Unassociated Document

10QSB/A 1 v095341_10qsba.htm Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB/A

Amendment No. 1

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_________

Commission file number 000-27083

Aftersoft Group, Inc.

(Name of Small Business Issuer in its charter)

Delaware		84-1108035
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

Regus House, Herons Way Chester Business Park

Chester CH4 9QR

(Address of principal executive offices, including zip code)

Issuer 's telephone number, including area code 011 44 124 489 3138

Securities registered under Section 12(b) of the Exchange Act:

Title of each class registered:	Name of each exchange on which registered:
None	None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.0001 par value

(Title of class)

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

Yes x No o

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

Yes o No x

Transitional Small Business Disclosure Format: Yes o No x

The issuer has 87,054,471 shares of common stock outstanding as of November 19, 2007.

Explanatory Note

This Form 10-QSB/A of Aftersoft Group, Inc. (the “Company”) constitutes Amendment No. 1 (the “Amendment”) to the Company’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2007, originally filed with the Securities and Exchange Commission on November 19, 2007 (the “Original Report”).

The purposes of this Amendment are:

1)	to amend the Company’s consolidated statement of cash flows for the three months ended September 30, 2007;

to reorganize the notes to the financial statements by amending the notes to the financial statements contained in the Original Report for additional disclosure of several transactions, adding new notes relating to Stockholders’ Equity (new Note 7), Entry into a Material Definitive Agreement (new Note 8) and Restatement of Prior Year (new Note 10), and renumbering the Notes accordingly;

3)	to amend Item 2 of Part I (Management’s Discussion and Analysis) to correct certain clerical and typographical errors contained in the discussion of the Company’s results of operations;

to amend the disclosure in Item 3 of Part I (Controls and Procedures), to disclose the conclusion of the Company’s Chief Executive Officer and Chief Financial Officer that the Company’s disclosure controls and procedures were not effective for the quarter covered by the Original Report due the material weakness therein described;

5)	to delete the discussion of the legal proceeding instituted by Homann Tire Ltd. from the disclosure contained in Item 1 of Part II (Legal Proceedings), as there were no material developments related to this proceeding that occurred during the quarter covered by the Original Report;

6)	to amend Item 6 of Part II (Exhibits), and the Index to Exhibits, to include material definitive agreements entered into by the Company during the quarter covered by the Original Report; and

7)	to correct certain other typographical and other matters for clarity throughout the Original Report.

Other than these changes, the remainder of the document is unchanged from the original filing.

This Amendment has been signed as of a current date, and also includes as exhibits, currently dated certifications of the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes Oxley Act of 2002.

This Amendment does not reflect events occurring after the Original Report. Except for the foregoing amended or added information, this Amendment continues to speak as of the date of filing of the Original Report and the Company has not otherwise updated disclosures contained therein or herein to reflect events that occurred at a later date. For the convenience of the reader, this Amendment sets forth the Original Report in its entirety as amended.

Table of Contents

	Part I—Financial Information

Item 1.	Consolidated Financial Statements	1 - 16
Item 2.	Management’s Discussion and Analysis or Plan of Operation	17
Item 3.	Controls and Procedures	20

	Part II—Other Information

Item 1.	Legal Proceedings	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Submission of Matters to a Vote of Security Holders	22
Item 5.	Other Information	22
Item 6.	Exhibits	23

Signatures		24

PART I—Financial Information

Unless the context indicates or requires otherwise, (i) the term “Aftersoft” refers to Aftersoft Group, Inc. and its principal operating subsidiaries; (ii) the term “MAM Software” refers to MAM Software Limited; (iii) the term “AFS” refers to Aftersoft Network N.A, Inc. and its subsidiaries; (iv) the term “EXP Dealer Software” refers to EXP Dealer Software Limited and its subsidiaries; (v) the term “DSS” refers to Dealer Software and Services Limited; and (vi) the terms “we,” “our,” “ours,” “us” and the “Company” refer collectively to Aftersoft Group.

Item 1. Financial Statements

AFTERSOFT GROUP, INC

CONSOLIDATED BALANCE SHEET

(Unaudited)

(In thousands, except share and per share data)

	September 30, 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	850
Accounts receivable, net of allowance of $181		4,159
Note receivable		865
Inventories		415
Investments in available-for-sale securities		369
Amount due from parent company		359
Other		571
Total Current Assets		7,588

PROPERTY AND EQUIPMENT, NET		385

OTHER ASSETS
Goodwill		22,633
Amortizable intangible assets, net		7,443
Software development costs, net		1,367
Other long-term assets		29
Total Other Assets		31,472
TOTAL ASSETS	$	39,445

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	2,700
Accrued expenses		1,656
Payroll and other taxes		1,037
Current portion of long-term debt		570
Current portion of deferred revenue		1,678
Taxes payable		613
Total Current Liabilities		8,254

LONG-TERM LIABILITIES
Deferred revenue, net of current portion		681
Deferred income taxes		880
Long-term debt, net of current portion		382
Total Liabilities		10,197

Commitments and contingencies		--
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.0001 per share, 10,000,000 shares authorized, none issued and outstanding		-
Common stock, par value $0.0001 per share, 150,000,000 shares authorized, 87,054,471 shares issued and outstanding		9
Additional paid-in capital		28,984
Accumulated other comprehensive income		1,903
Accumulated deficit		(1,648	)
Total Stockholders’ Equity		29,248
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	39,445

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

AFTERSOFT GROUP, INC

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except share and per share data)

	For the Three Months Ended
	September 30, 2007			September 30, 2006
				(Restated)
Revenues	$	6,615		$	6,414
Cost of revenues		2,814			2,722
Gross profit		3,801			3,692

Operating expenses
Research and development		866			869
Sales and marketing		652			576
General and administrative		1,876			1,175
Depreciation and amortization		484			494
Total operating expenses		3,878			3,114

Operating (loss) income		(77	)		578

Other income (expense)
Gain on extinguishment of liability		-			487
Interest expense		(33	)		(26	)
Loss on disposal of property and equipment		(12	)		(4	)
Gain on sale of investment in non-marketable securities		1,312			-
Other, net		10			12
Total other income, net		1,277			469

Income before provision for income taxes		1,200			1,047

Provision for income taxes		232			226
Net income		968			821

Foreign currency translation gain		380			954

Total comprehensive income	$	1,348		$	1,775


Earnings per share attributed to
common stockholders
- basic and diluted	$	0.01		$	0.01

Weighted average number of shares of
common stock outstanding
- basic and diluted		86,239,726			79,821,167

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

AFTERSOFT GROUP, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

	For the Three Months Ended
	September 30, 2007			September 30, 2006
				(Restated)
Cash flows from operating activities:

