Statement 141R also includes a substantial number of new disclosure requirements. Statement 141141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, a calendar year-end company is required to record and disclose business combinations following existing GAAP until January 1, 2009.  The Company does not believe the application of this standard will materially impact its consolidated financial statements.

Under Statement 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, Statement 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy.

The provisions of Statement 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year.  The Company adopted SFAS No. 157 as of March 1, 2008 which had no material impact its consolidated financial statements.

Statement 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged.  The Company does not believe the application of this standard will materially impact its consolidated financial statements.

Statement 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for some disclosures about the insurance enterprise’s risk-management activities. This Statement requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period (including interim periods) beginning after issuance of this Statement. Except for those disclosures, earlier application is not permitted.  The Company does not believe the application of this standard will impact its consolidated financial statements.

The Company’s Singapore subsidiary entered into the Contract with a Singapore entity on April 10, 2007 to design, develop and manufacture approximately $93.5 million of its Telematics products. Deliveries began in January 2008 and we anticipated beginning the five major shipments in the early part of 2009.2009 over fifteen months. The Contract includes a provision for substantial liquidated damages for unexcused delays in product deliveries and/or failure to satisfy certain customer-specified acceptance criteria. In addition, in the event of non-performance by the Company that remains uncorrected after notice from the customer and the expiration of a contractual grace period, the customer has the right to cancel the Contract. The Company’s proprietary Telematics system is undergoing significant customization/modification in order to achieve the functionality required by the customer.

Under the terms of the Contract, the schedule of values is used to determine performance and testing criteria and includes the design, development and manufacturing phases.  We are to receive payments that become payable upon the completion of each milestone as agreed upon in the Contract.  The milestones include delivery of designs and plans, prototype units, harnesses and memory, main infrastructure components, PDA’s, testing procedures, prototype units and software.   The Company has billed and collected, in full, the design phase representing $3.8 million.  We have begun progress billings under the development phase representing approximately $1.6$1.7 million.  The amounts due and payable are determined by delivery of milestones to the customer.  The Company has completed the design phase and is currently working within the development phase where we have designed the functionality of the system to meet the customer needs and then developed the functionalities into a working environment.  Upon completion of the development phase, all customer testing provisions will be completed and documented;  thereby removing all rights of cancellation and we will move into the production phase for delivery over approximately eighteenfifteen months to the customer. With each shipment the customer will have forty-five days from receipt for normal processing of payment. From inception of the Contact,Contract, we have accomplished all requirements under the Contract with no liquidated damages incurred. We expect to progress to move through the production phase with minimal to no liquidated damages through the completion of this Contract.

As the Company is recognizing revenue under the percentage-of completion method under SOP 81-1, the amounts billed to the customer and received by the Company do not impact the revenues recognized.

In previous years, the Company entered into certain convertible debt financings.  A $1.5 million convertible note payable to a stockholder issued in September 2004 (as amended in November 2004) and a $384,000 convertible note payable issued to the same stockholder in December 2004 are outstanding at August 31,November 30, 2008 and are included in the convertible notes payable to stockholders on the accompanying condensed consolidated balance sheet.

Following approval of its Board of Directors and a majority of its Shareholders’Shareholders, the Company entered into a Warrant Exchange Agreement, a Warrant Amendment Agreement, and a Preferred Stock Exchange Agreement (collectively, the “Amended and Restated Rights Agreements”), dated as of May 29, 2008, between Company and each of the holders of certain warrants, and holders of certain series of Preferred shares issued by the Company (individually, a “Holder” and collectively, the “Holders”) relating to the Company’s Series A and Series B Preferred shares and related warrants. The Company accepted an exchange of warrants with modified terms for cash and Series C Preferred stock; and the exchange of Series A and Series B Preferred stock for Series A-2 Preferred stock sequentially with all transactions closing concurrently on the same day.  The Company offered the same terms to all participants of Series A and Series B Preferred stock and related warrant holders for a limited 20 day period of exchange. The specific changes contained in the Amended and Restated Rights Agreements are as follows:

The Certificates of Designation for the Series A-2 Preferred shares and the Series C Preferred shares contain the same terms except that the Series A-2 Preferred shares maintain privileges from the Series A Preferred stock in the event of certain transactions; and the Series C Preferred shares do not have these privileges.

