The following discussion and analysis of our financial condition and results of operations is intended to assist you in understanding our financial condition and results of operations. This discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included elsewhere in this report and our annual report filed with the U.S. Securities and Exchange Commission on Form 10-K for the year ended December 31, 2007. Many of the amounts and percentages presented in this discussion and analysis have been rounded for convenience of presentation, and all amounts are presented in thousands.

Overview and Outlook

InfoLogix is a provider of enterprise mobility and radio frequency identification (RFID) solutions. We provide solutions to our customers by utilizing a combination of products and services, including consulting, application software, managed services, mobile workstations and devices, and wireless infrastructure. Our solutions are designed to allow the real time usage of data throughout a customer's enterprise in order to enhance workflow, improve customer service, increase revenue and reduce costs. We sell wireless communication and computing devices, including mobile workstations that connect to a customer's wireless network so that information can be accessed from any location within the enterprise. We also implement customized software applications and provide RFID technology, a data-exchange method using transponders that store and remotely send or retrieve information, to enable the transmission and processing of that information between the customer's information system and its wireless communication and computing devices. We also offer professional services that support and complement a customer's workflow requirements, major software implementations, and wireless computing systems, including consulting, managed services, training, engineering, technical support, and network monitoring.

Historically, the sale of mobile workstations and other wireless devices has represented a majority of our revenues. During the past three years, we have been transitioning our business to provide more software applications and professional services. With our new focus on selling software and services, we believe that we can offer more comprehensive enterprise mobility solutions that provide greater value to our customers and generate higher and more recurring revenue for our business.

We conduct substantially all of our operations through our wholly-owned subsidiary, InfoLogix Systems Corporation. We own certain patents and patent applications through our wholly-owned subsidiaries OPT Acquisition LLC, Embedded Technologies, LLC and InfoLogix-DDMS, Inc. We consolidate OPT Acquisition LLC, Embedded Technologies, LLC, InfoLogix-DDMS, Inc. and InfoLogix Systems Corporation for financial reporting purposes.

2008 Acquisitions

In May 2008, we acquired substantially all of the assets of Delta Health Systems, Inc., or Delta. The assets acquired relate to Delta's business of providing strategic cost management consulting services and web-based management data collection and work-flow analytics to the healthcare industry. We expect this acquisition to further our strategic plans by enabling us to combine our existing solutions with higher margin professional services. We believe the Delta acquisition will allow us to reach further into our healthcare customer organization's to bring critical workflow and human resource utilization efficiencies that support our mobile solutions.

In May 2008, we acquired substantially all of the assets of Aware Interweave, Inc., or Aware. The assets acquired relate to Aware's business of providing mobile software solutions to a variety of customers including federal government agencies, fortune 1000 companies and healthcare and life science organizations. The acquisition is consistent with our strategic plan to add intellectual property and higher-margin services and application software licensing, while allowing us to provide our customers with access to new solutions. We believe the acquisition of Aware allows us the opportunity to enable users of SAP® software and applications to significantly improve their visibility, response time, and revenues by providing access to business-critical applications without being tied to the office or desktop computer. Aware has developed a mobile product solution suite, the Co-Pilot series, which is tailored specifically for users of SAP software, while adaptable to other back-end systems. The Co-Pilot Mobile Foundation achieved "Powered by NetWeaver" certification in August 2006.

Characteristics of our revenue and expenses

We generate revenue through the resale of wireless and mobile hardware and systems, including mobile workstations, computers, peripherals, and related products. Sales revenue on product is recognized when both the title and risk of loss transfer to the customer, generally upon shipment. We also generate revenue from the sale of extended warranties on certain components. Revenue from the sale of component warranties is recognized upon execution of the warranty agreement. There is no associated warranty risk as we have contracted with third parties to fully assume all risks and obligations. We also generate revenue from professional services on either a fixed fee or time and expense basis. Revenue from our professional consulting services is recognized on a time and expense basis at the time the service is delivered and the expenses are incurred. Revenue from the sale of our proprietary learning technologies and any professional consulting or engineering services provided on a fixed-fee basis is recognized according to a proportionate performance method of revenue recognition.

Payments received in advance of services performed are recorded as deferred revenue. Certain contract payment terms may result in customer billing occurring at a pace slower than revenue recognition. The resulting revenue recognized in excess of amounts billed and project cost is included in unbilled revenue on our balance sheet.

