**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C.  20549**





**FORM
      10-QSB**





**þ**
            
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                OF 1934****For
                the quarterly period ending March 31, 2007**or**o**
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                OF 1934****For
                the transition period
                from          to**




**Commission
      file number 0-24001**





**WHERIFY
      WIRELESS, INC.**


*(Exact
      name of small business issuer as specified in its charter)*




**Delaware**
            
            **76-0552098***(State
                or other jurisdiction of*
            
            *(I.R.S.
                Employer**incorporation
                or organization)*
            
            *Identification
                Number)*








**901
      Mariners Island Boulevard, San Mateo, California
      94404-1592**


*(Address
      of principal executive offices)*




**(650) 524-3000**


*(Issuer’s
      telephone number)*




63
      Bovet
      Road, #521, San Mateo, California 94402-3104


*(Former
      mailing address)*








Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
      (or
      for such shorter periods that the registrant was required to file such reports),
      and (2) has been subject to such filing requirements for the past 90
      days. Yes þ 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 þ





There
      were 73,368,099 shares of the issuer’s common stock, $.01 par value, outstanding
      as of May 11, 2007





Transitional
      Small Business Disclosure Format: Yes o No þ







**WHERIFY
      WIRELESS, INC.**


**FORM
      10-QSB**


**QUARTER
      ENDED MARCH 31, 2007**





**Table
      of Contents**




PagePART
                  I. FINANCIAL INFORMATIONItem
                  1. Financial Statements
              
              
              3Balance
                  Sheets as of March 31, 2007 and June 30, 2006 (unaudited)
              
              
              3Statements
                  of Operations for the three and nine months ended March 31, 2007
                  and 2006
                  (unaudited)
              
              
              4Condensed
                  Statements of Cash Flows for the nine months ended March 31, 2007
                  and 2006
                  (unaudited)
              
              
              5Notes
                  to Financial Statements (unaudited)
              
              
              6Item
                  2. Management’s Discussion and Analysis or Plan of
                  Operation
              
              
              11Item
                  3. Controls and Procedures
              
              
              28PART
                  II. OTHER INFORMATIONItem
                  6. Exhibits
              
              
              31Signatures
              
              
              32EXHIBITS




2




**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**Wherify
                  Wireless, Inc****Balance
                  Sheets****Unaudited****ASSETS**
              
              **March
                  31,**
              
              **June
                  30,****2007**
              
              **2006****CURRENT
                  ASSETS:**Cash
                  and cash equivalents
              
              $
              35,929
              
              $
              524,722Restricted
                  certificates of deposit
              
              
              9,148
              
              
              1,278,014Prepaid
                  expenses
              
              
              55,334
              
              
              29,281Accounts
                  receivable, net
              
              
              261,055
              
              
              10,133Inventory,
                  net of reserve of $1,374,525 and $0, respectively
              
              
              2,289,678
              
              
              81,141Security
                  Deposit and other assets
              
              
              322,400
              
              
              373,100**TOTAL
                  CURRENT ASSETS**
              
              
              **2,973,544**
              
              
              **2,296,391**Intangible
                  assets, net of accumulated amortization of $25,441 and $14,191,
                  respectively
              
              
              19,559
              
              
              30,809Property
                  and equipment, net of accumulated depreciation of $1,333,850 and
                  $1,302,036, respectively
              
              
              428,723
              
              
              640,607Deferred
                  debt and equity issuance costs and other non-current
                  assets
              
              
              988,019
              
              
              755,691**TOTAL
                  ASSETS**
              
              **$**
              **4,409,845**
              
              **$**
              **3,723,498****LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****CURRENT
                  LIABILITIES:**Accounts
                  payable
              
              $
              5,894,604
              
              $
              2,836,057Accounts
                  payable - related party
              
              
              3,105,750
              
              
              3,105,750Accrued
                  liabilities
              
              
              3,215,983
              
              
              993,552Accounts
                  payable related to discontinued operating segment
              
              
              2,085,211
              
              
              2,085,211Deferred
                  revenue
              
              
              193,114
              
              
              -Note
                  payable - related party
              
              
              2,175,000
              
              
              2,000,000Current
                  maturities of convertible debentures
              
              
              2,471,898
              
              
              1,404,990Fair
                  value of derivatives
              
              
              5,176,963
              
              
              2,692,235**TOTAL
                  CURRENT LIABILITIES**
              
              
              **24,318,523**
              
              
              **15,117,795****Commitments
                  and Contingencies**
              
              
              **---**
              
              
              **---****STOCKHOLDERS'
                  DEFICIT**Common
                  stock, $0.01 par value, 200,000,000 shares
                  authorized,72,978,099,
                  and 55,301,513 shares issued and outstanding,
                  respectively
              
              
              729,781
              
              
              553,015Additional
                  paid in capital
              
              
              131,148,251
              
              
              124,591,434Accumulated
                  deficit
              
              
              (151,786,710
              )
              
              (136,538,746
              )**TOTAL
                  STOCKHOLDERS' DEFICIT**
              
              
              (19,908,678
              )
              
              (11,394,297
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              **$**
              **4,409,845**
              
              **$**
              **3,723,498**










See
      accompanying notes to financial statements.





3






**Wherify
                    Wireless, Inc.****Statements
                    of Operations****Unaudited****Three
                    Months Ended****March
                    31,**
                
                **Nine
                    Months Ended****March
                    31,****2007**
                
                **2006**
                
                **2007**
                
                **2006****REVENUES:**Sales
                    Revenue
                
                $
                135,335
                
                $
                25,181
                
                $
                644,115
                
                $
                125,180**OPERATING
                    EXPENSES:**Cost
                    of Goods Sold (except for items stated separately
                    below)
                
                
                21,034
                
                
                4,909
                
                
                305,647
                
                
                14,292Goodwill
                    impairment
                
                
                -
                
                
                -
                
                
                -
                
                
                64,308,022Research
                    and development
                
                
                272,958
                
                
                143,999
                
                
                1,057,947
                
                
                925,135General
                    and administrative
                
                
                2,169,667
                
                
                1,867,000
                
                
                9,246,196
                
                
                6,278,503Rent
                    expense
                
                
                158,716
                
                
                353,004
                
                
                938,731
                
                
                1,038,461Amortization
                    & depreciation
                
                
                120,293
                
                
                230,088
                
                
                281,113
                
                
                645,252**TOTAL
                    OPERATING EXPENSES**
                
                
                **2,742,668**
                
                
                **2,599,000**
                
                
                **11,829,634**
                
                
                **73,209,665****OPERATING
                    LOSS**
                
                
                **(2,607,333**
                **)**
                
                **(2,573,819**
                **)**
                
                **(11,185,519**
                **)**
                
                **(73,084,485**
                **)****OTHER
                    INCOME (EXPENSE)**Change
                    in fair value of derivatives
                
                
                1,881,930
                
                
                (4,974,890
                )
                
                (2,484,729
                )
                
                (4,974,890
                )Interest
                    and other expense
                
                
                (570,524
                )
                
                (96,817
                )
                
                (1,601,854
                )
                
                (106,559
                )Interest
                    and other income
                
                
                1,666
                
                
                8,633
                
                
                24,138
                
                
                54,273**NET
                    LOSS FROM CONTINUING OPERATIONS**
                
                
                **(1,294,261**
                **)**
                
                **(7,636,893**
                **)**
                
                **(15,247,964**
                **)**
                
                **(78,111,661**
                **)****DISCONTINUED
                    OPERATIONS******Loss
                    from operations of discontinued segment
                
                
                -
                
                
                -
                
                
                -
                
                
                (85,860
                )**NET
                    LOSS ATTRIBUTABLE TO COMMON**
                
                **$**
                **(1,294,261**
                **)**
                **$**
                **(7,636,893**
                **)**
                **$**
                **(15,247,964**
                **)**
                **$**
                **(78,197,521**
                **)****SHAREHOLDERS**Basic
                    and diluted net loss per sharefrom
                    continuing operations
                
                $
                (0.02
                )
                $
                (0.14
                )
                $
                (0.23
                )
                $
                (1.53
                )Basic
                    and diluted net loss per share
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                (0.00
                )from
                    discontinued operationsBasic
                    and diluted net loss per share
                
                $
                (0.02
                )
                $
                (0.14
                )
                $
                (0.23
                )
                $
                (1.53
                )Weighted
                    average number of shares outstanding
                
                
                72,562,960
                
                
                54,967,410
                
                
                66,202,928
                
                
                51,144,265




See
      accompanying notes to financial statements.


4






**Wherify
                    Wireless, Inc.****Condensed
                    Statement of Cash Flows****Unaudited****Nine
                    Months Ended March 31,****2007**
                
                **2006****NET
                    CASH USED IN OPERATING ACTIVITIES**
                
                $
                (7,163,870
                )
                $
                (8,386,470
                )**INVESTING
                    ACTIVITIES:**Decrease
                    in restricted certificates of deposit
                
                
                1,268,866
                
                
                1,141,706Purchase
                    of property and equipment
                
                
                (21,411
                )
                
                (102,230
                )Disposal
                    or property and equipment
                
                
                8,000
                
                
                -**NET
                    CASH PROCEEDS PROVIDED BY INVESTING ACTIVITIES**
                
                
                1,255,455
                
                
                1,039,476**FINANCING
                    ACTIVITIES:**Net
                    proceeds from issuance of stock
                
                
                4,044,622
                
                
                4,384,799Proceeds
                    from convertible debenture, net
                
                
                -
                
                
                4,585,000Proceeds
                    from notes payable - related party
                
                
                175,000
                
                
                1,000,000Proceeds
                    from convertible note payable
                
                
                1,200,000
                
                
                -**NET
                    CASH PROVIDED BY FINANCING ACTIVITIES**
                
                
                5,419,622
                
                
                9,969,799**CHANGE
                    IN CASH AND CASH EQUIVALENTS**
                
                
                (488,793
                )
                
                2,622,805**CASH
                    AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
                
                
                524,722
                
                
                1,208,089**CASH
                    AND CASH EQUIVALENTS - END OF PERIOD**
                
                $
                35,929
                
                $
                3,830,894




See
      accompanying notes to financial statements.




5




WHERIFY
      WIRELESS, INC.


NOTES
      TO
      FINANCIAL STATEMENTS


(Unaudited)





**NOTE
      1 - BASIS OF PRESENTATION**




The
      accompanying unaudited interim financial statements of Wherify Wireless, Inc.
      ("Wherify" or the "Company") have been prepared in accordance with accounting
      principles generally accepted in the United States of America and the rules
      of
      the Securities and Exchange Commission ("SEC"). These financial statements
      should be read in conjunction with the audited financial statements and notes
      thereto contained in Wherify's Annual Report filed with the SEC on Form 10-KSB
      for the year ended June 30, 2006. In the opinion of management, all adjustments,
      consisting of normal recurring adjustments, necessary for a fair presentation
      of
      financial position and the results of operations for the interim periods
      presented have been reflected herein. The results of operations for interim
      periods are not necessarily indicative of the results to be expected for the
      full year. We have omitted notes to the financial statements that would
      substantially duplicate the disclosure contained in the audited financial
      statements for the year ended June 30, 2006 as reported in the Form
      10-KSB.





*Going
      Concern*





Wherify’s
      financial statements have been prepared on a going concern basis, which
      contemplates the realization of assets and settlement of liabilities and
      commitments in the normal course of business for the foreseeable future. Since
      inception, the Company has accumulated losses aggregating to $151,786,710 and
      has insufficient working capital to meet its current operating needs and is
      dependent on successful new financings to continue its operations, all of which
      raise substantial doubt about Wherify’s ability to continue as a going concern.





Management’s
      plans for Wherify’s continued existence include selling additional stock or
      borrowing additional funds to pay overhead expenses while proceeding with its
      current business plan to launch and market its new GPS enabled wireless location
      products.





Wherify’s
      future success is dependent upon its ability to achieve profitable operations,
      generate cash from operating activities and obtain additional financing. There
      is no assurance that Wherify will be able to generate sufficient cash from
      operations, sell additional shares of common stock or borrow additional
      funds.





Should
      Wherify be unable to obtain additional cash this will have a material adverse
      effect on its financial position, results of operations and its ability to
      continue in existence. The consolidated financial statements do not include
      any
      adjustments that might result from the outcome of this uncertainty.