The warrants were exercisable into 16,000,000 shares of common stock. The fair value of the warrants on the transaction date before the modifications was determined to be $4,110,225 using the Black-Scholes option pricing model in accordance with SFAS 123(R). The fair value of the warrants on the transaction date after the modifications was determined to be $5,696,144 using the Black-Scholes option pricing model in accordance with SFAS 123(R). In addition, the warrants were originally issued as part of an equity transaction and the fair value of those warrants was recorded as paid-in capital; therefore, a modification resulting in a change in the fair value of those warrants would also be recorded as paid-in capital rather than as a compensation charge.  As a result, the difference in the fair value of the warrants before and after the modification of $1,585,919 was be recorded as a deemed dividend – since these warrant holders are also holders of the Company’s Series A and Series B Preferred stock and are the beneficiaries of the increase in incremental value – and was be recognized over the period until the Series C Preferred Stock becomes convertible, which was upon issuance since the Series C Preferred stock are convertible upon issuance. However, since the Company did not have retained earnings on the transaction date, the deemed dividend was accounted for by reducing additional paid inpaid-in capital. The accounting for these dividends also requires that they be credited to additional paid inpaid-in capital; as a result, there was no net effect of the transaction on the Company’s stockholders’ deficit on the transaction date.

The Company reported the basic and diluted loss per common share pursuant to paragraphs 8 and 9 of SFAS No. 128, “Earnings per Share.”  As a result, the deemed dividend to Preferred stockholders was added to the net loss in determining the net loss available to common shareholders in the condensed consolidated statement of operations.

The Series A and Series B Preferred stock were convertible into 9,000,000 and 4,285,714 shares of Company common stock, respectively. The fair value of the Series A and Series B Preferred stock was based on the closing price of the Company’s common stock on the transaction date and the number of common shares issuable upon conversion and was determined to be $5,181,428. The Series A-2 Preferred stock is convertible into 30,000,000 shares of common stock. The Series A-2 Preferred stock has a liquidation preference of $7.80 per share with a 20:1 conversion to the Company’s common shares issuable upon conversion; therefore, the liquidation preference on a per-share of common stock basis of $0.39 (fair value) was equal to the closing price of the Company’s common stock on May 29, 2008, which was determined to be $11,700,000.  The difference in fair value of the Preferred stock exchanged, $6,518,572, was considered to be a deemed dividend to the Preferred stockholders, with the entire amount charged to equity on the transaction date. However, since the Company did not have retained earnings on the transaction date, the deemed dividend was accounted for by reducing additional paid inpaid-in capital. The accounting for these dividends also requires that they be credited to additional paid inpaid-in capital; as a result, there was no net effect of the transaction on the Company’s stockholders’ deficit on the transaction date.

The Company reported the basic and diluted loss per common share pursuant to paragraphs 8 and 9 of SFAS No. 128, “Earnings per Share.”  As a result, the deemed dividend to Preferred stockholders was added to the net loss in determining the net loss available to common shareholders in the condensed consolidated statement of operations.

SFAS 150 requires an issuer to classify the following instruments as liabilities (or assets in some circumstances):  a financial instrument issued in the form of shares that is mandatorily redeemable—that embodies an unconditional obligation requiring the issuer to redeem it by transferring its assets at a specified or determinable date (or dates) or upon an event that is certain to occur.  However, SFAS 150 provisions do not apply if redemption is required to occur only upon the liquidation or termination of the reporting entity. The Series A-2 Preferred Stock contains no unconditional obligation requiring redemption.  SFAS 150 also requires unconditional obligations in the form of shares that the issuer must or may settle by issuing a variable number of shares to be classified as a liability.  The Series A-2 Preferred Stock contains no unconditional obligations that may be settled in a variable number of shares.  The Series A-2 Preferred Stock contains redemption features if a Major Transaction or Triggering Event were to occur, that may be settled in cash or shares, at the Company’s option or solely within the Company’s control.  These transactions are not certain to occur and are not unconditional.  Accordingly, the Series A-2 Preferred Stock was considered to not be within the scope of SFAS 150.

The conversion features in the Series A-2 Preferred Stock were evaluated as a potential embedded derivative in accordance with SFAS No. 133.   SFAS 133 provides guidance on derivative instruments and contracts that do not in their entirety meet the definition of a derivative instrument but may contain “embedded” derivative instruments.  SFAS 133 requires that an embedded derivative instrument be separated from the host contract and accounted for as a derivative instrument if specified criteria are met.  It also indicates the necessary criteria for bifurcation including (i) that the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, as well as (ii) that a separate instrument with the same terms as the embedded derivative instrument would be a derivative instrument subject to the requirements of the Statement.