Cost of revenue consists of all expenses that are directly attributable to the costs associated with the purchase, for resale, of wireless and mobile hardware and systems, including computers, peripherals, and related products. Fluctuations in our gross margin may occur due to changes in our ability to obtain discounts on product sales or our ability to negotiate higher margins on sales contracts with large customers. Cost of revenue also consists of the direct costs associated with those employees or sub-contractors that perform our professional consulting services on behalf of our customers.

Selling expenses primarily consist of the salaries, benefits, travel and other costs of our regional and national account sales representatives, sales and indirect project management and business development expenses. General and administrative expenses primarily consist of the costs attributable to the support of our operations, such as: costs related to information systems, salaries, expenses and office space costs for executive management, inside sales and customer support, warehousing, technical support, financial accounting, purchasing, depreciation, amortization, administrative and human resources personnel, insurance, recruiting fees, legal, accounting and other professional services.

Critical Accounting Estimates and Policies

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management's most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. We believe that of our significant accounting policies, the following may involve a higher degree of judgment and estimation.

Accounts receivable

We grant credit, generally without collateral, to our customers, which are primarily in the healthcare and commercial markets. Consequently, we are subject to potential credit risk related to changes in economic conditions within those markets. However, we believe that our billing and collection policies are adequate to minimize the potential credit risk.

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt, including historical experience and current economic and market conditions. Account balances that we deem to be uncollectible are charged to the allowance after we have exhausted all means of collection and when the potential for recovery is considered remote.

Intangible assets

We account for intangible assets in accordance with Statement of Financial Accounting Standards (SFAS) 142,Goodwill and Other Intangible Assets. The costs of successful registrations for patents are amortized over the estimated useful lives of the assets, which is generally sixteen years, using the straight-line method. The costs of unsuccessful registrations are charged to expense. Acquired technology is recorded at its fair value at the date of acquisition and amortized over the estimated useful lives of the assets, which averages four years, using the straight-line method. Developed technology is also amortized using the straight-line method, generally over five years. License fees will be amortized over the license period using the straight-line method. The valuation attributable to customer lists is amortized over a period of six to ten years.

Revenue recognition

Revenue is generated through product sales, warranty and maintenance agreements, professional consulting, programming and engineering services, long-term support services, and educational learning programs. Revenue from product sales is recognized when both the title and risk of loss transfer to the customer, generally upon shipment. Warranty revenue is recognized upon execution of the warranty agreement. We do not believe there is any associated warranty risk as we have contracted with other parties to fully assume all risks and obligations. We also generate revenue from professional services on either a fee-for service or fixed fee basis. Revenue from our professional consulting services is contracted as fee-for-service and is recognized in the period in which the services are performed. Direct costs for travel and accommodations are reimbursable in accordance with the contract terms and are recognized as revenue in the period the related expense is incurred. Revenue from the sale of our proprietary learning technologies and those professional consulting or engineering services provided on a fixed-fee basis is recognized ratably over the contract period based upon actual project hours as compared to budgeted project hours.

Income taxes

We account for income taxes in accordance with SFAS 109, Accounting for Income Taxes. Under SFAS 109, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, and are measured at the prevailing enacted tax rates that will be in effect when these differences are settled or realized. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. We believe it is more likely than not that our current deferred tax asset will be realizable as the result of achieving taxable income in the applicable periods prior to related expiration dates.

Results of Operations



Results of operations expressed as a percentage of revenues were as follows:



                                      Three Months Ended September 30,       Nine Months Ended September 30,
                                         2008                  2007             2008                 2007

Revenues                                     100.0 %               100.0 %          100.0 %              100.0 %
Cost of revenues                              73.9 %                73.3 %           73.4 %               73.9 %
Gross profit                                  26.1 %                26.7 %           26.6 %               26.1 %
Selling, general and
adminstrative expenses                        34.4 %                30.1 %           31.8 %               31.6 %
Operating loss                                (8.3 )%               (3.4 )%          (5.2 )%              (5.5 )%
Interest expense                              (2.5 )%               (1.0 )%          (1.7 )%              (1.0 )%
Interest income                                0.2 %                 0.5 %            0.2 %                0.7 %
Loss before income tax benefits              (10.6 )%               (3.9 )%          (6.7 )%              (5.8 )%
Income tax benefit                             0.0 %                 1.6 %            1.3 %                2.3 %
Net loss                                     (10.6 )%               (2.3 )%          (5.4 )%              (3.5 )%

Three Months ended September 30, 2008 compared with the Three Months ended September 30, 2007

Revenue



Revenue for the three months ended September 30, 2008 and 2007 was as follows:



                                       Three Months Ended September 30,        Amount of    Percentage
                                          2008                  2007            Change        Change