Net income	$	968		$	821
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		484			494
Gain on extinguishment of liability		-			(487	)
Loss on disposal of property and equipment		12			4
Gain on sale of investment in non-marketable securities		(1,312	)		-
Payment of litigation costs		(2,000	)		-
Changes in operating assets and liabilities (net of the effect of acquisitions):
Accounts receivable		(394	)		(214	)
Inventories		(76	)		(74	)
Amount due from parent company		(74	)		(168	)
Prepaid expenses and other assets		53			99
Accounts payable		12			310
Accrued expenses and other liabilities		(409	)		(152	)
Deferred revenue		209			(442	)
Taxes payable		(151	)		90
Net cash (used in) provided by operating activities		(2,678	)		281

Cash flows from investing activities:
Purchase of property and equipment		(93	)		(52	)
Proceeds from the sale of investments		2,000			-
Capitalized software development costs		(181	)		(188	)
Net cash provided by (used in) investing activities		1,726			(240	)

Cash flows from financing activities:
Payments on long-term debt		(747	)		(5	)
Proceeds from sale of common stock, net of expenses		2,037			-
Net cash provided by (used in) financing activities		1,290			(5	)

Effect of exchange rate changes		(153	)		(17	)
Net increase in cash and cash equivalents		185			19
Cash and cash equivalents, beginning of period		665			458
Cash and cash equivalents, end of period	$	850		$	477

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

AFTERSOFT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(In Thousands)

	For the Three Months Ended
	September 30, 2007		September 30, 2006
			(Restated)
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	$	33	$	26
Income taxes	$	383	$	-

Supplemental disclosures of non-cash financing activity :
Shares issued for accrued litigation costs	$	825	$	-

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

AFTERSOFT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the Periods Ended September 30, 2007 and 2006

NOTE 1. MANAGEMENT'S REPRESENTATION

The consolidated financial statements included herein have been prepared by Aftersoft Group, Inc. (“Aftersoft Group” or the "Company"), without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America has been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three months ended September 2007 are not necessarily indicative of the results that may be expected for the year ending June 30, 2008. It is suggested that the consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2007.

NOTE 2. NATURE OF BUSINESS

Basis of Presentation

Aftersoft Group, Inc. is a subsidiary of Auto Data Network, Inc. (“ADNW”), which owns approximately eighty two percent (82%) of the Company’s outstanding Common Stock.

Aftersoft Group is a leading provider of business and supply chain management solutions primarily to automotive parts manufacturers, retailers, tire and service chains, independent installers and wholesale distributors in the automotive aftermarket. The Company conducts its businesses through wholly owned subsidiaries with operations in Europe and North America. MAM Software Limited (“MAM”) is based in Sheffield, U.K. EXP Dealer Software Services Limited (“EXP”) is comprised of MMI Automotive Limited, (“MMI”) based in Wiltshire and Anka Design Limited, (“ANKA”) based in Chester, U.K. Aftersoft Network, NA, Inc., (“ASNA”) has offices in Dana Point, California, Allentown, Pennsylvania and Wintersville, Ohio.

In December 2005, W3 Group, Inc. (“W3”) consummated a reverse acquisition and changed its corporate name to Aftersoft Group, Inc. W3 was initially incorporated in February 1988 in Colorado and changed its state of incorporation to Delaware in May 2003. On December 21, 2005, an Acquisition Agreement (the "Agreement") was consummated among W3, a separate Delaware corporation named Aftersoft Group, Inc. (“Oldco”) and Auto Data Network, Inc. ("ADNW") in which W3 acquired all of the issued and outstanding shares of Oldco in exchange for issuing 32,500,000 shares of Common Stock of W3, par value $0.0001 per share (the "Common Stock"), to ADNW, which was then the sole shareholder of the Company. At the time of the acquisition, W3 had no business operations. Concurrent with the acquisition, W3 changed its name to Aftersoft Group, Inc. and its corporate officers were replaced. The Board of Directors of the Company appointed three additional directors designated by ADNW to serve until the next annual election of directors. As a result of the acquisition, former W3 shareholders owned 1,601,167, or 4.7% of the 34,101,167 total issued and outstanding shares of Common Stock and ADNW owned 32,500,000 or 95.3% of the Company's Common Stock. On December 22, 2005, Oldco changed its name to Aftersoft Software, Inc. and is currently inactive.

Combination of Entities under Common Control

On August 26, 2006, the Company acquired 100% of the issued and outstanding shares of EXP from ADNW in exchange for issuing 28,000,000 shares of Common Stock to ADNW. In addition, on February 1, 2007, the Company acquired 100% of the issued and outstanding shares of Dealer Software and Services Limited (“DSS”) from ADNW in exchange for issuing 16,750,000 shares of Common Stock to ADNW. Since these acquisitions are with the Company’s majority shareholder, the net assets acquired are recorded at the amounts reflected in ADNW’s consolidated financial statements as of July 1, 2005, and all historical financial statements for the years ended 2006 and 2007 have been retroactively restated as though the transactions had occurred on July 1, 2005 (see Note 10).

The net assets of EXP at July 1, 2005 consisted of the following:

Cash	$	64,000
Other current assets		773,000
Property and equipment		177,000
Goodwill		635,000
Amortizable intangibles		2,784,000
Current liabilities		(708,000	)
Other long-term liabilities		(807,000	)
Net assets recorded to stockholders’ equity	$	2,918,000

The net assets of DSS at July 1, 2005 consisted of the following:

Investment in non-marketable securities	$	688,000
Net assets recorded to stockholders’ equity	$	688,000

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements.

Concentrations of Credit Risk

The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.

Cash and Cash Equivalents

The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At September 30, 2007, the Company did not have any balances in these accounts in excess of the FDIC insurance limits. For banks outside of the United States, the Company maintains its cash accounts at financial institutions it believes to be credit worthy.

Customers

The Company performs periodic evaluations of its customers and maintains allowances for potential credit losses as deemed necessary. The Company generally does not require collateral to secure its accounts receivable. Credit risk is managed by discontinuing sales to customers who are delinquent. The Company estimates credit losses and returns based on management's evaluation of historical experience and current industry trends. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts.

No customer accounted for more than 10% of the Company's revenues during the three months ended September 30, 2007 and 2006.

Segment Reporting

The Company adopted Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”). SFAS 131 requires public companies to report selected segment information in their quarterly reports issued to stockholders. It also requires entity-wide disclosures about the product, services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. The Company believes it operates in three segments and as such has presented additional segment disclosures (see Note 11).

Geographic Concentrations

The Company conducts business in the United States, Canada, United Kingdom (“UK”) and the rest of Europe. From customers headquartered in their respective countries, the Company derived 19% of its revenues from the United States, 75% from its UK operations, 1% from Canada and 5% of its revenues from the rest of Europe during the quarter ended September 30, 2007 compared to 1% from Canada, 24% from the United States, 66% from the UK and 9% of its revenues from the rest of Europe for the quarter ended September 30, 2006. As of September 30, 2007, the Company maintains 90% of its net property and equipment in the UK with the remaining 10% in North America.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by the Company's management include, but are not limited to, the collectibility of receivables, realizability of inventories, the recoverability of long-lived assets and valuation of deferred tax assets. Actual results could materially differ from those estimates.

