohibits apublicly held Delaware corporation from engaging in a business combination withan interested stockholder, generally a person which together with itsaffiliates owns or within the last three years has owned 15% of our votingstock, for a period of three years after the date of the transaction in whichthe person became an interested stockholder, unless the business combination isapproved in a prescribed manner. Accordingly, Section 203 may discourage, delayor prevent a change in control of our company.

 

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

 

On July 1, 2007, we entered into an agreement withAlliance Advisors, LLC for investor relations services. The agreement providesfor customary services related to our investor and shareholder communicationsprograms. In exchange for these services, we agreed to an effective term oftwelve months, a monthly retainer fee of $15,000, and the issuance of 10,000shares of our common stock each quarter during the effective term of theagreement. At September 30, 2007, we issued 10,000 shares of common stock,which was valued at $38,200 for accounting purposes. The value of the commonstock was based on the average closing market price of our common stock fromJune 27, 2007 through July 5, 2007. The issuance of the shares of common stockwas unregistered and the shares are subject to a one-year lockup.

 

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**Item 6.Exhibits**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                               |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1             |       | Asset Purchase  Agreement by and among InfoLogix, Inc., InfoLogix Systems Corporation,  Healthcare Informatics Associates, Inc., and the stockholders of HIA dated as  of September 30, 2007 (incorporated herein by reference to Exhibit 2.1  of our Current Report on Form 8-K filed October 4, 2007). |
|            |       |                                                                                                                                                                                                                                                                                                          |
| 10.1            |       | Second Amendment dated  as of August 20, 2007 to the Services Agreement, dated as of July 17, 2006,  as amended on October 9, 2006, by and between Futura Services, Inc. and  InfoLogix, Inc. (incorporated herein by reference to Exhibit 10.1 of our  Current Report on Form 8-K filed August 23, 2007).    |
|            |       |                                                                                                                                                                                                                                                                                                          |
| 10.2            |       | Employment Agreement by  and between InfoLogix Systems Corporation and Gerry Bartley dated as of  September 30, 2007 (incorporated herein by reference to Exhibit 10.1 of our  Current Report on Form 8-K filed October 4, 2007).                                                                             |
|            |       |                                                                                                                                                                                                                                                                                                          |
| 10.3            |       | Earn Out Agreement by  and between InfoLogix Systems Corporation and Healthcare Informatics  Associates, Inc. dated as of September 30, 2007 (incorporated herein by  reference to Exhibit 10.2 of our Current Report on Form 8-K filed October 4,  2007).                                                    |
|            |       |                                                                                                                                                                                                                                                                                                          |
| 10.4            |       | Promissory Note executed in favor of Healthcare  Informatics Associates, Inc. by InfoLogix Systems Corporation dated as of  September 30, 2007 (incorporated herein by reference to Exhibit 10.3 of our  Current Report on Form 8-K filedOctober 4, 2007).                                                    |
|            |       |                                                                                                                                                                                                                                                                                                          |
| 10.5            |       | Fourth Amendment and  Modification to Loan and Security Agreement by and among InfoLogix Systems  Corporation, Opt Acquisition LLC, Embedded Technologies, LLC and Sovereign  Bank dated as of September 30, 2007.*                                                                                           |
|            |       |                                                                                                                                                                                                                                                                                                          |
| 31.1            |       | Certification pursuant  to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                          |
| 31.2            |       | Certification pursuant  to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302  of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                          |
| 32.1            |       | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                          |
| 32.2            |       | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                    |

 

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(*) Filed herewith.

 

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**SIGNATURES**

 

Pursuant to therequirements of section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned; thereunto duly authorized, in Hatboro, Pennsylvania on November14, 2007.

 

 
|     | INFOLOGIX, INC. |                                                        |   |
|----------|-----------------|-------------------------------------------------------------|--------|
|     |            |                                                        |   |   |
|     | By:             | /s/ David T. Gulian                                         |   |   |
|     |            | David T. Gulian                                             |   |   |
| * * | * *        | *President and Chief Executive  Officer*                    |   |   |
| * * | * *        | * *                                                    |   |   |
|     | By:             | /s/ John A. Roberts                                         |   |   |
|     |            | John A. Roberts                                             |   |   |
| * * | * *        | *Chief Financial Officer and  Principal Accounting Officer* |   |   |

 

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