Revenues:
Infrastructure and hardware         $          12,997     $          15,271   $    (2,274 )      (14.9 )%
Professional services                           8,739                 2,829         5,910        208.9 %
Other                                           2,088                 2,355          (267 )      (11.3 )%
Total revenues                      $          23,824     $          20,455   $     3,369         16.5 %

The increase in revenue was due primarily to the expansion of our professional services across the organization, including revenue contributed as a result of the acquisitions of the businesses of Healthcare Informatics Associates, Inc. ("HIA"), Delta and Aware, and partially offset by a decline in infrastructure and hardware related revenue. The revenue associated with the acquisition of HIA, Delta and Aware totaled $6,193 for the three months ended September 30, 2008. As we continue to shift our business from the resale of hardware and infrastructure toward delivering professional services and software applications, we expect that revenues generated from the sale of hardware and infrastructure products may continue to decline as a percentage of our total revenue, and we expect that revenues from the delivery of professional services and software will continue to increase as a percentage of our total revenue. Revenue for the three months ended September 30, 2008 was also impacted by certain customers electing to delay new projects into the fourth quarter of 2008 and early 2009. We expect that these delays are of a temporary nature and the projects will be undertaken in accordance with their revised timetables.

Cost of revenue

Cost of revenues for the three months ended September 30, 2008 and 2007 were as follows:

                                       Three Months Ended September 30,        Amount of    Percentage
                                          2008                  2007            Change        Change

Cost of revenues:
Infrastructure and hardware         $          10,531     $          11,338   $      (807 )       (7.1 )%
Professional services                           5,258                 2,172         3,086        142.1 %
Other                                           1,825                 1,482           343         23.1 %
Total cost of revenues              $          17,614     $          14,992   $     2,622         17.5 %

The increase in our cost of revenue was the result of costs incurred from higher sales of our expanded professional services. The cost of revenue associated with the businesses of HIA, Delta and Aware totaled $3,442 for the three months ended September 30, 2008.

Gross profit

Gross profit and gross margin for the three months ended September 30, 2008 and 2007 was as follows:

                                      Three Months Ended September 30,        Amount of     Percentage
                                         2008                  2007            Change         Change

Gross profit:
Infrastructure and hardware        $           2,466     $           3,933   $    (1,467 )       (37.3 )%
Professional services                          3,481                   657         2,824         429.8 %
Other                                            263                   873          (610 )       (69.9 )%
Total gross profit                 $           6,210     $           5,463   $       747          13.7 %

Gross profit:
Infrastructure and hardware                     19.0 %                25.8 %        (6.8 )%      (26.3 )%
Professional services                           39.8 %                23.2 %        16.6 %        71.5 %
Other                                           12.6 %                37.1 %       (24.5 )%      (66.0 )%
Total gross profit                              26.1 %                26.7 %        (0.6 )%       (2.4 )%

The decrease in our gross margin is the result of low margin sales of infrastructure and third-party hardware, partially offset by increased sales of our more profitable professional and consulting services related to our mobile solutions and software implementation services.

Selling, general and administrative expenses

Our selling expenses were $2,963 for the three months ended September 30, 2008, compared with $2,512 for the three months ended September 30, 2007, an increase of $451 or 18.0%. The increase in our selling expenses for the comparable periods was primarily attributable to an increase in wages related to the expanded sales staff hired in 2007, and sales support related costs attributable to HIA during the three months ended September 30, 2008. General and administrative expenses were $5,223 for the three months ended September 30, 2008, compared with $3,648 for the three months ended September 30, 2007, an increase of $1,575 or 43.2%. The increase in our general and administrative expenses for the comparable periods was primarily attributable to an increase in amortization expenses related to acquisitions, and an increase in salary expenses related to the addition of key members of our management and professional services staff.

Interest expense and interest income

Our interest expense, which is derived from our credit line and term loan, was $587 for the three months ended September 30, 2008, compared to approximately $206 for the three months ended September 30, 2007, an increase of $381 or 185.0%. The increase in interest expense is a result of higher interest costs and greater amounts outstanding under our asset-based line of credit facility, term loans and notes payable issued in connection with our acquisitions.

Our interest income was $43 for the three months ended September 30, 2008, compared to $108 for the three months ended September 30, 2007, a decrease of $65 or 60.2%. The decrease in interest income is primarily the result of a lower average cash and cash equivalents balance during the three months ended September 30, 2008 when compared to the same period of 2007.