Fair Value of Financial Instruments

The Company's financial instruments consist of cash, accounts receivable, note receivable, investments in available-for-sale securities, related party loans, long-term debt, accounts payable and accrued expenses. The carrying values of such instruments classified as current approximate their fair values as of September 30, 2007 due to their short-term maturities. The difference between the fair value and recorded values of the related party loans and long-term debt are not significant due to the lack of significant differential between current prevailing rates of similar instruments and the rates of the Company's non-current instruments.

Inventories

Inventories are stated at the lower of standard cost or current estimated market value. Cost is determined using the first-in, first-out method. Inventories consist primarily of hardware that will be sold to customers. The Company periodically reviews its inventories and records a provision for excess and obsolete inventories based primarily on the Company's estimated forecast of product demand and production requirements. Once established, write-downs of inventories are considered permanent adjustments to the cost basis of the obsolete or excess inventories.

Note Receivable

On June 17, 2007, DSS sold all of its CSC shares for a note receivable of $865,000. This note has the following terms: $432,750 is due 180 days from the date of disposal with the final payment becoming due 360 days from disposal. The $865,000 is reported as a note receivable in the accompanying consolidated balance sheet.

Investment in Non-Marketable Securities

DSS owns an 18.18% ownership interest in DCS Automotive Ltd, a non-public company in the UK, which it acquired for $688,000. Non-marketable securities consist of equity securities for which there are no quoted market prices. Such investments are initially recorded at their cost, subject to an impairment analysis. Such investments will be reduced if the Company receives indications that a permanent decline in value has occurred. Any decline in value of non-marketable securities below cost that is considered to be "other than temporary" will be recorded as a reduction on the cost basis of the security and will be included in the consolidated statement of operations as an impairment loss.

During the three months ended September 30, 2007, the Company sold its non-marketable investment to a third party for $2,000,000, generating a gain of $1,312,000.

Available-for-Sale Investments

The Company accounts for its investments in debt and equity securities with readily determinable fair values that are not accounted for under the equity method of accounting under Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities”(“SFAS 115”). Management determines the appropriate classification of such securities at the time of purchase and re-evaluates such classification as of each balance sheet date. The Company classifies its marketable securities as available-for-sale under SFAS 115. Marketable securities consist of equity securities. The specific identification method is used to determine the cost basis of securities disposed of. Unrealized gains and losses on the marketable securities are included as a separate component of accumulated other comprehensive income, net of tax. At September 30, 2007, investments consist of corporate stock with no unrealized gain or loss.

Property and Equipment

Property and equipment are stated at cost, and are being depreciated using the straight-line method over the estimated useful lives of the related assets, ranging from three to five years. Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful lives of the assets or the related lease terms. Equipment under capital lease obligations is depreciated over the shorter of the estimated useful lives of the related assets or the term of the lease. Maintenance and routine repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the statement of operations. Depreciation expense was $53,000 and $46,000 for the three months ended September 30, 2007 and 2006 (restated), respectively.

Software Development Costs

Costs incurred to develop computer software products to be sold or otherwise marketed are charged to expense until technological feasibility of the product has been established. Once technological feasibility has been established, computer software development costs (consisting primarily of internal labor costs) are capitalized and reported at the lower of amortized cost or estimated realizable value. Purchased software development cost is recorded at its estimated fair market value. When a product is ready for general release, its capitalized costs are amortized using the straight-line method over a period of three years. If the future market viability of a software product is less than anticipated, impairment of the related unamortized development costs could occur, which could significantly impact the recorded net income of the Company. Amortization expense was $133,000 and $165,000 for the three months ended September 30, 2007 and 2006 (restated), respectively.

Amortizable Intangible Assets

Amortizable intangible assets consist of completed software technology, customer relationships and automotive data services and are recorded at cost. Completed software technology and customer relationships are amortized using the straight-line method over their estimated useful lives of 8 to 10 years, and automotive data services are amortized using the straight-line method over its estimated useful life of 20 years. Amortization expense on amortizable intangible assets was $298,000 for the three months ended September 30, 2007, and $283,000 for the three months ended September 30, 2006 (restated).

Goodwill

SFAS No. 142, "Goodwill and Other Intangible Assets," addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in the financial statements upon their acquisition and after they have been initially recognized in the financial statements. SFAS No. 142 requires that goodwill and intangible assets that have indefinite useful lives not be amortized but rather be tested at least annually for impairment, and intangible assets that have finite useful lives be amortized over their useful lives. In addition, SFAS No. 142 expands the disclosure requirements about goodwill and other intangible assets in the years subsequent to their acquisition.

SFAS No. 142 provides specific guidance for testing goodwill and intangible assets that will not be amortized for impairment. Goodwill will be subject to impairment reviews by applying a fair-value-based test at the reporting unit level, which generally represents operations one level below the segments reported by the Company. An impairment loss is recorded for any goodwill that is determined to be impaired, which resulted in a $3,100,000 impairment charge in fiscal 2007. The Company performs impairment testing on all existing goodwill at least annually. Based on its analysis, the Company's management believes that no impairment of the carrying value of its goodwill existed at September 30, 2007. There can be no assurance, however, that market conditions will not change or demand for the Company's products and services will continue which could result in additional impairment of goodwill in the future.

For the three months ended September 30, 2007, goodwill activity was as follows:

Balance June 30, 2007	$	22,393,000
Increase due to foreign exchange movements		240,000

Balance September 30, 2007	$	22,633,000

Long-Lived Assets

The Company's management assesses the recoverability of other long-lived assets by determining whether the depreciation and amortization of long-lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment, if any, is measured based on fair value and is charged to operations in the period in which long-lived asset impairment is determined by management. At September 30, 2007, the Company's management believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change or demand for the Company's products and services will continue, which could result in impairment of long-lived assets in the future.

Issuance of Non-Employee Stock for Non-Cash Consideration

All issuances of the Company's stock to non-employees for non-cash consideration have been assigned a per share amount equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable. The majority of the non-cash consideration received pertains to services rendered by consultants and others and has been valued at the market value of the shares on the dates issued.

The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”, and Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF 00-18, “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees”. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with EITF 00-18, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once the equity instrument is granted for accounting purposes.

Revenue Recognition

The Company recognizes revenue in accordance with the American Institute of Certified Public Accountants' Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition," as amended by SOP No. 98-9, "Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions." Accordingly, software license revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product component has occurred, the fee is fixed and determinable, and collectibility is probable. If any of these criteria are not met, revenue recognition is deferred until such time as all of the criteria are met. In accordance with SOP No. 98-9, the Company accounts for delivered elements in accordance with the residual method when arrangements include multiple product components or other elements and vendor-specific objective evidence exists for the value of all undelivered elements. Revenues on undelivered elements are recognized once delivery is complete.