*Revenue
      Recognition*




Wherify
      adopted revenue recognition policies to comply fully with the guidance in Staff
      Accounting Bulletin (“SAB”) No. 104, *Revenue
      Recognition* ,
      SAB
      Topic 13, *Revenue
      Recognition* ,
      FASB’s
      Emerging Issues Task Force (“EITF”) Issue 00-21, *Revenue
      Arrangements with Multiple Deliverables* ,
      and
      AICPA Statement of Position (“SOP”) 97-2, *Software
      Revenue Recognition* .
      Revenue
      is recognized when persuasive evidence of an arrangement exists, the delivery
      and acceptance of the equipment has occurred or services have been rendered,
      the
      price is fixed or determinable, and the collectibility of payment is reasonably
      assured. The application of this guidance requires management to exercise
      judgment in evaluating these factors in light of the terms and conditions of
      its
      customer contracts and other existing facts and circumstances to determine
      appropriate revenue recognition. Application of SOP 97-2 requires determining
      whether a software arrangement includes multiple elements, and if so, whether
      vendor-specific objective evidence (VSOE) of fair value exists for those
      elements. Changes to the elements in a software arrangement, the ability to
      identify VSOE for those elements, the fair value of the respective elements,
      and
      changes in a product’s estimated life cycle, could materially impact the amount
      of earned and unearned revenue. Judgment is also required to assess whether
      future releases of certain software represent new products or upgrades and
      enhancements to existing products. Application of EITF 00-21 requires
      determining whether a revenue arrangement includes multiple revenue-generating
      activities, such as product sale and services, and if so whether allocation
      of
      the arrangement’s consideration is required to more than one unit of
      accounting.




6




Wherify
      has two types of revenue: hardware revenue and subscription revenue, and
      consists of shipped customer orders and completed services. Hardware revenue
      is
      recognized at the later of shipment date or upon satisfying contractual
      requirements or obligations under the sales contract, whichever is later.
      Subscription revenue is recognized at completion of performance. Prior to
      September 2006, the Company recognized revenues primarily from the sale of
      FACES software and subscriptions. Starting in September 2006 recognized revenues
      are primarily from the sale of wireless location devices and services. Revenues
      are also offset with a reserve for any price refunds and consumer rebates
      consistent with the EITF Issue 01-09, *Accounting
      for Consideration Given by a Vendor to a Customer* ,
      as
      appropriate.





Hardware
      sales currently consist principally of revenues from the sale of GPS-enabled
      wireless location devices, primarily Wherifone handsets plus accessories to
      new
      subscribers and to agents and other third-party distributors. The revenue and
      related expenses associated with the sale of wireless handsets and accessories
      through our indirect sales channels are recognized when the products are
      delivered and accepted by the agent or third-party distributor, as this is
      considered to be a separate earnings process from the sale of wireless services
      and the probability of collection is likely. Shipping and handling costs for
      wireless handsets sold to agents and other third-party distributors are
      classified as costs of equipment sales.





S ubscription
      revenues are earned by providing access to Wherify’s wireless GPS-enabled
      location services network (activation revenue) and for usage of its wireless
      telecommunications system including enhanced GPS-enabled locates (airtime
      revenue). Activation revenue from postpaid subscribers is billed either in
      advance or arrears and recognized ratably over the service period. Airtime
      revenue, including locates, call time, roaming revenue and long-distance
      revenue, is billed in arrears based on minutes of use and is recognized when
      the
      service is rendered. Prepaid airtime sold to subscribers and revenue collected
      from pay-in-advance subscribers is recorded as deferred revenue prior to the
      commencement of services, and revenue is recognized when airtime is used or
      expires. Activation and airtime services provided are billed throughout the
      month according to the bill cycle in which a particular subscriber is placed.
      As
      a result of bill cycle cut-off times, the Company is required to make estimates
      for service revenues earned but not yet billed at the end of each month, and
      for
      advanced billings. Estimates for activation revenues are based upon the most
      current bill cycle revenues. Estimates for airtime revenues are based upon
      historical minutes of use.





The
      Company launched its North American wireless location services in October 2006.
      The Company’s North American subscribers’ rate plan include a feature whereby a
      subscriber’s monthly usage is automatically charged at the most advantageous
      rate plan then in effect for the minutes used. For prepaid plans, the Company
      defers revenue based on an estimate of the portion of unused minutes expected
      to
      be utilized prior to expiration. As the Company lacks historical subscriber
      usage patterns for its specialized services, the Company must apply judgment
      to
      estimate the number of unused minutes to be utilized, as well as those which
      are
      likely to expire or be forfeited. No deferral of revenue is recorded for the
      minutes expected to expire or be forfeited, as no future performance is expected
      to be required by the Company, nor is there any obligation to refund or redeem
      for value the expired minutes. The balance of the deferred phone sales and
      activation fees as of March 31, 2007 and June 30, 2006 was $193,114 and $0,
      respectively, and has been included in deferred revenue in the consolidated
      balance sheets. When available, revenues for enhanced services and optional
      features would be recognized as earned. Service revenues also include billings
      to our subscribers for Universal Service Fund (USF) and other regulatory
      fees.





The
      Company has determined that the sale of wireless services through its direct
      sales channels with an accompanying handset constitutes a revenue arrangement
      with multiple deliverables in accordance with EITF No. 00-21, *Accounting
      for Revenue Arrangements with Multiple Deliverables.* The
      Company accounts for these arrangements as separate units of accounting,
      including the wireless service and handset. Arrangement consideration received
      for the handset is recognized as equipment sales when the handset is delivered
      and accepted by the subscriber. Arrangement consideration received for the
      wireless service is recognized as service revenues when earned. As the
      non-refundable, up-front activation fee charged to the subscriber does not
      meet
      the criteria as a separate unit of accounting, the Company allocates the
      additional arrangement consideration received from the activation fee to the
      handset (the delivered item) to the extent that the aggregate handset and
      activation fee proceeds do not exceed the fair value of the handset. Any
      activation fees not allocated to the handset would be deferred upon activation
      and recognized as service revenue on a straight-line basis over the expected
      customer relationship period. The Company determined that the sale of wireless
      services through its indirect sales channels (agents) does not constitute a
      revenue arrangement with multiple deliverables. For indirect channel sales,
      the
      Company continues to defer non-refundable, up-front activation fees and
      associated costs to the extent of the related revenues in accordance with
      SAB No. 104, *Revenue
      Recognition* .
      These
      deferred fees and costs are amortized on a straight-line basis over the
      estimated customer relationship period, presumably the contract period.




7




Due
      to
      our limited commercial sales history, our ability to evaluate the collectibility
      of customer accounts requires significant judgment. The Company evaluates its
      equipment customer and service customer accounts for collectibility at the
      date
      of sale and on an ongoing basis.





**NOTE
      2 - STOCK-BASED COMPENSATION**




Prior
      to
      January 1, 2006 we accounted for stock based compensation under Statement of
      Financial Accounting Standards No. 123 Accounting for Stock−Based Compensation
      (FAS 123). As permitted under this standard, compensation cost was recognized
      using the intrinsic value method described in Accounting Principles Board
      Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Effective
      January 1, 2006, the Company has adopted Statement of Financial Accounting
      Standards No. 123 (Revised 2004), Share−Based Payment (FAS 123R) and applied the
      provisions of the Securities and Exchange Commission Staff Accounting Bulletin
      No. 107 using the modified−prospective transition method. Prior periods were not
      restated to reflect the impact of adopting the new standard. As a result of
      the
      adoption of FAS 123R, stock−based compensation expense recognized during
      the quarter ended March 31, 2007 includes compensation expense for all
      share−based payments granted on or prior to, but not yet vested as of January 1,
      2006, based on the grant date fair value estimated in accordance with the
      original provisions of FAS 123, and compensation cost for all share−based
      payments granted on or subsequent to January 1, 2006, based on the grant date
      fair value estimated in accordance with the provisions of FAS 123R.




APB
      25
      did not require any compensation expense to be recorded in the financial
      statements if the exercise price of the award was not less than the market
      price
      on the date of grant. Since all options granted by the Company had exercise
      prices equal or greater than the market price on the date of grant, no
      compensation expense was recognized for stock option grants prior to January
      1,
      2006.




During
      the quarter ended March 31, 2007, the Company recognized stock−based
      compensation expenses of $0.1million related to outstanding stock options
      according to the provisions of FAS 123R, using the modified−prospective
      transition method. During
      the three and nine months periods ended March 31, 2007, the Company granted
      its
      employees options to purchase 40,000 shares of common stock and 150,000 shares
      of common stock, respectively. During
      the three and nine months periods ended March 31, 2007, third party consultants
      were issued 436,666 shares of unrestricted common stock under the Company’s 2004
      Stock Plan in exchange for various current obligations and future services
      and
      members of the Board of Directors were issued 612,500 shares of common stock
      in
      lieu of cash for director fees.




During
      the three and nine months periods ended March 31, 2006, Wherify Wireless granted
      its employees options to purchase 250,000 shares of common stock and 1,763,567
      shares of common stock, respectively. The options vest over a four year period
      and expire ten years from the grant date. Since the exercise price of the
      options was equal to the market value of the stock on the grant date, Wherify
      Wireless did not record any compensation expense under the intrinsic method.
      During the three and nine months periods ended March 31, 2006, no options were
      issued to third party consultants. During the three and nine months ended March
      31, 2006, third party consultants were issued 255,000 shares of common stock
      in
      exchange for investor services.




During
      the three months ended March 31, 2006, the risk free interest rate used in
      the
      Black−Scholes option pricing model (the Model) was 5.0%. The expected volatility
      used in the model was 104.9%.





A
      summary
      of the options issued by the Company for the nine months ended March 31, 2007
      is
      as follows:




**Options**
            
            
            **Weighted−**
              **Average**
              **Exercise
                Price per Share**
            
            
            **Weighted−**
              **Average
                Remaining Expected**
              **Term
                (in years)**Outstanding
                on June 30, 2006
            
            
            6,221,160
            
            $
            0.95
            
            
            7.6Granted
            
            
            150,000
            
            $
            .25
            
            
            9.6Exercised
            
            
            0
            
            $Forfeited/Canceled
            
            
            (1,339,780
            )
            
            .75
            
            $Repriced
            
            
            1,339,780
            
            $
            .30
            
            
            9.3Outstanding
                on March 31, 2007
            
            
            6,257,160
            
            $
            .85
            
            
            7.0Exercisable
                on March 31, 2007
            
            
            3,214,779
            
            $
            .77
            
            
            5.0





The
      weighted average grant date fair value during the nine months ended March 31,
      2007 and March 31, 2006 was $0.25 per share and $0.68 per share, respectively.
      Additionally, 0 options and 51,638 options were exercised and 573,404 and
      283,107 options vested during the periods ended March 31, 2007 and March 31,
      2006, respectively. The unrecognized share-based compensation cost related
      to
      stock option expense at December 31, 2006 is $674,271 and will be recognized
      over a weighted average of 2.8 years.




In
      accordance with APB 25, the Company recorded compensation expense for restricted
      stock awards based on the fair market value on the date of grant. The fair
      value
      was recorded as deferred compensation in a separate component of shareholders'
      equity and expensed over the vesting period. Upon adoption of FAS 123R such
      deferred compensation was reclassified to Additional Paid-in Capital. During
      the
      quarter ended March 31, 2007 the Company recognized compensation expense of
      $59,843 for stock-based compensation.




**NOTE
      3 - INVENTORY**





Net
      inventory consists primarily of approximately $1.0 million of work in process
      at
      our contract manufacturer, approximately $0.5 million of consigned finished
      goods currently at various distribution channels, and approximately $0.8 million
      of finished goods .





The
      Company contracted with an external party to manufacture units of its enhanced
      GPS-enabled wireless location product (the WherifoneTM). The Company commenced
      mass manufacture of its Wherifone during the quarter ended September 30, 2006
      to
      meet international product requirements and in anticipation of its North
      American Wherifone retail launch that occurred on October 1, 2006. The Company
      includes in inventory work in process currently at its contract manufacturer
      for
      which there is an expected obligation to purchase per terms of the
      contract .





The
      Company recognizes impairment losses on its inventory when there is evidence
      that the value of the goods will be less than the costs. The Company performs
      a
      detailed inventory valuation and impairment review each fiscal quarter and
      considers multiple factors including an evaluation of the stages of production
      work in process at its third party contract manufacturer, demand forecast,
      product development plans, and current geographic sales levels. At March 31,
      2007 the Company recognized an impairment of $1.4 million on its inventory
      primarily related to the fair market value of units to be sold into the North
      American marketplace.