SFAS 133 paragraph 61 (l) provides guidance on evaluating the convertible Preferred stock and requires that the terms of the Preferred stock (other than the conversion option) be analyzed to determine whether the economic characteristics and risks are more akin to a debt or an equity instrument. Based on an evaluation of the conversion features, the economic characteristics and risks are considered to be more akin to equity since they are clearly and closely related to the host primarily because the host contract is a perpetual interest and there are no collateral requirements or creditor rights in the instruments.  Therefore, the conversion feature does not need to be bifurcated from the host instrument.

The Company reported the basic and diluted loss per common share pursuant to paragraphs 8 and 9 of SFAS No. 128, “Earnings per Share.”  As a result, the deemed dividend to Preferred stockholders was added to the net loss in determining the net loss available to common shareholders in the condensed consolidated statement of operations.

As part of the transactions discussed above, on May 27, 2008 the Company’s Board approved modification of the Astrata Articles of Incorporation to increase authorized Preferred stock to 75,000,000 shares; also authorizing Common Stock to 300,000,000 shares.  On May 28, 2008, the Company received 52% of the common stockholder’s approval for the modification of the Astrata Articles of Incorporation.

As a result of the approval discussed above, the number of authorized and unissued shares of the Company is sufficient to settle all the current potential common stock commitments that may require the issuance of common stock, which as of May 29, 2008 was 101,102,341 shares of common stock fully diluted. Therefore, no further assessment is required.

As of June 18, 2008, holders of approximately 8.2 million warrants, with a twenty (20) day offer elected to participate in the exchange and exercised approximately 2.1 million warrants for approximately 2.1 million shares of Common stock with cash and non-cash proceeds of approximately $37,000 and $482,000, respectively.respectively .  Then the participants forfeited approximately 2.1 million in warrants and exchanged approximately 4.2 million warrants for approximately 208,000 shares of Series C Preferred stock.  The remaining approximately 3.5 million Preferred stock warrant holders which did not elect to participate in the exchange will continue to hold their original warrants with terms modified eliminating the anti-dilution and cashless exercise provision.  In addition, in accordance with the anti-dilution terms of the warrant agreement, the exercise price of these approximately 3.5 million warrants was reduced to $0.61.

During the quarter ended May 31, 2008, the Company issued approximately 43,000 shares of its restricted common stock in exchange for services provided by consultants. Such shares were valued at approximately $22,000 (estimated to be the closing value based on the trading price on the issuance date).  This transaction constituted an exempt offering under Section 4(2) of the Securities Act.

The June 18, 2008 Series C Preferred stock transaction reflected above included the exchange of approximately 1.9 million warrants for approximately 1.9 million shares of common stock for approximately $482,000 of debt.  This transaction constituted an exempt offering under Section 4(2) of the Securities Act.

The June 18, 2008 Series C Preferred stock transaction reflected above included the exchange of approximately .2 million warrants for approximately .2 million shares of common stock for cash proceeds of approximately $37,000.  This transaction constituted an exempt offering under Section 4(2) of the Securities Act.

During the quarter ended August 31, 2008, the Company issued approximately 195,000174,000 shares of its restricted common stock in exchange for services provided by employees and consultants. Such shares were valued at approximately $89,000$76,000 (estimated to be the closing value based on the trading price on the issuance date).  This transaction constituted an exempt offering under Section 4(2) of the Securities Act.

During the quarter ended August 31, 2008, the Company issued approximately 239,000 shares of its restricted common stock in exchange for cash of approximately $60,000 (estimated to be the closing value based on the trading price on the issuance date).  This transaction constituted an exempt offering under Section 4(2) of the Securities Act.

Common shares issued which vest over a three-year period from the date of grant, are amortized over the vesting period resulting in an expense of approximately $122,000$184,000 for the three months ended August 31,November 30, 2008 and $314,000$511,000 for the sixnine months ended August 31,November 30, 2008.

From time to time, the Company may be involved in various claims, lawsuits and disputes with third parties, actions involving allegations of discrimination or breach of contract incidental to the ordinary operations of the business.  The Company is not currently involved in any litigation which management believes could have a material adverse effect on the Company's financial position or results of operations.

The Company is contractually liable for certain penalties because its registration statement relating to the preferred stock and the April/May 2005 sale of equity units was not filed (or expected to be declared effective by the SEC) by the deadline dates.  During June 2008, the Company issued restricted common stock in settlement of approximately $0.3 million registration rights penalties which is included in the issuance of approximately 2.1 million shares of common stock issued June 18, 2008 as reflected above.   Based on the current estimate of the filing and effective dates of such registration statement and the contractual deadlines, as of August 31,November 30, 2008, the Company has accrued estimated penalties and related interest of approximately $0.3 million.