In those instances where arrangements include significant customization, contractual milestones, acceptance criteria or other contingencies (which represents the majority of the Company's arrangements), the Company accounts for the arrangements using contract accounting, as follows :

1)	When customer acceptance can be estimated, expenditures are capitalized as work in process and deferred until completion of the contract at which time the costs and revenues are recognized.

2)	When customer acceptance cannot be estimated based on historical evidence, costs are expensed as incurred and revenue is recognized at the completion of the contract when customer acceptance is obtained.

The Company records amounts collected from customers in excess of recognizable revenue as deferred revenue in the accompanying consolidated balance sheet.

Revenues for maintenance agreements, software support, on-line services and information products are recognized ratably over the term of the related service agreement.

Advertising Expense

The Company expenses advertising costs as incurred. Advertising expense was $38,000 and $60,000 for the three months ended September 30, 2007 and 2006 (restated), respectively.

Gain on Extinguishment of Liability

The Company realized $487,000 of income from the extinguishment of sales tax liabilities during the three months ended September 30, 2006 due to the expiration of the statute of limitations related to such liabilities. During June 2001, CarParts Technologies Inc (“CarParts”) which is now known as ASNA Tire Management, Inc., adopted a formal plan to abandon its internet retailing business and a provision was set up to cover any potential sales tax liabilities. This balance represents the portion of the potential sales tax liability that was never paid.

Foreign Currency

Management has determined that the functional currency of its subsidiaries is the local currency. Assets and liabilities of the UK subsidiaries are translated into U.S. dollars at the quarter end exchange rates. Income and expenses are translated at an average exchange rate for the period and the resulting translation gain (loss) adjustments are accumulated as a separate component of stockholders' equity, which totaled approximately $380,000 and $954,000 (restated) for the three months ended September 30, 2007 and 2006, respectively.

Foreign currency gains and losses from transactions denominated in other than respective local currencies are included in income. The Company had no material foreign currency gains (losses) for all periods presented.

Comprehensive Income

Comprehensive income includes all changes in equity during the period from non-owner sources. For the three months ended September, 2007 and 2006, the components of comprehensive income consist of foreign currency translation gains.

Income Taxes

The Company accounts for domestic and foreign income taxes under SFAS No. 109, "Accounting for Income Taxes." Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. Deferred taxation is provided in full in respect of taxation deferred by timing differences between the treatment of certain items for taxation and accounting purposes. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Basic and Diluted Earnings Per Share

Basic earnings per common share are computed based on the weighted average number of shares outstanding during the period (see Note 7). Diluted earnings per share are computed by dividing net income by the weighted average shares outstanding assuming all potential dilutive common shares were issued. The Company had no dilutive securities for the three months ended September 30, 2007 and 2006.

	For the Three Months Ended
	September 30, 2007		September 30, 2006
			(Restated)
Earnings per share attributed to
common stockholders
- basic and diluted	$	0.01	$	0.01

Weighted average number of shares of
common stock outstanding
- basic and diluted		86,239,726		79,821,167

Recent Accounting Pronouncements

In July 2006, the FASB finalized and issued Interpretation No. 48 (“FIN 48”), entitled “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109,” which defines the threshold for recognizing the benefits of tax return positions as well as guidance regarding the measurement of the resulting tax benefits. FIN 48 requires a company to recognize for financial statement purposes the impact of a tax position if that position is “more likely than not” to prevail (defined as a likelihood of more than fifty percent of being sustained upon audit, based on the technical merits of the tax position). FIN 48 was effective as of the beginning of the Company’s fiscal year ending June 30, 2008, with the cumulative effect of the change in accounting principle recorded as an adjustment to retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (“SFAS 157”) entitled “Fair Value Measurements”, to define fair value, establish a framework for measuring fair value and expand disclosures about fair value measurements. This statement provides guidance related to the definition of fair value, the methods used to measure fair value and disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting SFAS 157 on its financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115”. SFAS 159 would create a fair value option of accounting for qualifying financial assets and liabilities under which an irrevocable election could be made at inception to measure such assets and liabilities initially and subsequently at fair value, with all changes in fair value reported in earnings. SFAS 159 is effective as of the beginning of the first fiscal year beginning after November 15, 2007. The Company is currently evaluating the impact that the adoption of SFAS 159 will have on its consolidated financial position, results of operations and cash flows.

NOTE 3. ACQUISITIONS AND DIVESTITURES

Euro Software Services Limited

On January 17, 2006, the Company acquired 100% of the outstanding Common Stock of Euro Software Services Limited ("Euro Soft") from a third party for 500,000 shares of its unregistered Common Stock valued at $1.06 per share (based on the closing price at the date of the transaction). As Euro Soft had no operations, customers, accounts receivable or accounts payable at that date, the Company considered the transaction an acquisition of software licenses totaling $530,000.

On June 10, 2006, the Company sold 100% of the outstanding Common Stock of Euro Soft (which by then had its own operations) to a third party for $450,000 in cash and $950,000 in a non-interest bearing note due in installments of cash or publicly traded buyer stock of $450,000 in December 2006 and $500,000 in June 2007. The initial cash payment of $450,000 and the fiscal 2007 installments of $950,000 were paid by the third party directly to ADNW in satisfaction of advances to the Company from ADNW.

The operations of Euro Soft and its subsequent sale are considered discontinued operations which did not impact the quarters ended September 30, 2007 and 2006.

EXP Dealer Software Limited

The acquisition was recorded as a combination of an entity under common control (see Note 2).

During the year ended June 30, 2007, ADNW made earn-out payments on behalf of the Company to the previous owners of Anka totaling $1,500,000 pursuant to the original acquisition agreement between ADNW and the previous owners. Such payments were recorded as goodwill. There are no additional potential earn-out payments under the acquisition agreement. Subsequent to the period ended September 30, 2007, the Company sold EXP (see Note 8).

Dealer Software and Services Limited

This acquisition was recorded as a combination of an entity under common control (see Note 2). DSS had a wholly owned subsidiary, Consolidated Software Capital Limited (“CSC”).

During the year ended June 30, 2007, ADNW made earn-out payments on behalf of the Company to the previous owners of CSC totaling $700,000 related to the original CSC acquisition by ADNW under the acquisition agreement. Such payments were recorded as goodwill. There are no additional potential earn-out payments under the acquisition agreement.

On June 17, 2007, DSS sold all of its CSC shares for a note receivable of $865,000. This note has the following terms : $432,750 is due 180 days from the date of disposal with the final payment becoming due 360 days from disposal. The $865,000 is reported as a note receivable in the accompanying consolidated balance sheet.