**NOTE
      4 - CONVERTIBLE DEBENTURES AND WARRANTS LIABILITY**





The
      Company has determined that the conversion feature of the secured convertible
      debentures and the warrants issued with the secured convertible debentures
      are
      embedded derivative instruments pursuant to SFAS No. 133, Accounting for
      Derivative Instruments and Hedging Activities, as amended. Under the provisions
      of EITF Issue No. 00−19, Accounting for Derivative Financial Instruments Indexed
      to, and Potentially Settled in, a Company's Own Stock, the accounting treatment
      of these derivative financial instruments requires that the Company record
      the
      derivatives at their fair values as of the inception date of the note agreements
      and at fair value as of each subsequent balance sheet date as a liability.
      Any
      change in fair value is recorded as non−operating, non−cash income or expense at
      each balance sheet date. The Company estimates fair value using the
      Black−Scholes option pricing model. This model requires the use of estimates
      such as the expected holding period, the expected future volatility of the
      company's common stock and the risk−free rate of return over the holding period.
      These estimates directly affect the reported amounts of the derivative
      instrument liabilities. At March 31, 2007, the Company estimated the fair value
      of the conversion feature and warrant liability at $5.2
      million.


On
        February 22, 2007, Wherify Wireless entered into a private placement and
        sold
        $1,200,000 aggregate principal amount of a 10% Senior Convertible Promissory
        Note due February 15, 2008 (the "Note") pursuant to the terms of a concurrently
        dated Securities Purchase and Option Agreement (the "Agreement") among Wherify,
        the lender parties thereto ("Purchaser").
 
 The
        notes
        are convertible to common stock at any time at $0.10 per share, or 12,000,000
        shares.  In addition 3,000,000 Warrants have been granted at an exercise
        price of $0.10 per share exercisable for 60 months from the date of the
        notes.
 
 As
        a
        result, we have determined that the conversion feature of the notes and warrants
        issued are not derivative instruments pursuant to SFAS No. 133, Accounting
        for
        Derivative Instruments and Hedging Activities, as amended.  Under the
        provisions of EITF Issue 98-5, Wherify estimated the fair value of the
        beneficial conversion feature and warrants at the issuance of the notes using
        the Black-Scholes option pricing model to exceed the principal value of the
        note.  The resulting discount of $1,200,000 is being amortized over the
        life of the notes using the effective interest method. The amount amortized
        in
        the nine month period ended March 31, 2007 was $23,743 the total remaining
        discount at March 31, 2007 is $1,176,257.
 
 In
        connection with the sale of the Note, Wherify granted the placement agent
        3,000,000 warrants at an exercise price of $0.10 per share and using the
        black
        scholes model have an estimated fair value of $741,099, these warrants are
        exercisable for 60 months from the date of the Note. Wherify also incurred
        fees
        and other costs directly associated with this loan agreement of $187,000,
        these
        fees and the estimated fair value of the warrants have been recorded as deferred
        financing costs. As of March 31, 2007 $18,364 of these deferred financing
        costs
        has been amortized as a component of interest expense. These deferred financing
        costs are being amortized over the expected term of the note using the effective
        interest method.




**NOTE
      5 - Contingencies**





*Venture
      Corporation Limited, a Singapore Corporation v. Wherify Wireless, Inc, a
      California Corporation*




8




On
      October 15, 2004, Venture Corporation Limited, a Singapore corporation
      (“Venture”), filed suit against Wherify California, in the United States
      District Court, Central District of California. The complaint sought
      approximately $5 million in damages for breach of contract, fraud and common
      counts alleging that Wherify California failed to pay certain amounts owed
      for
      the manufacture of the children’s model personal locater (“CM1”). Wherify
      California answered Venture’s complaint on November 16, 2004 and filed a
      cross-complaint alleging that Venture failed to timely deliver conforming goods.
      A mediation between the parties ended without a resolution. A court trial
      concluded on November 4, 2005, and on December 27, 2005 the District Court’s
      judgment awarding Venture approximately $1.7 million in damages (including
      costs) was entered. On January 26, 2006, a Notice of Appeal was filed with
      the
      United States Court of Appeals for the Ninth Circuit which Wherify intends
      to
      vigorously pursue. Venture has commenced collection procedures, including
      attempts to levy upon assets and accounts of not only Wherify California, but
      also its parent, Wherify. On September 25, 2006 a hearing occurred regarding
      Venture Corporation's motion to amend its judgment to add Wherify to its
      judgment against Wherify California. On
      March
      20, 2007, Venture filed a motion to dismiss the appeal; Wherify California
      filed
      an opposition to the motion to dismiss on April 2, 2007. Wherify
      believes that there are no legal grounds or basis for any claim or attempt
      to
      levy against Wherify or any of its assets, and intends to vigorously defend
      against any such claims or attempts to levy. On November 2, 2006 the court
      denied Venture’s motion to amend the judgment against Wherify California to
      extend the levy to include Wherify. It is management’s assessment that a
      potential liability against Wherify California of an amount up to $1.7 million
      exists. Therefore, the Company has accrued an amount of $1.7
      million.





*Lariviere,
      et al. v. I.Q. Biometrix, Inc., a Delaware Corporation, et al.*





On
      August
      5, 2005, plaintiffs Sylvie Lariviere, Robert Rios, Toni Lange, Fernand Beland,
      Frederic Serre and Roland Vroye, filed their first amended complaint against
      I.Q. Biometrix, Inc., a Delaware corporation, in Fresno County Superior Court,
      State of California. Plaintiffs’ complaint alleges causes of action for breach
      of contract and fraud for a failure to issue stock options pursuant to an
      alleged oral and/or written agreement. The complaint seeks to recover damages,
      including punitive damages, and/or an award of stock options. On October 25,
      2005, Wherify demurred on behalf of itself, Greg Micek and William Scigliano
      and
      on January 4, 2005, the demurrer was sustained on several grounds. This
      matter has been set for trial on August 28, 2007. The
      Company’s management feels that a reasonable estimate for potential liability
      for the company is somewhere within a range of $0 to $500,000. Management of
      the
      Company has also determined that no amount within that range is a better
      estimate of a potential liability than any other amount. Therefore, no amount
      has been set aside for this contingent liability.





*Westport
      Office Park, LLC v. Wherify Wireless, Inc, a California
      Corporation*





On
      January 5, 2007, Westport Office Park, LLC ("Westport") notified Wherify
      Wireless, Inc. (“Wherify”) that it had filed a Stipulation and Agreement it had
      entered into with Wherify California Inc., (“Wherify California”) a wholly-owned
      subsidiary of Wherify, in San Mateo Superior Court (“Court”). The Stipulation
      and Agreement contains a Confession of Judgment relating to an unlawful detainer
      action filed by Westport against Wherify California. Upon entry by the Court,
      the judgment will terminate Wherify California's right to possession of the
      premises located at 2000 Bridge Parkway, Suite 201, Redwood City, California,
      consisting of approximately 25,690 square feet on the second floor of the
      building. This facility has served as Wherify’s principal office. The unlawful
      detainer action and Stipulation and Agreement was a consequence of Wherify
      California’s failure to make its past and current lease payments plus other
      related obligations as a result of Wherify's financial difficulties and the
      ongoing nature of its current fund raising activities. Base rent charges was
      $126,072 per month. The lease commenced on September 3, 1999 and was scheduled
      to terminate on or about September 3, 2009. The
      complaint sought a judgment for possession of certain leased premises occupied
      by Wherify California as its principal offices in favor of Westport,
      approximately $1.4 million in then outstanding amounts due and owing under
      the
      terms of the lease, and certain other amounts deemed owed. Wherify California
      answered Westport’s complaint on January 17, 2007 by vacating from the leased
      premises. The Company has paid $0.3 million and accrued an amount of
      approximately $1.1 million pending resolution of this matter.





On
      March
      30, 2007, Westport Office Park recorded a judgment lien with the United States
      Patent and Trademark Office on a utility patent application and a design patent
      held in name of the Company's California subsidiary,
      Wherify Wireless, Inc., a California corporation. Specifically, U.S. Patent
      Application 11/126,827 and U.S. Design Patent D526985. Generally, the
      appropriate means to remove a judgment lien would be to pay the amount due
      to
      the creditor. The Company has not determined at this time whether the lien
      was
      properly recorded, and intends to take all legal actions appropriate to restore
      good title to the utility patent application and the design patent. The Company
      is still assessing the impact if any of the judgment lien.




9




*Baystar
      Capital II, L.P. v. Wherify Wireless, Inc. et al*





On
      March
      2, 2007 Baystar Capital II, L.P. ("Baystar") filed suit against Wherify
      Wireless, Inc. in Marin County Superior Court, State of California. Plaintiff's
      complaint alleges various causes of action relating to an alleged breach of
      a
      stock purchase agreement entered between the parties in early 2005. Plaintiff
      essentially sought damages arising from an alleged failure to provide stock
      certificates by an agreed upon date. The parties entered into a final and
      binding agreement on or about May 4, 2007 in which Wherify paid Baystar $75,000.





*Fixture
      Hardware Co. v. Wherify Wireless, Inc.*





On
      or
      about April 25, 2007, Fixture Hardware Co. filed a complaint against Wherify
      Wireless, Inc. in the United States District Court for the Northern District
      of
      Illinois. Plaintiff claims breach of a purchase agreement related to product
      display stands made available to Wherify under the agreement. Plaintiff seeks
      damages in the approximate amount of $245,000. Wherify recently received service
      of the complaint and is still reviewing its legal options.





**NOTE
      6 - EQUITY**




On
      July
      18, 2006 we were notified by the US Securities and Exchange Commission that
      our
      direct offering of 16.8 million shares was declared effective and the Company
      commenced solicitation of those shares for sale on August 8, 2006 upon filing
      our Prospectus. During the three months ended September 30, 2006, the
      Company issued 6,467,500 shares of common stock for gross proceeds of
      approximately $1.6 million under our direct offering of common shares. On
      November 2, 2006 the Company announced that it had closed its direct offering
      of
      16.8 million shares of the Company’s common stock. As of the closing of the
      direct offering the Company had raised gross proceeds of approximately $4.2
      million through the sale of approximately 16.6 million shares in the
      aggregate.




**NOTE
      7 - SUBSEQUENT EVENTS**





On
      April
      11, 2007 the Purchaser partially exercised the Option see Note 4 by delivering
      $4,585,600 to Wherify in exchange for 5,732 shares of Preferred Stock. Taking
      into account the placement agent commission of $459,000.00 and other placement
      expenses, Wherify received net cash proceeds of approximately
      $4,000,000.





Subsequently,
      on April 18, 2007, the Purchaser exercised the remainder of the Option by
      delivering $1,414,400 to Wherify in exchange for 1,768 shares of Preferred
      Stock. Taking into account the placement agent commission of $141,440 and other
      placement expenses, Wherify received net cash proceeds of approximately
      $1,270,000.





On
      February 2, 2007, Wherify Wireless, Inc. (the “Company”) and Cornell Capital
      Partners, LP (“Cornell”) entered into a Letter Agreement (the “Agreement”).
      Pursuant to the Agreement, Cornell conditionally agreed to refrain from
      declaring the 7% secured convertible debentures issued on March 10, 2006 and
      the
      7% secured convertible debentures issued on March 14, 2006, (together, the
      “Debentures”) in default and forebear from acceleration of its right of
      repayment of the Debentures for 120 days.





In
      addition Cornell conditionally agreed to make the following amendments to the
      Debentures: (i) waive all known defaults of the Company that exist as of the
      closing date of the Financing (defined below) and agreed not to accelerate
      the
      repayment of the Debentures, as amended, any time prior to eight months after
      the effective date of these amendments (the “Payment Date”), (ii) extend the
      maturity date to February 1, 2009; (iii) modify the interest rate to 8% payable
      monthly in arrears beginning on the Payment Date; when due the interest may
      be
      paid in cash or capitalized and added to the principal amount of the Debenture,
      at the option of the Company; (iv) the Company will be required to make monthly
      amortization payments under the Debentures in the principal amount of $200,000
      per month beginning on the Payment Date; (v) the conversion price will be
      amended to a fixed conversion price of $0.25 with certain anti-dilution
      provisions; (vi) Cornell will not convert any portion of the Debenture into
      an
      excess of 800,000 shares of common stock in any month unless at any time during
      such month the stock price is greater than $0.35 per share; (vii) the Company
      may make early redemptions of the amended Debentures at any time and without
      any
      additional penalty or premium provided that the Company provides Cornell with
      advance notice, waives the conversion restriction set forth in (vi) above and
      raises the conversion cap from 4.99% to 9.99%.