Telematic products, accessories and services related to the business of remote monitoring of assets (including track-and-trace) whereby position, attributes, status and communication are involved.

In the opinion of management, the Company’s future opportunities in the GPS industry are principally in the Telematics sector in the Southeast Asia, Western Europe, and United States markets, with particular emphasis on the homeland security business. In combination with certain operational issues in South Africa, the desire to outsource manufacturing activities, and the intent to restructure/relocate the research and development function, management reached a decision in the first quarter of fiscal 2007 to sell the Company’s Geomatics operations. The Company consummated certain disposal transactions in the second quarter of fiscal 2007. In addition, management placed Astrata Systems (a wholly-owned) subsidiary in South Africa) in liquidation during fiscal 2007.

Management believes that the Company has not incurred any material contingent liabilities in connection with the transactions and events described in the preceding paragraph. The Company did not recognize any losses for write-downs (to fair value, less cost to sell) of any assets related to discontinued operations during the three and nine months ended August 31,November 30, 2008. Operations reported as discontinued in the accompanying condensed consolidated statements of operations are not generating any significant cash flows.  Management has concluded that the Company does not have any active continuing involvement with the components that have been classified as discontinued operations in the accompanying condensed consolidated financial statements.

Astrata Group Incorporated is a U.S. publicly-held company, headquartered in Costa Mesa, California.  Astrata is focused on advanced location-based IT services and solutions (Telematics) that combine the GPS positioning, wireless communications (satellite or terrestrial) and geographical information technology, which together enable businesses and institutions to monitor, trace, or control the movement and status of machinery, vehicles, personnel or other assets. The Company's intelligent vehicle tracking system currently in use enables the customer to track vehicles carrying hazardous materials and to halt them in case they veer off course.  Astrata has designed, developed, manufactured and currently supports eight generations of Telematics systems with units deployed worldwide. Astrata has offices throughout the world including the United States, Europe and Asia.

Our expertise is focused on advanced location-based IT products and services that combine positioning, wireless communications, and information technologies.  We provide advanced positioning products, as well as monitoring and airtime services to commercial and governmental entities in a number of markets including homeland security, public safety, transportation, surveying, utility, construction, mining, and agriculture.

Examples of our products and services include surveying instrumentation using GPS and other augmenting technologies, such as wireless communication and lasers; fleet management for specialized machines, such as guidance for earth-moving equipment; positioning and IT technology for remote asset management and associated Telematics products, field data collection equipment, and products and airtime communications services for high volume track and trace applications.

Positioning technologies employed by us include GPS, laser, optical and inertial navigation systems.  Communication techniques employed by us include GSM cellular and satellite communications.

Telematics comprises the remote monitoring of assets in real-time (including tracking and tracing) whereby location, time and sensor status are communicated.  These products are deployed into diverse markets including homeland security, public safety, transportation services and construction.

Telematics products often focus on people and assets in hostile and demanding environments such as monitoring the movement of hazardous materials for homeland security purposes.  We also address the market for fleet management, workforce management, remote asset management and tracking, and emergency services by providing hardware for GPS information and data collection, as well as the software needed to access and analyze the data through the Internet.  Our products combine positioning, wireless, and information technology and add measurable value to location-based information.  We offer airtime to communicate data from the vehicle or field location to the customer’s data center or provide access over the Internet to the data and application software.  This allows critical real-time performance and monitoring data to be accessed and analyzed by supervisory, maintenance, or financial users and make real-time decisions for productivity improvement, cost reductions, safety improvement, or other critical decisions to be fed to the field.

Our business strategy is to focus on the homeland security, hazardous materials, civil defense and business-to-business markets by providing our customers with comprehensive solutions to meet their needs. Frequently this involves additional integration such as sensors ranging from Radio Frequency Identification to biometrics, remote displays or augmenting technologies to allow tracking in tunnels.  Our business strategy anticipates we will be doing business internationally which carries risks which the Company must consider in conducting business with each international customer.

Our anticipated sales cycle in our target markets is subject to long cycles which include potential buyers requiring an evaluation process. As a result, we may be required to subsidize our operations during the period of obtaining sales contracts and the subsequent payment of invoices.  Since our technology is new, prospective customers may require a longer evaluation process prior to purchasing or making a decision to include our product in their vehicles or containers.  Some prospective customers may require a test installation of a customized system before making a purchase decision, which could be costly and time consuming for us.  Each industry that we serve may have entirely different requirements, which can diminish our ability to fine tune a marketing approach.