The operations of CSC are considered discontinued operations which did not impact the quarters ended September 30, 2007 and 2006.

NOTE 4. TRANSACTIONS WITH PARENT COMPANY

From time to time payments are made between ADNW and the Company. As of September 30, 2007, the balance due from ADNW was $359,000, which is non-interest bearing and due on demand.

NOTE 5. LONG-TERM DEBT

Long-term debt consists of the following as of September 30, 2007:

Note payable to Homann Tire LTD (“Homann”) on March 29, 2007 (see Note 11). The terms of the note payable call for a settlement payment to Homann of $150,000, bearing interest at 8% per annum. Payment of $25,000 cash was made in April 2007. The remaining balance of $125,000 is payable in April 2009, and the Company expects to be able to pay for this from free cash flow at that time. Interest on the note payable is payable in monthly installments of $833.

Note payable to Mr A. Mc Kenna on August 12, 2007 (see Note 11). The terms of the note payable call for principal payments to Mr McKenna of $825,000. The note payable bears interest at 8% per annum and is payable over 24 months by way of installments of $34,000 per month excluding interest. The final installment is due during July, 2009. The Company expects to be able to pay this from free cash flow at that time. Interest on the note payable is due in monthly installments of $3,000. The principal outstanding as of September 30, 2007 was $791,000.

Other long term debt of $36,000.

NOTE 6. SEGMENT INFORMATION

The Company operates in three segments (organized around differences in products and services), as follows:

Automotive Parts Aftermarket Sales and Service - consisting of the operations of MAM and ASNA. MAM and ASNA are combined because their products, development processes and customers are the same. They utilize the same sales force and share marketing information and product brochures. This segment provides business management software and services to businesses engaged in the automotive aftermarket in the US and the UK.

Automotive Dealer Management Software - consisting of the operations of MMI Automotive, which provides software products and services to automotive dealerships to help increase business efficiency and profitability. This segment was sold subsequent to September 30, 2007 (see Note 8).

On-Line Service Business - consisting of the operations of Anka, which is an advertising and design business serving the automotive and technology sectors. This segment was sold subsequent to September 30, 2007 (see Note 8).

The “Unallocated and Other” category includes the results for Aftersoft Group, Inc., Aftersoft Group (UK) Limited and other unallocated items.

	Three Months Ended
	September 30,			September 30,
(In Thousands)	2007			2006
				(Restated)
Revenue
Automotive Parts Aftermarket Sales and Service	$	5,355		$	4,860
Automotive Dealer Management Software		927			984
On-Line Service Business		333			570
Consolidated		6,615			6,414

Operating income (loss)
Automotive Parts Aftermarket Sales and Service	$	293		$	208
Automotive Dealer Management Software		(76	)		(80	)
On-Line Service Business		188			450
Unallocated and Other		(482	)		-
Consolidated		(77	)		578

Depreciation and amortization
Automotive Parts Aftermarket Sales and Service	$	355		$	374
Automotive Dealer Management Software		129			120
On-Line Service Business		-			-
Unallocated and Other		-			-
Consolidated		484			494

Total assets
Automotive Parts Aftermarket Sales and Service	$	31,355		$	34,803
Automotive Dealer Management Software		3,679			4,477
On-Line Service Business		3,161			304
Unallocated and Other		1,250			1,168
Consolidated		39,445			40,752

Substantially all capitalized software development costs and purchases of property and equipment are within the Automotive Parts Aftermarket Sales and Service segment.

NOTE 7. STOCKHOLDERS’ EQUITY

On July 5, 2007, the Company issued 5,208,337 shares of common stock and an equivalent number of warrants with strike price of $1.00 to investors as part of the recent round of fundraising. The net proceeds from this fundraising amounted to $2,037,000.

On August 1, 2007 the Company issued 1,718,750 shares of Common Stock to Mr A. McKenna in partial settlement of the outstanding litigation costs (see Note 11). These shares were valued at the issue price of the recent private placement on the date of the transaction of $0.48 per share which reduced the amount due to Mr McKenna by a total of $825,000.

NOTE 8. ENTRY INTO A MATERIAL DEFINITIVE AGTEEMENT

On November 12, 2007, the Company, divested all of the shares in its subsidiary, EXP. Pursuant to the terms of the Share Sale Agreement (the “Agreement”), EU Web Services Limited (“EU Web Services”) agreed to acquire, and the Company agreed to sell, the entire issued share capital of EXP currently owned by the Company.

In consideration for the sale, EU Web Services agreed to issue to the Company, within twenty-eight (28) days from the Agreement’s execution, Ordinary £0.01 shares in its parent company having a fair market value of $3,000,000 at the date of issuance of such shares. Further, the Agreement provided that we are also to receive additional consideration in the form of: (i) Ordinary shares in EU Web Services having a fair Market value of $2,000,000 as of the date of issuance, provided that EU Web Services is listed and becomes quoted on a recognized trading market within six (6) months from the date of the Agreement; or (ii) If EU Web Services does not become listed within the time period specified, Ordinary shares in the EU Web Services’ parent company having a fair market value of $2,000,000 as of the date of issuance.

As a result of the divestitures, the Company disposed of the Automotive Dealer Management Software and On-Line Service Segments (see Note 6).

NOTE 9. SUBSEQUENT EVENTS

On June 29, 2007, the Company granted to a holder of 2,124,098 shares of ADNW preferred stock, which is convertible into 7,231,622 shares of Common Stock of ADNW (representing approximately 10% of the fully diluted shares of ADNW), certain exchange rights. The preferred shareholder agreed to waive anti-dilution rights it held in ADNW for the right to exchange the preferred shares for 6,402,999 units of the Company. The units have the same terms as the equity offering sold in July 2007 (see Note 7) - one share of Company Common Stock, and a five-year warrant to purchase one share of Company Common Stock exercisable at $1.00. The Company has received notice that the preferred shareholder intends to complete the exchange. As of November 19, 2007, no shares have been issued under this agreement.