10




In
      addition, Cornell conditionally agreed to cancel warrants to purchase 15,500,000
      shares of common stock and retain the remaining warrants to purchase 7,000,000
      shares of common stock. Cornell conditionally agreed to exercise the retained
      warrants on a cash basis so long as the shares underlying the warrants are
      subject to an effective registration statement at the time of exercise and
      no
      event of default under the Debentures has occurred.





All
      the
      amendments agreed to on February 2, 2007 and described above were conditioned
      upon the closing of a successful financing by the Company which results in
      raising net proceeds to the Company of at least $4.5 million by June 2, 2007
      (the “Financing”).





On
      April
      11, 2007, the Company closed an equity financing meeting the conditions of
      the
      Financing required by Cornell under the Agreement. As a result, Cornell waived
      all known defaults of the Company that existed as of April 11, 2007 and agreed
      to not accelerate the repayment of the Debentures, as amended, any time prior
      to
      December 11, 2007. In addition, all of the above described amendments became
      effective as of April 11, 2007.





On
      April
      18, 2007, the Company entered into a sublease agreement with Sling Media for
      a
      sublease of office space at 901 Mariners Island Boulevard, San Mateo,
      California. The office space of approximately 7,000 square feet will be used
      as
      the Company’s headquarters. The Company will pay a monthly rent of $13,790. The
      sublease term ends on May 26, 2008.





**Item
      2. Management’s Discussion and Analysis**





The
      following discussion and analysis of financial condition and results of
      operations should be read in conjunction with our financial statements and
      related notes included elsewhere in this report. This discussion contains
      forward-looking statements that involve risks, uncertainties and assumptions.
      Our actual results could differ materially from those anticipated in the
      forward-looking statements as a result of various factors including those
      discussed in the section entitled "Forward Looking Statements" elsewhere in
      this
      report.




The
      auditor for Wherify
      Wireless, Inc. (“Wherify” or the “Company”) has
      included a going concern paragraph in the audit reports for the fiscal years
      ended June 30, 2006 and 2005, and has reported that the Company has suffered
      net
      operating losses in the past two fiscal years and has a significant working
      capital deficit that raises substantial doubt about the Company's ability to
      continue as a going concern.





**Critical
      Accounting Policies and Estimates**





The
      Company’s financial statements are prepared in accordance with accounting
      principles generally accepted in the United States. The preparation of these
      financial statements requires management to make certain estimates, judgments
      and assumptions that it believes are reasonable based upon the information
      available. These estimates and assumptions 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 periods presented. Actual results may differ
      from these estimates under different assumptions or conditions. The significant
      accounting policies which management believes are the most critical to aid
      in
      fully understanding and evaluating the Company’s reported financial results
      include the following:





*Revenue
      Recognition*




Wherify
      adopted revenue recognition policies to comply fully with the guidance in Staff
      Accounting Bulletin (“SAB”) No. 104, *Revenue
      Recognition* ,
      SAB
      Topic 13, *Revenue
      Recognition* ,
      FASB’s
      Emerging Issues Task Force (“EITF”) Issue 00-21, *Revenue
      Arrangements with Multiple Deliverables* ,
      and
      AICPA Statement of Position (“SOP”) 97-2, *Software
      Revenue Recognition* .
      Revenue
      is recognized when persuasive evidence of an arrangement exists, the delivery
      and acceptance of the equipment has occurred or services have been rendered,
      the
      price is fixed or determinable, and the collectibility of payment is reasonably
      assured. The application of this guidance requires management to exercise
      judgment in evaluating these factors in light of the terms and conditions of
      its
      customer contracts and other existing facts and circumstances to determine
      appropriate revenue recognition. Application of SOP 97-2 requires determining
      whether a software arrangement includes multiple elements, and if so, whether
      vendor-specific objective evidence (VSOE) of fair value exists for those
      elements. Changes to the elements in a software arrangement, the ability to
      identify VSOE for those elements, the fair value of the respective elements,
      and
      changes in a product’s estimated life cycle, could materially impact the amount
      of earned and unearned revenue. Judgment is also required to assess whether
      future releases of certain software represent new products or upgrades and
      enhancements to existing products. Application of EITF 00-21 requires
      determining whether a revenue arrangement includes multiple revenue-generating
      activities, such as product sale and services, and if so whether allocation
      of
      the arrangement’s consideration is required to more than one unit of
      accounting.




11




Wherify
      has two types of revenue: hardware revenue and subscription revenue, and
      consists of shipped customer orders and completed services. Hardware revenue
      is
      recognized at the later of shipment date or upon satisfying contractual
      requirements or obligations under the sales contract, whichever is later.
      Subscription revenue is recognized at completion of performance. Prior to
      September 2006, the Company recognized revenues primarily from the sale of
      FACES software and subscriptions. Starting in September 2006 recognized revenues
      are primarily from the sale of wireless location devices and services. Revenues
      are also offset with a reserve for any price refunds and consumer rebates
      consistent with the EITF Issue 01-09, *Accounting
      for Consideration Given by a Vendor to a Customer* ,
      as
      appropriate.





Hardware
      sales currently consist principally of revenues from the sale of GPS-enabled
      wireless location devices, primarily Wherifone handsets plus accessories to
      new
      subscribers and to agents and other third-party distributors. The revenue and
      related expenses associated with the sale of wireless handsets and accessories
      through our indirect sales channels are recognized when the products are
      delivered and accepted by the agent or third-party distributor, as this is
      considered to be a separate earnings process from the sale of wireless services
      and the probability of collection is likely. Shipping and handling costs for
      wireless handsets sold to agents and other third-party distributors are
      classified as costs of equipment sales.





S ubscription
      revenues are earned by providing access to Wherify’s wireless GPS-enabled
      location services network (activation revenue) and for usage of its wireless
      telecommunications system including enhanced GPS-enabled locates (airtime
      revenue). Activation revenue from postpaid subscribers is billed either in
      advance or arrears and recognized ratably over the service period. Airtime
      revenue, including locates, call time, roaming revenue and long-distance
      revenue, is billed in arrears based on minutes of use and is recognized when
      the
      service is rendered. Prepaid airtime sold to subscribers and revenue collected
      from pay-in-advance subscribers is recorded as deferred revenue prior to the
      commencement of services, and revenue is recognized when airtime is used or
      expires. Activation and airtime services provided are billed throughout the
      month according to the bill cycle in which a particular subscriber is placed.
      As
      a result of bill cycle cut-off times, the Company is required to make estimates
      for service revenues earned but not yet billed at the end of each month, and
      for
      advanced billings. Estimates for activation revenues are based upon the most
      current bill cycle revenues. Estimates for airtime revenues are based upon
      historical minutes of use.





The
      Company launched its North American wireless location services in October 2006.
      The Company’s North American subscribers’ rate plan include a feature whereby a
      subscriber’s monthly usage is automatically charged at the most advantageous
      rate plan then in effect for the minutes used. For prepaid plans, the Company
      defers revenue based on an estimate of the portion of unused minutes expected
      to
      be utilized prior to expiration. As the Company lacks historical subscriber
      usage patterns for its specialized services, the Company must apply judgment
      to
      estimate the number of unused minutes to be utilized, as well as those which
      are
      likely to expire or be forfeited. No deferral of revenue is recorded for the
      minutes expected to expire or be forfeited, as no future performance is expected
      to be required by the Company, nor is there any obligation to refund or redeem
      for value the expired minutes. The balance of the deferred phone sales and
      activation fees as of March 31, 2007 and June 30, 2006 was $193,114 and $0,
      respectively, and has been included in deferred revenue in the consolidated
      balance sheets. When available, revenues for enhanced services and optional
      features would be recognized as earned. Service revenues also include billings
      to our subscribers for Universal Service Fund (USF) and other regulatory
      fees.





The
      Company has determined that the sale of wireless services through its direct
      sales channels with an accompanying handset constitutes a revenue arrangement
      with multiple deliverables in accordance with EITF No. 00-21, *Accounting
      for Revenue Arrangements with Multiple Deliverables.* The
      Company accounts for these arrangements as separate units of accounting,
      including the wireless service and handset. Arrangement consideration received
      for the handset is recognized as equipment sales when the handset is delivered
      and accepted by the subscriber. Arrangement consideration received for the
      wireless service is recognized as service revenues when earned. As the
      non-refundable, up-front activation fee charged to the subscriber does not
      meet
      the criteria as a separate unit of accounting, the Company allocates the
      additional arrangement consideration received from the activation fee to the
      handset (the delivered item) to the extent that the aggregate handset and
      activation fee proceeds do not exceed the fair value of the handset. Any
      activation fees not allocated to the handset would be deferred upon activation
      and recognized as service revenue on a straight-line basis over the expected
      customer relationship period. The Company determined that the sale of wireless
      services through its indirect sales channels (agents) does not constitute a
      revenue arrangement with multiple deliverables. For indirect channel sales,
      the
      Company continues to defer non-refundable, up-front activation fees and
      associated costs to the extent of the related revenues in accordance with
      SAB No. 104, *Revenue
      Recognition* .
      These
      deferred fees and costs are amortized on a straight-line basis over the
      estimated customer relationship period, presumably the contract period.




12




Due
      to
      our limited commercial sales history, our ability to evaluate the collectibility
      of customer accounts requires significant judgment. The Company evaluates its
      equipment customer and service customer accounts for collectibility at the
      date
      of sale and on an ongoing basis.





*Cost
      of Revenues*





Wherify's
      cost of revenues currently consists of actual manufacturing costs.




*Research
      and Development Expense*





Research
      and development expense consists primarily of salaries and related personnel
      expense and expenses related to the design, development, testing and enhancement
      of products. Currently we are focusing attention on further development of
      our
      Wherifone TM and
      WheriFind TM products.





*General
      and Administrative Expense*





General
      and administrative expense includes general administrative, sales and marketing
      expenses. General administrative expense consists primarily of salaries and
      related expenses for executive, finance, accounting, information technology,
      facilities, and human resources personnel. Sales and marketing expenses consist
      primarily of salaries, commissions and related expenses for personnel engaged
      in
      marketing, sales and customer support, as well as costs associated with
      promotional activities and related travel expenses.




**1.**  **Introduction**




Wherify
      is a pioneering developer of patented wireless location products and services
      for family safety and communications, and law enforcement and security
      technology solutions. Our portfolio of intellectual property includes our
      proprietary integration of the US Government’s Global Positioning System (GPS)
      and wireless communication technologies; our patented back-end location service;
      the WherifoneTM GPS locator phone which provides real-time location information
      and lets families with pre-teens, seniors, or those with special medical needs,
      stay connected and in contact with each other; and our FACESTM industry-leading
      facial composite technology, which is currently being used by thousands of
      public safety agencies worldwide. Our name, Wherify Wireless, reflects our
      mission and objective: verify the location of loved ones or possessions of
      value
      through wireless technology.




**2.**  **Future
      Business and Operations**




We
      anticipate that our principal business activity on an ongoing basis will consist
      primarily of the development and sale of enhanced GPS-enabled wireless location
      products and services. The former business of Wherify, consisting primarily
      of
      the sale of security software and services, including facial composite software,
      to law enforcement agencies and the security industry, is not expected to
      constitute a significant part of the ongoing business operations of the combined
      company. Accordingly, historical financial information relating to the former
      business of Wherify is expected to have only minimal significance to the future
      business of the Company.





**3.**  **Liquidity
      and Capital Resources**





We
      have
      incurred operating losses from continuing operations of approximately $11.2
      million during the nine months ended March 31, 2007 and $73.1 million during
      the
      nine months ended March 31, 2006. For the nine months ended March 31, 2007
      net
      losses from continuing operations were approximately $15.2 million and
      approximately $78.1 million during the comparable nine months ended March 31,
      2006. Net cash used for operating activities during the nine months ended March
      31, 2007 was approximately $7.2 million and approximately $8.4 million was
      used
      during the comparable nine months ended March 31, 2006. We have an accumulated
      deficit of approximately $151.8 million as of March 31, 2007. These conditions,
      among others, raise questions about our ability to fund our cash requirements
      from operations in the future or to continue operations as a
      going-concern.