The Company entered into a fixed-price Contract with a Singapore entity on April 10, 2007 to design, develop and manufacture approximately $93.5 million of its Telematics products. The Company has completed the design phase and is currently working within the development phase where we have designed the functionality of the system to meet the customer needs and then developed the functionalities into a working environment.  Upon completion of the development phase, all customer testing provisions will be completed and documented;  thereby removing all rights of cancellation and we will move into the production phase for delivery over approximately eighteenfifteen months to the customer. With each shipment the customer will have forty-five days from receipt for normal processing of payment. From inception of the Contact, we have accomplished all requirements under the Contract with no liquidated damages incurred. We expect to progress to move through the production phase with minimal to no liquidated damages through the completion of this Contract.  We anticipate entering into the manufacturing phase in early 2009, at which time we anticipate an increase in our revenues and gross margins.

Net sales from continuing operations were approximately $2.7$2.9 million for the three months ended August 31,November 30, 2008; a decrease of approximately $1.3$1.8 million compared to the three months ended August 31,November 30, 2007 of approximately $4$4.7 million.  This decrease is directly attributable to our long sales cycle in orders to provide customer specific requirements and the reduced recognition on the fixed-price Contract with a Singapore entity. During the three months ended August 31,November 30, 2008, we continued with the development phase of our Contract which covers a larger period of time for completion; allowing us to recognizerecognizing approximately $0.9$1 million in revenue.  During the three months ended August 31,November 30, 2007, we were in the design phase of our Contract which we completed and recognized approximately $2.3 million in revenue.revenue on the Contract. We are currently in the later stage of the development phase, completing recent customer change orders and recognize revenue using the percentage of completion method of accounting.  The design and development phase is where we have designed the functionality of the system to meet the customer’s needs and then developed the functionalities into a working environment for testing and acceptance to move into production.  Throughout the last sixteennineteen months, we have accomplished all requirements under the Contract with no liquidation damages incurred. Upon completion of the development phase, we will move into the production phase which includes the units for delivery over approximately twenty-fourfifteen months to the customer.   We expect to progress through the production phase with minimal to no liquidation damages through the completion of this Contract.

Our business strategy is to focus on the homeland security, hazardous materials, civil defense and business-to-business markets by providing our customers with comprehensive solutions to their needs. Frequently this involves additional integration such as sensors ranging from Radio Frequency Identification to biometrics, remote displays or augmenting technologies to allow tracking in tunnels.  Management is projecting growth in Telematics sales during fiscal 2009 and 2010. Other sales contracts are under negotiation, but at this time there can be no assurance regarding the ultimate success of these negotiations.  Based on our current estimates, we project recording revenue under the Contract of approximately $6.1$4.5 million and $35.5$62.6 million in fiscal 2009 and 2010, respectively.

Gross profit from continuing operations was approximately $1.1 million for the three months ended August 31,November 30, 2008 and approximately $1.2 million for the three months ended November 30, 2007.  Total gross profit as a percentage of revenue increased to 41%39% for the three months ended August 31,November 30, 2008 compared to approximately 28%26% for the three months ended August 31,November 30, 2007.  This is attributable to an increase in orders with higher margins in addition to our fixed-price Contract.

Selling general and administrative expenses from continuing operations for the three months ended August 31,November 30, 2008 were approximately $2.1$1.4 million, an increasea decrease of approximately $0.2$0.1 million compared to the three months ended August 31,November 30, 2007 of approximately $2.3$1.5 million.  For the three months ended August 31,November 30, 2008, we experienced approximately $0.3 million of the increase relatesrelated to Europe; and approximately $0.3$0.1 million relatesrelated to the United States andStates; offset by a decrease of approximately $0.4$0.5 million in South East Asia.  Inour South East Asia (including Singapore, Malaysia, and Brunei) and Europe overheads decreased by $0.2 million each offset by an increase in the United States overheads of approximately $0.2 million.operations.  The majority of these expenses are specifically related to staffing, facilities and travel. Administrativethe administrative expenses primarily include marketing, salaries, facilities and travel expenses.  Corporate overhead of approximately $0.9 million includes public company expenses of approximately $0.2$0.3 million, investor relations and investment banker service expenses of approximately $0.1 million and administrative expenses of approximately $0.6$0.5 million.  Public company expenses include audit expenses, legal fees, and director’s fees.  We expect our expenses to remain consistent or decrease as we progress through the manufacturing phase on the Contract.  A non-cash expense was recorded for stock based compensation amounting to approximately $0.2 million was recorded during each offor the three month periodsperiod ending August 31, 2008 and 2007.November 30, 2008.