NOTE 10. RESTATEMENT OF PRIOR YEAR

The following tables present a summary of the effects of the restatement adjustments on the Company’s consolidated statements of operations and cash flows for the three months ended September 30, 2006:

Consolidated statement of operations for the three months ended September 30, 2006 (in thousands, except share data):

	As previously Reported			*Adjustments			As Restated
Revenues	$	5,851		$	563		$	6,414
Cost of revenues		2,641			81			2,722
Gross Profit		3,210			482			3,692

Operating Expenses
Research and development		775			94			869
Sales and marketing		520			56			576
General and administrative		820			355			1,175
Depreciation and amortization		383			111			494
Total Operating Expenses		2,498			616			3,114

Operating Income (Loss)		712			(134	)		578

Other Income (Expense)
Gain on extinguishment of liability		487			-			487
Interest expense		(23	)		(3	)		(26	)
Loss on disposal of assets		(4	)		-			(4	)
Other, net		11			1			12
Total Other Income (Expense)		471			(2	)		469

Pre-Tax Income (Loss) from continuing operations		1,183			(136	)		1,047

Provision for income taxes		244			(18	)		226
Income (Loss) from continuing operations		939			(118	)		821

Income from discontinued operations, net of tax		-			-			-
Gain on sale of discontinued operations		-			-			-
Net Income (Loss)		939			(118	)		821

Foreign currency translation adjustment		72			882			954
Total Comprehensive Income	$	1,011		$	764		$	1,775

Loss per share attributed to common stockholders - basic and diluted
Net income from continuing operations	$	0.02					$	0.01
Discontinued operations		-						-
Net Income	$	0.02					$	0.01

Weighted average number of shares of common stock outstanding - basic and diluted		46,147,967			33,673,200			79,821,167

* Adjustments represent the historical operations of EXP Dealer Software Limited and Dealer Software and Services Limited for the three months ended September 30, 2006.

Consolidated statement of cash flows for the three months ended September 30, 2006 (in thousands):

	As previously Reported			*Adjustments			As Restated
Cash flows from operating activities

Net income (loss)	$	939		$	(118	)	$	821
Adjustment to reconcile net income (loss) to cash provided by operating activities :
Depreciation and amortization		383			111			494
Gain on extinguishment of liabilities		(487	)		-			(487	)
Loss on sale of property and equipment		4			-			4
Changes in operating assets and liabilities (net of the effect of acquisitions and divestitures) :
Accounts receivable		(781	)		567			(214	)
Inventories		(84	)		10			(74	)
Amount due from parent company		(76	)		(92	)		(168	)
Prepaid expenses and other assets		246			(147	)		99
Accounts payable		276			34			310
Taxes payable		101			(11	)		90
Deferred revenue		(317	)		(125	)		(442	)
Accrued expenses and other liabilities		(146	)		(6	)		(152	)
Net cash provided by operating activities		58			223			281

Cash flows from investing activities :

Cash acquired in acquisition		105			(105	)		-
Purchase of property and equipment		(38	)		(14	)		(52	)
Capitalized software development costs		(188	)		-			(188	)
Net cash used in investing activities		(121	)		(119	)		(240	)

Cash flows from financing activities :

Payment on long-term debt		(5	)		-			(5	)
Net cash used in financing activities		(5	)		-			(5	)

Effect of exchange rate changes		72			(89	)		(17	)

Net increase in cash and cash equivalents		4			15			19

Cash and cash equivalents at beginning of period		423			35			458

Cash and cash equivalents at end of period	$	427		$	50		$	477

* Adjustments represent the historical operations of EXP Dealer Software Limited and Dealer Software and Services Limited for the three months ended September 30, 2006.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Legal Matters

From time to time, the Company is subject to various legal claims and proceedings arising in the ordinary course of business. The ultimate disposition of these proceedings could have a materially adverse effect on the consolidated financial position or results of operations of the Company.

(1)

On August 1, 2007 the Company and Mr. McKenna entered into an agreement that settled this outstanding case. The agreement provided that the Company would pay Mr. McKenna $2,000,000 in cash, $825,000 on a promissory note with an interest rate of 8% amortized in equal payments over a 24-month period, and in addition would issue Mr. McKenna 1,718,750 shares of Common Stock of the Company, which represented an aggregate number of shares of Common Stock of the Company that the parties determined fairly represented $825,000 (assuming a price of $0.48 per share of Common Stock, the closing price of the Company’s Common Stock on the date of settlement). Mr. McKenna was also entitled to warrants to purchase an equivalent number of shares of Common Stock at the same price. Upon entering this agreement all parties agreed to withdraw all existing litigation and claims. The Company finalized its agreement with McKenna on September 6, 2007 and revised its litigation accrual to $3,650,000 to reflect the settlement. The shares were issued in fiscal 2008 (see Note 7).

Additionally, the Company entered into a settlement agreement with Mr. Arthur Blumenthal, a former shareholder of Anderson BDG, Inc. Mr. Blumenthal’s lawsuit against the Company emanated from an agreement Mr. Blumenthal had with a subsidiary of the company, ASNA Tire Management, Inc. which was previously called CarParts Technologies, for the purchase of Anderson BDG, that not been settled although it was past due. The Company renegotiated the agreement with Mr. Blumenthal, the terms of which required the Company to make a payment of $50,000 cash and the issuance to Mr. Blumenthal and registration of 300,000 shares of the Company’s Common Stock, which were issued in fiscal 2007 and valued at $0.48 per share, (the closing price of the Company’s Common Stock on the date of settlement) or $144,000. The Company subsequently completely settled the lawsuit with Mr. Blumenthal and repaid his notes in fiscal 2008.

(2)

Homann Tire LTD (“Homann”) filed a complaint against the Company's subsidiary ASNA Tire Management, Inc. (f/k/a CarParts Technologies, Inc.) in California District Court on August 11, 2005 regarding the Company's obligations pursuant to a software license agreement that it entered into with Homann on October 18, 2002.

The Company started to implement the system but full installation was never completed and Homann moved to another system 6 months later. During depositions pursuant to this case, the Company successfully negotiated an agreement with Homann on March 29, 2007. The terms of the agreement provide for a settlement payment to Homann of $150,000 bearing interest at 8% per annum. Payment of $25,000 cash was made in April 2007. The remaining balance of $125,000 is payable in April 2009, and the Company expects to be able to pay for this from free cash flow at that time. Interest on the note payable is payable in equal monthly installments of $833 (see Note 5).

Indemnities and Guarantees

The Company has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain actions or transactions. The Company indemnifies its directors, officers, employees and agents, as permitted under the laws of the State of Delaware. In connection with its facility leases, the Company has indemnified its lessors for certain claims arising from the use of the facilities. In connection with its customers' contracts the Company indemnifies the customer that the software provided does not violate any US patent. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying consolidated balance sheet.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Some of the statements contained in this Quarterly Report on Form 10-QSB, which are not purely historical, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, but not limited to, statements regarding the Company's objectives, expectations, hopes, beliefs, intentions or strategies regarding the future. In some cases, you can identify forward-looking statements by the use of the words "may," "will," "should," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of those terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results could differ materially from those disclosed in these statements due to various risk factors and uncertainties affecting our business. We caution you not to place undue reliance on these forward-looking statements. We do not assume responsibility for the accuracy and completeness of the forward-looking statements and we do not intend to update any of the forward-looking statements after the date of this report to conform them to actual results. You should read the following discussion in conjunction with our financial statements and related notes included elsewhere in this report. For a more complete understanding of our industry, the drivers of our business and our current period results, you should read the following Management's Discussion and Analysis or Plan of Operation in conjunction with our Annual Report on Form 10-KSB for the year ended June 30, 2007 and our other filings with the SEC.