13




As
      of
      March 31, 2007, Wherify had cash and cash equivalents of approximately $36
      thousand, restricted certificates of deposit of approximately $9 thousand,
      which
      are being utilized as collateral to support our obligations under a letter
      of
      credit related to our contract manufacturer, trade accounts receivable of
      approximately $0.3 million, inventory of approximately $2.3 million, other
      current assets of approximately $0.4 million, current liabilities of
      approximately $15.8 million (excluding the non-cash portion of fair value of
      derivatives of approximately $5.2 million and approximately $3.1 million in
      past
      due rent obligations to our former landlord) and deferred revenue of
      approximately $0.2 million. Wherify also has a liability related to the
      non-current payable portion of the convertible debenture of approximately $2.5
      million. The
      net
      decrease in cash and cash equivalents during the nine months ended March 31,
      2007 is primarily due to net cash used in operating activities of approximately
      $7.2 million, partly offset by receiving proceeds of approximately $4.0 million
      from the issuance of common shares, proceeds from convertible note payable
      of
      $1.2 million, plus the use of restricted certificates of deposit of
      approximately $1.3 million. Our average net cash used in operations during
      the
      nine months ended March 31, 2007 was approximately $0.8 million per month as
      compared to approximately $0.9 million per month in the prior year
      period.





***Prior
      Financing and Status***





We
      have
      financed our operations through private borrowings and private offerings of
      securities, including debt.





*Private
      borrowings*





On
      February 22, 2006, we borrowed $1.0 million from Stephen J. Luczo and issued
      to
      Mr. Luczo a promissory note that is repayable on demand at any time after August
      22, 2006. On June 16, 2006 Wherify borrowed an additional $1.0 million from
      Stephen J. Luczo and issued Mr. Luczo a promissory note that is repayable on
      September 16, 2006 or at such earlier date as Wherify completes a financing,
      and
      which repayment date has been extended by both parties.





On
      January 5, 2007, Wherify borrowed $100,000 from Timothy J. Neher, a director
      of
      Wherify, and issued to Mr. Neher a promissory note pursuant to which we agreed
      to pay principal plus any lending costs incurred by Mr. Neher in making such
      a
      loan, and if not repaid within 20 days to pay interest on the outstanding amount
      at a rate of 7.5% per annum, and to repay the outstanding amount and any accrued
      and unpaid interest on demand. These debt obligation has been
      repaid.





On
      January 22, 2007, Wherify Wireless, Inc. we borrowed $58,000, $29,000 and
      $29,000 from Timothy J. Neher, Wade Fenn, and W. Douglas Hajjar, each a director
      of Wherify respectively and issued to Messrs. Neher, Fenn and Hajjar promissory
      notes pursuant to which we agreed to pay their principal plus any lending costs
      incurred in connection with making these loans and, if not repaid within 20
      days, to pay interest on the outstanding amount at a rate of 7.5% per annum,
      and
      to repay the outstanding amount and any accrued and unpaid interest on demand.
      These debt obligations have been repaid.





On
      March
      16, 2007, we borrowed $35,000 from W. Douglas Hajjar, a Director of Wherify,
      and
      $10,000 from each of Wade Fenn, Dr. Neil Morris, and Daniel McKelvey, each
      a
      director of Wherify, and issued to Messrs. Hajjar, Fenn, Morris, and McKelvey
      promissory notes pursuant to which we agreed to pay their principal plus any
      lending costs incurred in connection with making such loans to Wherify, and,
      if
      not repaid within 20 days, to pay interest on the outstanding amount at a rate
      of 7.5% per annum, and to repay the outstanding amount and any accrued and
      unpaid interest on demand. These debt obligations have been repaid.




14




On
      March
      30, 2007, Wherify borrowed $100,000 from W. Douglas Hajjar and $10,000 from
      Wade
      Fenn, both directors of Wherify. Also, as previously agreed to on March 30,
      2007, on April 2, 2007 we borrowed $20,000 from each of Dr. Neil Morris and
      Daniel McKelvey, both directors of Wherify. In return, Wherify issued to Messrs.
      Hajjar, Fenn, Morris, and McKelvey promissory notes pursuant to which Wherify
      agreed to pay their principal plus any lending costs incurred in connection
      with
      making such loans to Wherify, and, if not repaid within 20 days, to pay interest
      on the outstanding amount at a rate of 7.5% per annum, and to repay the
      outstanding amount and any accrued and unpaid interest on demand. These debt
      obligations have been repaid. In connection with the issuance of the promissory
      notes described above, on March 30, 2007 Wherify’s Board of Directors approved
      the issuance of warrants to purchase Wherify’s common stock to the following
      Directors, in the following amounts: (i) Douglas Hajjar, warrant to purchase
      500,000 shares of Common Stock, (ii) Dr. Neil Morris and Daniel McKelvey, each
      a
      warrant to purchase 100,000 shares of Common Stock, (iii) Wade Fenn, a warrant
      to purchase 50,000 shares of Common Stock. The Warrants will have a term of
      five
      years and an exercise price of $0.20.




*Direct
      offering closed*





On
      March 15, 2006, we filed a registration statement with the Securities and
      Exchange Commission (File No. 333-132461) to register 16.8 million shares
      of our common stock to be sold by us in a direct offering, on July 18, 2006
      we
      were notified that this direct offering was effective, and on November 2, 2006
      we announced that the direct offering was closed and that approximately 16.6
      million shares had been sold raising approximately $4.2 million.





*Terminated
      offering of debentures, warrants, and standby equity financing*





Between
      March 10, 2006 and March 14, 2006, we received a total of $4.6 million (after
      deduction of fees) from the issuance of convertible debentures and warrants
      to
      Cornell Capital Partners. Also, on March 10, 2006 we entered into a standby
      equity line financing that enabled us to periodically issue and sell to Cornell
      Capital Partners shares of common stock up to a total purchase price of $40
      million for a period of two years after a registration statement became
      effective governing the resale of the shares. On June 5, 2006 we filed a
      registration statement with the Securities and Exchange Commission (File
      No. 333--134718) to register 9,023,201 shares of our common stock,
      including shares underlying the convertible debentures and warrant and up to
      2,200,000 shares issuable under the standby equity line financing.





On
      November 1, 2006 we entered into an agreement that allowed for the complete
      buy-out of the debenture obligation to Cornell Capital Partners and the
      cancellation of all but 5 million warrants under these agreements if the buy-out
      terms were completed by January 31, 2007, as amended. On February 2, 2007 we
      announced a revision to the November 1, 2006 Cornell Capital Partners agreement
      wherein certain amendments extending and modifying the terms of the convertible
      debentures, including the cancellation of all but 7 million warrants, were
      made
      contingent on the Company closing on new financing of at least $4.5 million
      within 120 days of February 2, 2007. On April 11, 2007, we closed the equity
      financing described below meeting the conditions of the financing required
      by
      the Cornell Capital Partners February 2, 2007 revised agreement. As a result,
      Cornell Capital Partners waived all known defaults that existed as of April
      11,
      2007 and agreed to not accelerate the repayment of the convertible debentures,
      as amended, any time prior to December 11, 2007.





As
      revised and presently structured, the convertible debentures now have a maturity
      date of February 1, 2009 at an interest rate of 8% payable monthly in arrears
      beginning October 2, 2007. When due, the interest may be paid in cash or
      capitalized and added to the principal amount of the amended debenture at our
      option. We also are required to make monthly amortization payments under the
      debentures in the principal amount of $200,000 per month beginning October
      2,
      2007. The conversion price of the debentures now is fixed at $0.25 with certain
      anti-dilution provisions, however Cornell Capital Partners will not convert
      any
      portion of the debenture into an excess of 800,000 shares of common stock in
      any
      month unless at any time during that month our stock price is greater than
      $0.35
      per share. We may make early redemptions of the amended debentures at any time
      and without any additional penalty or premium provided that we provide Cornell
      Capital Partners with advance notice, waive the 8000,000 share conversion
      restriction set forth above, and raise the conversion cap from 4.99% to
      9.99%.





On
      November 8, 2006, we terminated the public offering and withdrew the
      registration statement governing the shares held by Cornell Capital Partners
      underlying the convertible debentures, warrants, and related standby equity
      line
      financing.




15




*Offering
      of convertible note, option, and convertible preferred stock*





On
      February 22, 2007, Wherify entered into a private placement and sold $1,200,000
      aggregate principal amount of a 10% Senior Convertible Promissory Note (the
      “Note”) pursuant to the terms of a concurrently dated Securities Purchase and
      Option Agreement (the “Agreement”) among Wherify and a private entity (the
“Purchaser”). The Note is due on February 15, 2008, or earlier in the event by
      Wherify of a merger, business combination, or sale of substantially all its
      assets. The Note is convertible into common stock at $0.10 per share, or into
      certain preferred stock in connection with the option described below. In
      connection with the sale of the Note, Wherify issued a five year warrant (the
      “Warrant”) to purchase Three Million (3,000,000) shares of common stock at an
      exercise price of $0.10 per share. Also under the terms of the Agreement,
      Wherify granted the placement agent a five year warrant to purchase Three
      Million (3,000,000) shares of common stock at an exercise price of $0.10 per
      share. Taking into account the placement agent commission of $120,000 and other
      placement expenses, Wherify received net cash proceeds of approximately
      $1,000.000. Wherify has and will continue to use the proceeds for general
      working capital purposes and to retire outstanding debt obligations.





Further
      under the Agreement, Wherify issued to the Purchaser an option (the “Option”) to
      purchase an aggregate up to $7,500,000 stated value of Series A Convertible
      Preferred Stock (the “Preferred Stock”). The Option was exercisable at a 20%
      discount price to the face amount of the Preferred Stock by either full or
      partial exercise. Specifically, the Purchaser was able to exercise the Option
      in
      full by delivering to Wherify $6,000,000 gross cash proceeds less any amount
      of
      the Note the Purchaser elected to exchange. Alternatively, the Purchaser was
      able to exercise the Option in part by delivering to Wherify at least $4,500,000
      gross cash proceeds plus any amount of the Note the Purchaser elects to exchange
      at a ratio of $1.25 principal amount of the Preferred Stock for every $1.00
      of
      Notes exchanged. The Option was scheduled to expire June 2, 2007.





On
      April
      11, 2007 the Purchaser partially exercised the Option by delivering $4,585,600
      to Wherify in exchange for 5,732 shares of Preferred Stock. Taking into account
      the placement agent commission of $459,000.00 and other placement expenses,
      Wherify received net cash proceeds of approximately $4,000,000. Wherify
      has and will continue to use the proceeds for general working capital purposes
      and to retire outstanding debt obligations.





Subsequently,
      on April 18, 2007, the Purchaser exercised the remainder of the Option by
      delivering $1,414,400 to Wherify in exchange for 1,768 shares of Preferred
      Stock. Taking into account the placement agent commission of $141,440 and other
      placement expenses, Wherify received net cas h
      proceeds of approximately $1,270,000. Wherify has and will continue to use
      the
      proceeds for general working capital purposes and to retire outstanding debt
      obligations.





The
      Preferred Stock issued as a result of the exercise of the Option possesses
      both
      an optional and mandatory conversion feature which converts Preferred Stock
      into
      a number of shares of common stock determined by dividing the Face Amount of
      the
      Preferred Stock by $0.125. The conversion price of the Preferred Stock is
      subject to adjustment in routine circumstances.





The
      holders of the Preferred Stock are entitled to receive cumulative quarterly
      dividends at the rate of ten percent (10%) payable in cash or in Preferred
      Stock
      on each outstanding share of the Preferred Stock. The Preferred Stock has voting
      rights on a converted basis of one vote per conversion share.