Depreciation and amortization

Our depreciation and amortization expense increased to $701 for the three months ended September 30, 2008 from $452 for the three months ended September 30, 2007, an increase of $249 or 55.1% as a result of a greater number of demonstration units deployed to our sales force and amortization expense related to our recent acquisitions of intangible assets from AMTSystems, HIA, Delta and Aware.

Net loss

Our net loss was $2,520 for the three months ended September 30, 2008 compared with a net loss of $466 for the three months ended September 30, 2007, an increase of $2,054 or 440.8%. Our net loss in the comparable periods increased primarily due to additional overhead costs, including hiring management and professional services staff and experienced sales, administrative and operations personnel to support our organizational growth and the costs associated with our growth through acquisitions.

Nine Months ended September 30, 2008 compared with the Nine Months ended September 30, 2007

Revenue



Revenues for the nine months ended September 30, 2008 and 2007 were as follows:



                                        Nine Months Ended September 30,        Amount of    Percentage
                                          2008                  2007            Change        Change

Revenues:
Infrastructure and hardware         $          44,057     $          43,148   $       909          2.1 %
Professional services                          23,211                 5,783        17,428        301.4 %
Other                                           6,690                 6,511           179          2.7 %
Total revenues                      $          73,958     $          55,442   $    18,516         33.4 %

The increase in revenue was due primarily to the expansion of our professional services across the organization, including revenue contributed as a result of the acquisitions of the businesses of HIA, Delta and Aware, and an increase in infrastructure and hardware related revenue. The revenue associated with the acquisition of HIA, Delta and Aware totaled $14,965 for the nine months ended September 30, 2008.

Cost of revenue

Cost of revenues for the nine months ended September 30, 2008 and 2007 were as follows:

                                     Nine Months Ended September 30       Amount of     Percentage
                                        2008               2007            Change         Change

Cost of revenues:
Infrastructure and hardware        $        34,815    $        31,895    $     2,920           9.2 %
Professional services                       13,152              4,905          8,247         168.1 %
Other                                        6,288              4,184          2,104          50.3 %
Total cost of revenues             $        54,255    $        40,984    $    13,271          32.4 %

The increase in our cost of revenue was the result of costs incurred as a result of higher sales of wireless infrastructure, mobile point-of-care workstations and our expanded professional services. The cost of revenue associated with the acquisition of HIA, Delta and Aware totaled $8,907 for the nine months ended September 30, 2008.

Gross profit

Gross profit and gross margin for the nine months ended September 30, 2008 and 2007 were as follows:

                                       Nine Months Ended September 30,         Amount of     Percentage
                                         2008                  2007             Change         Change

Gross profit:
Infrastructure and hardware        $           9,242     $          11,253    $    (2,011 )       (17.9 )%
Professional services                         10,059                   878          9,181        1045.7 %
Other                                            402                 2,327         (1,925 )       (82.7 )%
Total gross profit                 $          19,703     $          14,458    $     5,245          36.3 %

Gross profit:
Infrastructure and hardware                     21.0 %                26.1 %         (5.1 )%      (19.6 )%
Professional services                           43.3 %                15.2 %         28.2 %       185.4 %
Other                                            6.0 %                35.7 %        (29.7 )%      (83.2 )%
Total gross profit                              26.6 %                26.1 %          0.6 %         2.2 %

The increase in our gross margin is the result of increased sales of our more profitable professional and consulting services related to our mobile solutions and software implementation services, partially offset by low margin sales of infrastructure and third-party hardware.

Selling, general and administrative expenses

Our selling, general and administrative expenses were $23,562 for the nine months ended September 30, 2008, compared with $17,535 for the nine months ended September 30, 2007, an increase of $6,027 or 34.4%. Selling expenses were $8,566 for the nine months ended September 30, 2008, compared with $7,234 for the nine months ended September 30, 2007, an increase of $1,332 or 18.4%. The increase in our selling expenses for the comparable periods was primarily attributable to an increase in wages related to the expanded sales staff hired in 2007, and sales support related costs attributable to HIA during the nine months ended September 30, 2008. General and administrative expenses were $14,996 for the nine months ended September 30, 2008, compared with $10,301 for the nine months ended September 30, 2007, an increase of $4,695 or 45.6%. The increase in our general and administrative expenses for the comparable periods was primarily attributable to an increase in amortization expenses related to acquisitions, an increase in salary expenses related to the addition of key members of our management and professional services staff hired in 2007; and an increase in professional fees related to legal, and accounting.

Interest expense and interest income

Our interest expense, which is derived from our credit line and term loan was $1,246 for the nine months ended September 30, 2008, compared to approximately . . .