Overview

We develop and market business and supply chain management software solutions to small and medium-sized firms in the automotive aftermarket in the U.S and UK, as well as automotive dealer management systems in the UK. The Company has three wholly owned subsidiaries, which operate separately: MAM Software and EXP Dealer Software in the UK and Aftersoft Network N.A., Inc (ASNA) in the U.S. Two of our subsidiaries, MAM Software and Aftersoft Network N.A., offer products and services to meet the needs of businesses that manage large and diverse inventories amid complex supply chains and distribution environments, all of which require specialized and sophisticated software services to operate efficiently. The other, EXP Dealer Software, offers business management systems that enable car dealerships to manage communicate and promote their business more productively.

The automotive aftermarket in the U.S. as a whole (servicing, parts, oil, tires, add-ons, etc), according to the Automotive Aftermarket Industry Association (“AAIA”) Aftermarket fact book 2006/2007, had the potential to be $160 billion market opportunity. According to a UK government Department of Trade and Industry, report in 2004, the equivalent UK market was estimated to be $27 billion.

The Company has recently raised capital through equity financing and the sale of its DCS investment, which it has used in part to settle an outstanding legal judgment and repay outstanding notes. Management believes that the raising of this additional capital will allow the Company to benefit from an investment in people and product. Nevertheless, if the Company is not able to pay down its remaining notes and accounts payable it will suffer and may not have sufficient capital to continue with its present operations.

For the three months ended September 30, 2007, the Company increased its revenues from continuing operations by 3% to $6,615,000 compared with revenues of $6,414,000 in the three months ended September 30, 2006. Gross Profit for the three months ended September 30, 2007, was $3,801,000, a 3% increase, compared to the three month period September 30, 2006. We also experienced an increase in operating expenses within this three month period as compared to the same period in the last fiscal year, which was due to the Company recognizing the full corporate costs. Management feels that the increase in liquidity as compared with the previous year will continue and should steadily increase, as its plans for the US operations are established.

MAM Software is the largest provider of software to the automotive aftermarket in the UK. MAM Software specializes in fully integrated business management solutions for the motor factoring (jobber), retailing, and wholesale distribution sectors. MAM also develops applications for vehicle repair management and provides solutions to the retail and wholesale tire industry.

ASNA develops open business automation and distribution channel eCommerce systems for the automotive aftermarket supply chain in the U.S. and Canada. More than 3,000 leading aftermarket outlets in the U.S. use these systems, including tier one manufacturers, program groups, warehouse distributors, tire and service chains and independent installers. ASNA is comprised of three subsidiaries: AFS Warehouse Distribution Management, Inc., AFS Autoservice, Inc. and AFS Tire Management, Inc. AFS Tire Management, Inc. was formerly known as CarParts Technologies, Inc.

EXP Dealer Software sells proprietary software and professional services to the dealership sector of the automotive market in the UK. EXP Dealer Software is comprised of two subsidiaries: MMI Automotive Limited, (”MMI Automotive”), which is based in Swindon, UK, provides software products and services to dealerships to help increase business efficiency and profitability within these low margin businesses. It presently serves clients such as Ford UK, Honda, Mitsubishi UK and Vauxhall (General Motors). Chester, UK-based Anka Design Limited (“Anka Design”) is a “below the line” advertising and design business serving the automotive and technology sectors. EXP Dealer Software was sold subsequent to the period ended September 30, 2007 (see Note 8).

Critical Accounting Policies

There were no changes to those policies disclosed in our June 30, 2007 10-KSB Filing.

Results of Operations

The Company’s results of operations for the three months ended September 30, 2007 compared with the three months ended September 30, 2006 were as follows:

	Three Months Ended
	September 30,		September 30,
(In Thousands)	2007		2006
			(Restated)
Revenue
Automotive Parts Aftermarket Sales and Service	$	5,355	$	4,860
Automotive Dealer Management Software		927		984
On-Line Service Business		333		570
Consolidated	$	6,615	$	6,414

Revenues of $6,615,000 for the three months ended to September 30, 2007 compared with $6,414,000 for the three months ended September 30, 2006, were below the Company’s expectations. However the $495,000 or 10% increase in revenue from the Automotive Parts Aftermarket segment of the business was in line with Company expectations. This was mainly due to ahead of target sales within the UK operation. The Company does expect this to increase through the next fiscal quarter in addition to an up lift in US sales through the continued roll out our AutoPart product and release of additional new products. The Automotive Dealer Management segment revenues for the fiscal period were slightly below projections. This segment continues to be challenging in the UK and we do not expect any change within the next 9 months. Revenues from the On-Line Service segment decreased by 41.5% during this period when compared to the previous fiscal period, this was due to the completion of projects in the previous quarters and existing contracts not being renewed. Our present funding from ongoing sales and revenue will continue to sustain the Company through the coming year in line with projections while allowing us to expand into the U.S. marketplace.

Cost of Revenues. Total cost of revenues for the three months ended September 30, 2007, was $2,814,000 compared with $2,722,000 for the same period of September 30, 2006. This was consistent with the increase in revenues from the Automotive Parts Aftermarket segment although offset by the decrease in the costs of revenues from the Automotive Dealer Management segment during the period.

	Three Months Ended		Three Months Ended
	September 30,		September 30,
(In Thousands)	2007		2006
			(Restated)
Cost of Revenues
Automotive Parts Aftermarket Sales and Service	$	2,659	$	2,528
Automotive Dealer Management Software		110		171
On-Line Service Business		45		23
Consolidated	$	2,814	$	2,722

Operating Expenses. The following tables set forth, for the periods indicated, the Company's operating expenses and the variance thereof.

(In Thousands)	Three Months Ended September 30, 2007		Three Months Ended September 30, 2006		Variance $			Variance %
				(Restated)
Research and development	$	866	$	869	$	(3	)		(0.3	)%
Sales and marketing		652		576		76			13.2	%
General and administrative		1,876		1,175		701			59.7	%
Depreciation and amortization		484		494		(10	)		(2.0	)%

Total Operating Expenses	$	3,878	$	3,114	$	764			24.5	%

Operating expenses increased by $764,000 or 24.5% to $3,878,000 for the three months to September 30, 2007 compared with the three months ended September 30, 2006. This is due to the following:

Research and Development Expenses. Decreased slightly during the period and was comparable with the same period in the previous fiscal year.

Sales and Marketing. Increased by $76,000 during the three months to September 30, 2007 as compared with the same period in 2006, this increase was due to the appointment of additional sales personnel within the US operation, plus the costs associated with attending additional trade shows.

General and Administrative. Increased by $701,000 for the three months to September 30, 2007 as compared with the same period in 2006. $288,000 or 41.1% of this increase in cost was due to the Company fully recognizing head office and corporate costs that ADNW, ASFG’s owner and majority shareholder had expensed in the same fiscal period of 2006. The remaining $413,000 or 58.9% of the increase was attributable to an increase in costs within EXP Dealer Software Limited.