***Current
      and Future Outlook***





Wherify
      currently does not have any credit facility available to it. Wherify has
      financed its operations to date primarily through the issuance of an aggregate
      of approximately 72 million shares of common stock and convertible debentures.
      There are “going concern” paragraphs in Wherify’s auditor’s reports for the
      fiscal years ended June 30, 2006 and 2005. We continue in the process of
      locating financing sources to meet our financing needs and to provide us greater
      flexibility and certainty with respect to our financing needs. Adequate funds
      may not be available on terms acceptable to us. If additional funds are raised
      through the issuance of equity securities, dilution to existing stockholders
      may
      result. If funding is insufficient at any time in the future, we may be unable
      to produce, develop, market or enhance our products or services, take advantage
      of business opportunities or respond to competitive pressures, any of which
      could have a material adverse effect on our financial position, results of
      operations and cash flows, or we may be unable to continue operations. We have
      no capital leases or material commitments for capital expenditures and there
      are
      no anticipated capital leases or material capital expenditures that are
      reasonably expected to have a material impact on us. As of February 6, 2007,
      we
      were eight months in arrears with our rent payments to our current landlord,
      and
      on January 5, 2007, the landlord filed an Entry of Stipulation and Agreement
      against Wherify Wireless, Inc, a California Corporation. The complaint sought
      a
      judgment for possession of certain leased premises occupied by Wherify
      California as its principal offices in favor of the landlord, approximately
      $1.4
      million in then outstanding amounts due and owing under the terms of the lease,
      and certain other amounts deemed owed. Wherify California answered the
      landlord’s complaint on January 17, 2007 by vacating from the leased premises.
      The Company has accrued an amount of approximately $1.1 million pending
      resolution of this matter and has paid $0.3 million in rent. On April 18, 2007,
      the Company entered into a sublease agreement with Sling Media for a sublease
      of
      office space at 901 Mariners Island Boulevard, San Mateo, California. The office
      space of approximately 7,000 square feet will be used as the Company’s
      headquarters. The Company will pay a monthly rent of $13,790. The sublease
      term
      ends on May 26, 2008.




16




We
      expect
      operating losses and negative operating cash flows to continue for at least
      the
      next nine-to-twelve months on the assumption that we continue on our business
      plan to successfully launch our Wherifone TM and
      WheriFind TM products
      in both North America and internationally during 2007. We launched
      Wherifone TM retail
      sales in North America with Toys R Us nationwide in all 660 Toys R Us retail
      locations on October 1, 2006 and with Sharper Image retail locations on March
      15, 2007. Dates for launch of our Wherifone TM product
      in the various markets are contingent on a number of factors, including
      establishing a distribution agreement in that country or territory with a
      qualified distributor, signing-up a carrier to support the subsequent
      subscribers using our patented GPS-enabled locator services, arranging to
      produce adequate numbers of Wherifone TM products
      through our contract manufacturer, and the market’s general acceptance of our
      Wherifone TM product
      in a highly competitive and evolving marketplace for GPS-enabled locator
      services, including through cell phone-like devices. During this time leading
      up
      to new product launches we expect our operating costs to increase because of
      expected new product launch expenses not previously incurred that are related
      to
      new product brand development, marketing and other promotional activities;
      targeted increases in personnel to support our critical new product launch
      activities; the expansion of our billing and collections infrastructure and
      customer support services concurrent with our growth in new product sales and
      subscriber sign-ups; strategic relationship development with our distributors
      and resellers; and the working capital requirements needed to initially fill
      our
      Wherifone TM product
      pipeline from our contract manufacturer to our final customers. We announced
      our
      new WheriFind TM  asset
      location device at the January 2007 Consumer Electronics Show in Las Vegas,
      and
      are currently pursuing various global opportunities to market this product
      and
      service.





As
      of May
      2, 2007, Wherify had cash and cash equivalents of approximately $3.9 million
      and
      restricted certificates of deposit of approximately $9 thousand. We are
      currently operating at modest levels until new financing can be obtained, as
      the
      financing received is not adequate to fund our business plan for the following
      twelve months and to self-sufficiency from ongoing operating cash
      flow.





Even
      with
      successfully raising new financing, our expected capital resources will not
      be
      sufficient to fund our planned operations during the upcoming twelve month
      period. We intend to fund our future operations with a combination of public
      and
      private offerings of common stock and proceeds from operations. Further, during
      the first quarter of calendar 2007 product sales have begun to provide cash,
      and
      the subscriber services have also started to contribute to our ongoing funding
      requirements. Neither product sales nor subscriber services are expected to
      make
      significant contributions to our funding requirements until early calendar
      2008.
      As a result we are dependent on successfully closing new financing immediately
      to continue our operations, and in the meantime we are carefully controlling
      our
      spending. We anticipate that to reach profitability will require at least one
      additional public funding round beyond our immediate new financing efforts.
      As
      part of our Wherifone TM product
      launch plan, as commenced in North America on October 1, 2006, we are managing
      company funds that specifically allocates resources to those activities that
      in
      the judgment of management best support the success of our product and services
      launches in North America and internationally. There is no assurance that our
      Wherify product and services will launch as expected over the next twelve
      months, or if launched that they will achieve the market success we have
      targeted. We anticipate that the amount of funding necessary for the company
      to
      implement our business plan during the next twelve-month period is expected
      to
      range from between $16 million to $21 million, and based on our projected cash
      used in operations of approximately $0.8 million per month, comprised of human
      resources costs of approximately $0.3 million per month, occupancy costs of
      approximately $30 thousand per month, monthly payments on debentures of
      approximately $0.2 million to recommence in December 2007, payment plans
      requirements on our outstanding accounts payables ranging between $0.1 million
      to $0.2 million per month, plus our expected growth in spending to support
      our
      critical new product launch activities, our billings and collections
      infrastructure and customer support services requirements over the next six
      to
      twelve months of approximately $0.1 to $0.3 million per month once initiated,
      and one time costs to catch up on past due rent and other asserted obligations
      of approximately $1.1 million, cash outlays to fund our contract manufacturing
      pipeline of between $3.0 million to $4.5 million, costs associated with the
      purchase of manufactured product from our contract manufacturer, and cash
      outlays to address the costs of new product launches of approximately $0.9
      million including brand development, promotional activities, advertising and
      marketing costs. Concurrent with our ongoing North American product launches
      we
      expect to maintain our customer services support and technical infrastructure
      that supports our GPS-enabled location service centers, which could add up
      to
      another $0.2 million per month of costs over time.




17




We
      believe the above listed costs expected to be incurred during that period will
      help us to build the infrastructure necessary to initiate and increase revenues
      both through organic growth and later through possible acquisitions, which
      we
      believe hold the key to our future long-term revenue growth opportunities.
      We
      believe it will take additional products, either created in-house or acquired
      through acquisitions, to help us increase revenue, and ultimately to reach
      profitability, such as our recently announced WheriFind TM product
      line. However, we can make no assurances that these activities will achieve
      the
      desired results of increased revenues, or that any increase in revenues will
      be
      enough to bring Wherify to profitability and positive cash flow.




Management
      is currently working to achieve financing to address our current financial
      difficulties. Management recognizes the need for additional funding beyond
      the
      immediate efforts to achieve new financing and will be taking those steps to
      prepare for future public and private financing rounds as soon as practical
      with
      the services of an investment banker. Adequate funds may not be available,
      and
      if available may not be available on terms acceptable to us. If additional
      funds
      are raised through the issuance of equity securities, dilution to existing
      stockholders may result. If funding continues to be insufficient we may be
      unable to successfully launch our Wherifone TM or
      WheriFind TM products
      and subscriber services in the North American or international markets, develop
      or enhance our products or services, take advantage of business opportunities
      or
      respond to competitive pressures, or meet our current obligations, any of which
      could have a material adverse effect on our financial position, results of
      operations and cash flows. In the event that funding remains insufficient now
      or
      at any time in the future the company will be forced to take significant steps
      to curtail on-going spending, including but not limited to the elimination
      of
      some or all of our operations and any or all plans for expansion of
      operations.




Even
      with
      sufficient and timely financing, there can be no assurance that we will achieve
      profitability. Due to these factors, we believe that period-to-period
      comparisons of our results of operations are not necessarily a good indication
      of future performance. The results of' operations in some future periods may
      be
      below the expectations of analysts and investors.





**4.**  **General**




Wherify
      is a developer and provider of wireless location products and services. Its
      products and services are designed to be used for child safety, parental
      supervision, personal protection, Alzheimer and memory loss supervision, law
      enforcement, animal identification and location, and personal property tracking.
      The proprietary integration of communication technologies enables customers
      to
      obtain real-time location information for individuals and property directly
      through the internet or any phone.





**5.**  **Results
      of Operations for the Quarter Ended March 31, 2007**




Quarter
      ended March 31, 2007 compared to quarter ended March 31, 2006


Sales
        revenues for the quarter ended March 31, 2007 were $135,335 as compared to
        $25,181 of net revenues for the quarter ended March 31, 2006. The quarter
        ended
        March 31, 2007 included domestic Wherifone TM product
        sales and subscription services of $105,381 following our October 1, 2006
        launch
        of the Wherifone TM in North
        America, and $29,954 of ongoing sales related to the FACES products. Revenues
        in
        the quarter ended March 31, 2006 were primarily generated by the ongoing
        sales
        of FACES products.
 
 Operating
        expenses for the quarter ended March 31, 2007 were approximately $2.7 million
        as
        compared to approximately $2.6 million for the quarter
        ended March 31, 2006.


18


Research
        and development expenses increased by approximately $0.1 million from $0.2
        million in the quarter ended March 31, 2006 to $0.3 million in the quarter
        ended
        March 31, 2007. The lower costs in the prior year’s period are primarily due to
        a $0.3 million credit adjustment related to the manufacturing of the early
        prototype production of the GPS locator phones, partially offset by $0.2
        million
        lower salaries in the quarter ended March 31, 2007.
 
 General
        and administrative expenses, excluding rent, amortization and depreciation
        expenses, increased by approximately $0.3 million from approximately $1.9
        million in the quarter ended March 31, 2006 to approximately $2.2 million
        in the
        quarter ended March 31, 2007. The increase in these expenses is due primarily
        to
        higher marketing expenses related to the product launch of Wherifone TM.
 
 Amortization
        and depreciation expense decreased by approximately $0.1 million from the
        prior
        year period due to the write-off of intangibles during our fiscal 2006 fourth
        quarter.
 
 Other
        income and expense changed by approximately $6.4 million from the prior year
        period amount primarily due to the approximately $6.9 million credit due
        to the
        accounting affect of remeasurement of the change in fair value of the
        convertible debentures and warrants issued during March 2006, in accordance
        with
        SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. In
        addition, interest expense increased by approximately $0.5 million primarily
        due
        to interest expense charges related to the convertible debentures of $5.0
        million issued in March 2006 and to the notes payable of $2.0 million issued
        in
        February 2006 and June 2006.
 
 **6.**  **Results
        of Operations for the Nine Months Ended March 31, 2007**
  Nine
        months ended March 31, 2007 compared to the Nine months ended March 31,
        2006
 
 Sales
        revenue for the nine months ended March 31, 2007 were $644,115 as compared
        to
        $125,180 of sales revenue for the nine months ended March 31, 2006. The nine
        months ended March 31, 2007 included domestic and international
        Wherifone TM product
        sales and subscription services of $513,375 including our October 1, 2006
        launch
        of the Wherifone TM in North
        America, and $130,740 of ongoing sales related to the FACES products. Revenues
        in the nine months ended March 31, 2006 were primarily generated by the ongoing
        sales of FACES products.
 
 Operating
        expenses for the nine months ended March 31, 2007 were approximately $11.8
        million as compared to approximately $73.2 million for the nine months ended
        March 31, 2006. The decrease in expenses is primarily due to an approximately
        $64.3 million goodwill impairment, partially offset by an approximately $2.9
        million increase in general and administrative expenses in the nine months
        ended
        March 31, 2007.
 
 Research
        and development expenses increased by approximately $0.1 million during the
        nine
        months ended March 31, 2007 from $0.9 million in the nine months ended March
        31,
        2006. The increase in expenses is due primarily to the product launch of
        Wherifone TM .
 
 General
        and administrative expenses, excluding rent, amortization and depreciation
        expenses, increased by approximately $2.9 million from approximately $6.3
        million in the nine months ended March 31, 2006 to approximately $9.2 million
        in
        the nine months ended March 31, 2007. The increase in these expenses is due
        primarily to approximately $1.3 of inventory adjustment, $0.4 million stock
        option non-cash expense related to the implementation of SFAS 123R,
        approximately $0.6 million write-off of capitalized legal and audit costs
        related to the SEDA financing, approximately $0.4 million of implementation
        cost
        for the new billing system and customer service management, approximately
        $1.2
        million of higher salaries expense, marketing and government filings expenses
        related to the product launch of Wherifone TM ,
        partially offset by approximately $1.0 million in lower legal fees that were
        associated with the merger in the quarter ended September 30, 2005.
 
 Amortization
        and depreciation expense decreased by approximately $0.4 million from the
        prior
        year period due to the write-off of intangibles during our fiscal 2006 fourth
        quarter.
 
 Other
        income and expense changed by approximately $1.0 million from the prior year
        period amount primarily due to a decrease of approximately $2.5 million charge
        due to the accounting affect of remeasurement of the change in fair value
        of the
        convertible debentures and warrants issued during March 2006, in accordance
        with
        SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. In
        addition, interest expense increased by approximately $1.5 million primarily
        due
        to interest expense charges related to the secured debentures of $5.0 million
        issued in March 2006 and to the notes payable of $2.0 million issued in February
        and June 2006.


19


**New
      Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value
      Measurements.” This Statement defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles, and expands
      disclosures about fair value measurements. This Statement applies under other
      accounting pronouncements that require or permit fair value measurements, the
      FASB having previously concluded in those accounting pronouncements that fair
      value is the relevant measurement attribute. Accordingly, this Statement does
      not require any new fair value measurements. This Statement is effective for
      financial statements issued for fiscal years beginning after November 15,
      2007 and interim periods within those fiscal years. The Company does not expect
      the adoption of SFAS No. 157 in fiscal 2009 to have a material impact on
      its results of operations or financial position.





In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin (“SAB”) No. 108 regarding the process of quantifying
      financial statement misstatements. SAB No. 108 states that registrants
      should use both a balance sheet approach and an income statement approach when
      quantifying and evaluating materiality of a misstatement. The interpretations
      in
      SAB No. 108 contain guidance on correcting errors under the dual approach
      as well as provide transition guidance for correcting errors. This
      interpretation does not change the requirements within SFAS No. 154 for the
      correction of an error in financial statements. SAB No. 108 is effective for
      annual financial statements covering the first fiscal year ending after
      November 15, 2006. The Company will be required to adopt this
      interpretation for its fiscal year ending 2007.





**FORWARD
      LOOKING STATEMENTS**




In
      addition to historical information, this report contains predictions, estimates
      and other forward-looking statements that relate to future events or our future
      financial performance. These statements involve known and unknown risks,
      uncertainties and other factors that may cause our actual results, levels of
      activity, performance or achievements to be materially different from any future
      results, levels of activity, performance or achievements expressed or implied
      by
      the forward-looking statements. These risks and other factors include those
      listed under "Risk Factors" and elsewhere in this Form 10-QSB, and some of
      which
      we may not know. In some cases, you can identify forward-looking statements
      by
      terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
      "believes," "estimates," "predicts," "potential," "continue" or the negative
      of
      these terms or other comparable terminology.





Forward-looking
      statements involve known and unknown risks, uncertainties and other factors
      that
      may cause our actual results, performance or achievements to be materially
      different from any future results, performances or achievements expressed or
      implied by the forward-looking statements. We discuss many of these risks in
      this report in greater detail under the heading "Risk Factors." Given these
      uncertainties, you should not place undue reliance on these forward-looking
      statements. Also, forward-looking statements represent our management's beliefs
      and assumptions only as of the date of this report. You should read this report
      and the documents that we reference in this report, completely and with the
      understanding that our actual future results may be materially different from
      what we expect.




Except
      as
      required by law, we assume no obligation to update these forward-looking
      statements publicly, or to update the reasons actual results could differ
      materially from those anticipated in these forward-looking statements, even
      if
      new information becomes available in the future.





**FACTORS
      AFFECTING FUTURE OPERATING RESULTS**





**Risks
      Related to Our Business**




20





***We
      Are The Product Of A Merger Of Two Development Stage Companies, Have Limited
      Revenues And Have A Limited Operating History On Which To Evaluate Our Potential
      For Future Success.***




On
      July
      21, 2005, we completed the merger with Wherify California. Wherify and Wherify
      California have only limited operating histories upon which you can evaluate
      our
      business and prospects. You must consider the risks and uncertainties frequently
      encountered by companies in situations such as ours, including but not limited
      to the ability to grow and prosper and finance such growth. If we are
      unsuccessful in addressing these risks and uncertainties, our business, results
      of operations and financial condition will be materially and adversely
      affected.




Wherify
      California was incorporated in March 1998 and began selling its initial product
      in May 2003. To date, sales of Wherify California’s products have been very
      limited. Wherify California’s limited operating experience in the wireless
      location-based services market makes it difficult to evaluate its business.
      Wherify California has never achieved profitability, and it may not achieve
      profitability in the future. The uncertainty of Wherify California’s ability to
      execute on its business plan and the uncertainties regarding the acceptance
      of
      its products or its competition increase the risk that the value of Wherify
      California may decline.




Prior
      to
      the merger with Wherify California, we had generated very limited revenues
      from
      the sale of our FACES software or any other products. Our limited revenue and
      limited operating history prior to the merger makes an evaluation of the
      prospects of our facial recognition software extremely difficult.




***We
      Currently Lack Liquidity and Have Limited Revenues and Both Wherify and Wherify
      California Had Going-Concern Qualifications in Their Most Recent Audit
      Reports***




As
      of
      March 31, 2007, Wherify had cash and cash equivalents of approximately $36
      thousand, restricted certificates of deposit of approximately $9 thousand,
      which
      are being utilized as collateral to support our obligations under a letter
      of
      credit related to our contract manufacturer, trade accounts receivable of
      approximately $0.3 million, inventory of approximately $2.3 million, other
      current assets of approximately $0.4 million, current liabilities of
      approximately $15.8 million (excluding the non-cash portion of fair value of
      derivatives of approximately $5.2 million and approximately $3.1 million in
      past
      due rent obligations to our former landlord) and deferred revenue of
      approximately $0.2 million. Wherify also has a liability related to the
      non-current payable portion of the convertible debenture of approximately $2.5
      million. As
      of May
      2, 2007, Wherify had cash and cash equivalents of approximately $3.9 million
      and
      restricted certificates of deposit of approximately $9 thousand. There is a
      going concern paragraph in Wherify’s audit reports for the respective fiscal
      years ended June 30, 2006 and 2005. Substantially all of our cash has been
      raised through capital raising transactions rather than operations. As we have
      limited revenues, we will need to raise additional working capital in the near
      future. There is no assurance that we will be able to raise additional working
      capital at all or on terms favorable to us. If we are unable to raise additional
      working capital, we will need to reduce our costs, which may require us to
      reduce operations, personnel and overhead, or discontinue
      operations.





***We
      Need To Raise Substantial Additional Capital, Which May Result In Substantial
      Dilution To Existing Stockholders.***




In
      order
      to manufacture, distribute and sell our products and to execute on our business
      plan, we need substantial additional capital. We are currently considering
      possible sources of this additional capital, including raising capital through
      the issuance of equity securities. Although the exact amount we intend to raise
      has not yet been determined, we are contemplating an amount expected to range
      from between $16 million to $21 million. There can be no assurance that we
      will
      be able to raise sufficient additional capital at all or on terms favorable
      to
      our stockholders or us. If we issue equity securities in order to raise
      additional capital in the amounts currently contemplated, the stockholders
      will
      experience immediate and substantial dilution in their ownership percentage
      of
      the combined company. In addition, to raise the capital we need, we may need
      to
      issue additional shares at a discount to the current market price. If the terms
      of such financing are unfavorable to us or our stockholders, the stockholders
      may experience substantial dilution in the net tangible book value of their
      stock. In addition, any new equity securities may have rights, preferences
      or
      privileges senior to those of existing holders of common stock. If we cannot
      raise funds on acceptable terms, we may not be able to develop or enhance our
      products, take advantage of future opportunities or respond to competitive
      pressures or unanticipated requirements all of which could have a material
      adverse effect on us.




21




***We
      Have Only Recently Begun Production of Our Wherifone*** ***TM*** ***Product and May Encounter Manufacturing Problems During the Production
      Process.***




Our
      Wherifone TM product
      is a new product and we have discontinued manufacturing all of our other
      products. The manufacture of our Wherifone TM product
      involves complex and precise processes, which we have subcontracted to another
      company. To date, we have just commenced mass production of this product and
      so
      we do not yet know whether we will encounter any serious problems during the
      production process in the long-term. Any significant problems in manufacturing,
      assembling or testing of this product could delay the roll-out of the
      Wherifone TM product
      and have an adverse impact on our business and prospects. The willingness of
      manufacturers to make the product or lack of availability of manufacturing
      capacity may have an adverse impact on our ability to go to market, and as
      a
      result we may not be able to grow our business as we expect, and our ability
      to
      compete could be harmed, adversely affecting our business and
      prospects.




***Our
      Software Products Are Complex And May Contain Unknown Defects That Could Result
      In Numerous Adverse Consequences.***




Complex
      software products such as those associated with our Wherifone TM product
      often contain latent errors or defects, particularly when first introduced,
      or
      when new versions or enhancements are released. We have experienced errors
      and
      defects in our most recent release of the software associated with our
      Wherifone TM product,
      but do not believe these errors will have a material negative effect on the
      functionality of the Wherifone TM product.
      However, there can be no assurance that, despite testing, additional defects
      and
      errors will not be found in the current version, or in any new versions or
      enhancements of this software, any of which could result in damage to our
      reputation, the loss of sales, a diversion of our product development resources,
      and/or a delay in market acceptance, and thereby materially adversely affecting
      our business, operating results and financial condition. Furthermore, there
      can
      be no assurance that our products will meet all of the expectations and demands
      of our customers. The failure of our products to perform to customer
      expectations could give rise to warranty claims. Any of these claims, even
      if
      not meritorious, could result in costly litigation or divert management’s
      attention and resources. Any product liability insurance that we may carry
      could
      be insufficient to protect us from all liability that may be imposed under
      any
      asserted claims.




***We
      Have Not Yet Signed a National U.S. Wireless Carrier for our
      Wherifone*** ***TM*** ***Product and the Terms of Any Such Agreement are Not Yet
      Known.***




We
      have
      not yet signed a definitive agreement with a national U.S. wireless carrier
      for
      our products. If we are unable to sign such an agreement on favorable terms,
      this could adversely impact our costs and our business and
      prospects.





***We
      Depend On Our Key Personnel To Manage Our Business Effectively In A Rapidly
      Changing Market. If We Are Unable To Retain Our Key Employees, Our Business,
      Financial Condition And Results Of Operations Could Be
      Harmed.***




Our
      future success depends to a significant degree on the skills, efforts and
      continued services of our executive officers and other key engineering,
      manufacturing, operations, sales, marketing and support personnel who have
      critical industry experience and relationships. If we were to lose the services
      of one or more of our key executive officers and senior management members,
      we
      may not be able to grow our business as we expect, and our ability to compete
      could be harmed, adversely affecting our business and prospects.




***Fluctuations
      In Our Business And Operating Results May Materially And Adversely Affect The
      Trading Price Of Our Common Stock.***




We
      expect
      that our operating results will fluctuate in the future due to a number of
      factors many of which are outside of our control. These factors include the
      following:




·
            Overall
                demand for our products;


·
            Our
                ability to attract new customers at a steady
                rate;




22




·
            The
                rate at which we or our competitors introduce new products, the rate
                at
                which these productsacquire
                market acceptance, and the cost required to develop these
                products;


·
            Technical
                defects in our products that could delay product shipments or increase
                the
                costs ofintroducing
                new products;


·
            Changes
                in the pricing of our products or those of our
                competitors;


·
            The
                amount and timing of capital expenditures and other costs relating
                to the
                expansion of our operations;


·
            Costs
                relating to our marketing programs and our business in general;
                and


·
            General
                economic conditions.




Any
      of
      the foregoing factors may cause our operating expenses to be disproportionately
      high or cause our revenue and operating results to fluctuate causing our
      business, financial condition and operating results to be adversely affected.
      In
      addition, to respond to changes in our competitive environment, we may
      occasionally make certain decisions from which we may benefit in the long run.
      However, in the short run, such decisions could materially and adversely affect
      our quarterly results of operations and financial condition. Due to all of
      the
      foregoing factors, in some future quarter our operating results may fall below
      our expectations and those of our stockholders. In such event, the trading
      price
      of our common stock could be materially adversely affected. Further, we believe
      that period-to-period comparisons of our financial results may not be very
      meaningful. Accordingly, you should not conclude that such comparisons indicate
      future performance.