Depreciation and Amortization. Depreciation and amortization expenses decreased slightly due to fixed assets being disposed of during the period.

	Three Months Ended
	September 30,			September 30,
	2007			2006
(In Thousands)				(Restated)
Operating Income (Loss) :
Automotive Parts Aftermarket Sales and Service	$	293		$	208
Automotive Dealer Management Software		(76	)		(80	)
On-Line Service Business		188			450
Unallocated and Other		(482	)		-
Consolidated	$	(77	)	$	578

Interest Expense. Interest expense increased by $7,000 for the three months to September 30, 2007 and 2006. This increase was a result of the increase in interest rates in 2007 over 2006.

Other Income. Other income for the three months ended September 30, 2007 amounted to $10,000 compared with $12,000 for the three months ended September 30, 2006.

Gain on Sale of Investments. The Company realized a gain $1,312,000 from the sale of the Company’s holding in DCS Automotive Ltd, to Reynolds & Reynolds Inc

Income Taxes. Increased by $6,000 for the three months to September 30, 2007 and 2006, respectively, due to higher pre-tax income within this period.

Net Income. As a result of the above, the Company realized net income amounting to $968,000 for the three months ended September 30, 2007, compared with net income of $821,000 for the three months ended September, 2006.

Liquidity and Capital Resources

To date, most of our profits have been generated in Europe, but with the introduction of new products and efforts to streamline U.S. operations, we expect to see an increase in overall revenues with a contribution from U.S. operations in fiscal 2008. If internal revenues prove not to be sufficient to support our growth plans, we may consider raising additional funds through debt or equity financing. There can be no assurance that such funding will be available on acceptable terms, in timely fashion or even available at all. Should new funds be delayed, we plan to reduce the burden on our current funding to a sustainable level and to tailor our development programs accordingly.

Summary

We expect to see continued growth from both the US and UK operations over the remaining 9 months of fiscal 2008, with strong growth in revenues and operating income from the US operation. We have identified a number of opportunities to widen our client base within the automotive industry and are actively pursing those at this time. We would also expect to see increases in revenue over the next 2 quarters, specifically related to additional products that have been developed by the US operation being fully released to customers.

We intend to continue to work at maximizing customer retention by supplying and developing products that streamline and simplify customer operations, thereby increasing their profit margin. By supporting our customers’ recurring revenues, we expect to continue to build our own revenue stream. We believe that we can continue to grow our customer base through additional sales personnel, targeted media and marketing campaigns and products that completely fit client’s requirements. We also intend to service existing clients to higher levels and increasingly partner with them so that together we’ll both achieve our goals.

While we believe our present revenues will support the current business going forward, it will not prove sufficient to support our growth plans and settle outstanding liabilities. Although we have been able to raise capital through a round of equity funding, the money received from this round has enabled us to pay down some of our outstanding liabilities but it has not been sufficient for us completely settle our outstanding liabilities and will not be sufficient for us to complete our growth plans. These plans for growth over the coming fiscal year will still require additional capital to hire a suitable number of sales staff, to expand within the US market, to target new vertical markets effectively and to support expanded operations overall.

We believe our plan will strengthen our relationships with our existing customers and provide new income streams by targeting new vertical markets with our Trader product in addition to introducing new products. Taken together, we anticipate these plans will return value to our shareholders.

ITEM 3. CONTROLS AND PROCEDURES

(a)	Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, the Company's Chief Executive Officer and Financial Officer concluded that:

The Company failed to properly disclose several transactions in the financial statement footnotes at September 30, 2007, including stockholders’ equity, notes payable and restatements.

In connection with the disclosure errors, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2007, our disclosure controls and procedures were not effective due to the material weakness described below.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of the disclosure errors described above, the following material weakness was identified in the Company's assessment of the effectiveness of disclosure controls and procedures as of September 30, 2007:

The Company did not maintain effective controls over the identification of disclosure related to significant transactions.

As a result management has taken steps to address this issue, including the bringing forward of plans to search for a U.S. based and qualified candidate with previous U.S. public company experience to serve as the Company’s Chief Financial Officer. This would provide an additional monitor of the controls and procedures, and ensure that the errors will not recur as well as ensuring the Company's disclosure controls and procedures are operating at the reasonable assurance level. In addition, to ensure that the material weakness did not lead to a material missed or incomplete disclosure in the financial statements included herein, management implemented additional review procedures specifically designed to ensure all necessary disclosures were provided.

Based on the aforementioned additional procedures, the Company's management has concluded that the consolidated financial statements included in this Annual Report on Form 10-QSB for the period ended September 30, 2007, fairly present in all material respects the Company's financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

(b)	Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting in the Company’s first fiscal quarter of the fiscal year covered by this Quarterly Report on Form 10-QSB that has materially affected, or are reasonably likely materially affect, our internal control over financial reporting.

(c)	Management’s report on internal control over financial reporting

Not applicable.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None that were not previously disclosed in Form 8-K Filings.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders in the first quarter.

ITEM 5. OTHER INFORMATION

There were no matters required to be disclosed in a Current Report on Form 8-K during the fiscal quarter covered by this report that were not so disclosed.

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.

ITEM 6. EXHIBITS

Exhibit Number		Description
10.1		Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to Aftersoft Group, Inc.’s Current Report on Form 8-K filed July 6, 2007).

10.2		Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.2 to Aftersoft Group, Inc.’s Current Report on Form 8-K filed July 6, 2007).

10.3		Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 to Aftersoft Group, Inc.’s Current Report on Form 8-K filed July 6, 2007)

10.4		Settlement and Release Agreement between AFS and McKenna (incorporated by reference to Exhibit 99.1 to Aftersoft Group, Inc.’s Current Report on Form 8-K filed August 6, 2007).

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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


	Aftersoft Group, Inc.

Date : November 21, 2007	By:	/s/ Ian Warwick
		Ian Warwick
		Chief Executive Officer (Principal Executive Officer)


Date : November 21, 2007	By:	/s/ Michael O’Driscoll
		Michael O’Driscoll
		Chief Financial Officer (Principal Financial Officer)

INDEX TO EXHIBITS

Exhibit Number		Description
10.1		Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to Aftersoft Group, Inc.’s Current Report on Form 8-K filed July 6, 2007).

10.2		Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.2 to Aftersoft Group, Inc.’s Current Report on Form 8-K filed July 6, 2007).

10.3		Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 to Aftersoft Group, Inc.’s Current Report on Form 8-K filed July 6, 2007)

10.4		Settlement and Release Agreement between AFS and McKenna (incorporated by reference to Exhibit 99.1 to Aftersoft Group, Inc.’s Current Report on Form 8-K filed August 6, 2007).

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.