***Our
      Markets Are Highly Competitive, And Our Failure To Compete Successfully Would
      Limit Our Ability To Sell Our Products, Attract And Retain Customers And Grow
      Our Business.***




Competition
      in the wireless location services market and the facial composite software
      market is intense. In addition, the adoption of new technology in the
      communications industry likely will intensify the competition for improved
      wireless location technologies. The wireless location services market has
      historically been dominated by large companies, such as Siemens AG and LoJack
      Corporation. In addition, a number of other companies such as Verizon, FireFly,
      Disney, Mattel, Digital Angel Corporation and WebTech Wireless Inc. have either
      announced plans for new products or have commenced selling products that are
      similar to our wireless location products, and new competitors are emerging
      to
      compete with Wherify’s wireless location services products. Due to the rapidly
      evolving markets in which we compete, additional competitors with significant
      market presence and financial resources may enter those markets, thereby further
      intensifying competition. All competitors in the wireless location services
      market rely on retail distributors to sell their products to consumers.
      Additional competitors in this market may limit the availability or interest
      of
      retail distributors to carry our wireless location services product and launch
      it into the market. These issues may have an adverse impact on our ability
      to go
      to market, and as a result we may not be able to grow our business as we expect,
      and our ability to compete could be harmed, adversely affecting our business
      and
      prospects.




***Our
      Wireless Location Product And Technology Are New And May Not Be Accepted In
      The
      Market.***




We
      have
      had only a limited release of one of our planned wireless locator products
      in
      the market. There can be no assurances that consumer demand will meet, or even
      approach, our expectations. In addition, our pricing and marketing strategies
      may not be successful. Lack of customer demand, a change in marketing strategy
      and changes to our pricing models could dramatically alter our financial
      results.




***Standards
      In Wireless Communications Industry Are In Flux, And If We Are Unable To Comply
      With These Industry Standards, Our Business Will Be
      Harmed.***




Standards
      in the wireless communications industry are evolving. The emergence and broad
      adoption of new industry standards could require us to redesign our products.
      If
      we are unable to design our products to comply with these new standards, our
      products would become obsolete and consumers would instead purchase other
      standard-compliant products. As a result, our business could be harmed, and
      our
      financial condition and results of operations could be adversely
      affected.




23




***Changes
      In The Government Regulation Of Our Wireless Location Product Or Wireless
      Carriers Could Harm Our Business.***




Our
      products, wireless carriers and other members of the communications industry
      are
      subject to domestic government regulation by the Federal Communications
      Commission (the FCC) and international regulatory bodies. These regulatory
      bodies could enact regulations which affect our products or the service
      providers which distribute our products, such as limiting the scope of the
      service providers’ market, capping fees for services provided by them or
      imposing communication technology standards which impact our
      products.





***If
      Our Wireless Locator Products Fail To Achieve Broad Market Acceptance, Our
      Business Results Will Be Harmed.***




We
      have
      recently begun selling our Wherifone wireless location products for use by
      direct purchase consumers or for resale by distributors. If Wherify’s products
      are not widely accepted by the market, our business results could be harmed.
      Factors that may affect the market acceptance of our location products include
      price, reliability, performance, technological innovation/enhancements, network
      coverage, ease of use, and availability.




If
      we
      fail to perform adequately on the basis of each of these factors versus
      competing products and technologies, our business results could be
      harmed.




***Our
      Ability To Compete Could Be Jeopardized And Our Business Seriously Compromised
      If We Are Unable To Protect Ourselves From Third-Party Challenges, The
      Development And Maintenance Of The Proprietary Aspects Of Wireless Location
      Products And Technology We Develop.***




Our
      products utilize a variety of proprietary rights that are critical to our
      competitive position. Because the technology and intellectual property
      associated with our wireless location products are evolving and rapidly
      changing, our current intellectual property rights may not adequately protect
      us
      in the future. We rely on a combination of patent, copyright, trademark and
      trade secret laws and contractual restrictions to protect the intellectual
      property utilized in our products. Despite our efforts to protect our
      proprietary rights, unauthorized parties may attempt to copy or otherwise obtain
      and use our products or technology. In addition, monitoring unauthorized use
      of
      our products is difficult and we cannot be certain the steps we have taken
      will
      prevent unauthorized use of our technology. Also, it is possible that no patents
      or trademarks will be issued from our currently pending or future patent or
      trademark applications. Because legal standards relating to the validity,
      enforceability and scope of protection of patent and intellectual property
      rights in new technologies are uncertain and still evolving, the future
      viability or value of our intellectual property rights is uncertain. Moreover,
      effective patent, trademark, copyright and trade secret protection may not
      be
      available in some countries in which we distribute or may anticipate
      distributing our products. Furthermore, our competitors may independently
      develop similar technologies that limit the value of our intellectual property
      or design around patents issued to Wherify. If competitors are able to use
      our
      technology, our competitive edge would be reduced or eliminated.




In
      addition, third parties may at some point claim certain aspects of our business
      infringe their intellectual property rights. While we are not currently subject
      to nor are we aware of any such claim, any future claim (with or
      without merit) could result in one or more of the following:





·
            Significant
                litigation costs;


·
            Diversion
                of resources, including the attention of
                management;


·
            Our
                agreement to pay certain royalty and/or licensing fees;
                and


·
            Cessation
                of our rights to use, market, or distribute such
                technology.





Any
      of
      these developments could materially and adversely affect our business, results
      of operations and financial condition. In the future, we may also need to file
      lawsuits to enforce our intellectual property rights, to protect our trade
      secrets, or to determine the validity and scope of the proprietary rights of
      others. Whether successful or unsuccessful, such litigation could result in
      substantial costs and diversion of resources. Such costs and diversion could
      materially and adversely affect our business, results of operations and
      financial condition.




24




***We
      Could Become Subject To Litigation Regarding Intellectual Property Rights,
      Which
      Could Seriously Harm Our Business And Require Us To Incur Significant
      Costs.***




In
      recent
      years, there has been significant litigation in the United States involving
      patents and other intellectual property rights. Any parties asserting that
      our
      products infringe upon their proprietary rights would force us to defend
      ourselves and possibly our customers or manufacturers against the alleged
      infringement. These claims and any resulting lawsuit, if successful, could
      subject us to significant liability for damages and invalidation of proprietary
      rights. These lawsuits, regardless of their merits, would likely be
      time-consuming and expensive to resolve and would divert management time and
      attention. Any potential intellectual property litigation also could force
      us to
      do one or more of the following:





·
            Stop
                selling, incorporating or using our products that use the challenged
                intellectual property;


·
            Obtain
                from the owner of the infringed intellectual property right a license
                to
                sell or use the relevant technology, which license may not be available
                on
                reasonable terms, or at all; or


·
            Redesign
                those products that use such
                technology.





If
      we are
      forced to take any of the foregoing actions, our business and prospects may
      be
      seriously harmed.




***We
      Currently Depend Upon One Manufacturer For Our Principal Product And If We
      Encounters Problems With This Manufacturer There Is No Assurance That We Could
      Obtain Products From Other Manufacturers Without Significant Disruptions To
      Our
      Business.***




We
      expect
      that our principal product will be manufactured to our specifications by one
      manufacturer. Although we could arrange for another manufacturer to supply
      the
      product, there is no assurance that we could do so without undue cost, expense
      and delay.




***We
      Expect To Rely Heavily On A Few Customers.***




Our
      revenues in the next several years could be heavily dependent on contracts
      with
      a limited number of major market makers in each business segment. The loss
      of,
      or a significant reduction in, orders from these major customers could have
      a
      material adverse effect on our financial condition and results of
      operations.





***Fluctuations
      In Operating Results Could Adversely Affect The Market Price Of Our Common
      Stock.***




Our
      revenues and operating results are likely to fluctuate significantly in the
      future. The timing of order placement, size of orders and satisfaction of
      contractual customer acceptance criteria, as well as order delays or deferrals
      and shipment delays and deferrals, may cause material fluctuations in
      revenue.




Delays
      or
      deferrals in purchasing decisions may increase as we develop new or enhanced
      products. The current and anticipated dependence on a small number of customers
      increases the revenue impact of each customer’s actions relative to these
      factors. Our expense levels in the future will be based, in large part, on
      our
      expectations regarding future revenue, and as a result net income for any
      quarterly period in which material orders are delayed could vary
      significantly.




Because
      of these and other factors, investors should not rely on quarter-to-quarter
      comparisons of our results of operations, our results of operations or the
      pro
      forma financial information as an indication of future performance. It is
      possible that, in future periods, results of operations will differ from the
      estimates of public market analysts and investors. Such a discrepancy could
      cause the market price of our common stock to decline
      significantly.




***Delays,
      Disruptions Or Quality Control Problems In Manufacturing Could Result In Delays
      In Shipments Of Products To Customers And Could Adversely Affect Our
      Business.***




We
      might
      experience delays, disruptions or quality control problems in the manufacturing
      operations of our subcontractors. As a result, we could incur additional costs
      that would adversely affect gross margins, and product shipments to our
      customers could be delayed beyond the shipment schedules requested by our
      customers, which would negatively affect our revenues, competitive position
      and
      reputation. Furthermore, even if we are able to timely deliver products to
      our
      customers, we may be unable to recognize revenue based on our revenue
      recognition policies. Any disruptions in the future could adversely affect
      the
      combined company’s revenues, gross margins and results of operations. We may
      experience manufacturing delays and reduced manufacturing yields upon
      introducing new products to our manufacturing lines or when integrating acquired
      products.




25




***Rapid
      Technological Change In Our Market Could Cause Our Products To Become Obsolete
      Or Require Us To Redesign Our Products.***




We
      expect
      that our markets will be characterized by rapid technological change, frequent
      new product introductions and enhancements, uncertain product life cycles,
      changing customer demands and evolving industry standards, any of which can
      render existing products obsolete. We believe that our future success will
      depend in large part on our ability to develop new and effective products in
      a
      timely manner and on a cost effective basis. As a result of the complexities
      inherent in our product, major new products and product enhancements can require
      long development and testing periods, which may result in significant delays
      in
      the general availability of new releases or significant problems in the
      implementation of new releases. In addition, if we or our competitors announce
      or introduce new products our current or prospective customers may defer or
      cancel purchases of our products, which could materially adversely affect our
      business, operating results and financial condition. Our failure to develop
      successfully, on a timely and cost effective basis, new products or new product
      enhancements that respond to technological change, evolving industry standards
      or customer requirements would have a material adverse affect on our business,
      operating results and financial condition.





***If
      We Lose Any Key Personnel, Or Fail To Attract And Retain Additional Personnel,
      We May Be Unable To Continue Developing Our Business And Product
      Line.***




The
      loss
      of the services of one or more of our key personnel could materially adversely
      affect our business, operating results and financial condition. We cannot
      guarantee that we will be able to retain our key personnel. Our future success
      also depends on our continuing ability to attract, assimilate and retain highly
      qualified sales, technical and managerial personnel. Competition for these
      individuals is intense and there can be no assurance that we can attract,
      assimilate or retain necessary personnel in the future.




**Risks
      Related to Wherify’s Intellectual Property**




***Our
      Success Depends On Our Ability To Protect Our Intellectual
      Property.***




Our
      future success depends upon our proprietary technology. We protect our
      proprietary information through the use of patent, copyright, trademark, trade
      secret laws, confidentiality procedures and contractual provisions.
      Notwithstanding our efforts to protect our proprietary technology, policing
      unauthorized use or copying of our proprietary information is difficult,
      unauthorized use or copying occurs from time to time, and litigation to enforce
      intellectual property rights could result in significant costs and diversion
      of
      resources. Any patents we obtain in the future may be circumvented, challenged,
      invalidated or designed around by other companies. Despite our efforts, we
      may
      be unable to prevent third parties from infringing upon or misappropriating
      our
      intellectual property. Moreover, the laws of some foreign jurisdictions do
      not
      afford the same degree of protection to our proprietary rights as do the laws
      of
      the United States, and effective trademark, copyright, and trade secret
      protection may not be available in every country in which our products are
      distributed. Furthermore, our competitors may independently develop similar
      technology that substantially limits the value of our intellectual property.
      Our
      inability to adequately protect our intellectual property for these or other
      reasons, could materially and adversely affect our business, financial condition
      and operating results.





In
      addition, third parties may at some point claim certain aspects of our business
      infringe their intellectual property rights. While we are not currently subject
      to nor are aware of any such claim, any future claim (with or without merit)
      could result in one or more of the following:





·
            Significant
                litigation costs;


·
            Diversion
                of resources, including the attention of
                management;


·
            Our
                agreement to pay certain royalty and/or licensing fees;
                and


·
            Cessation
                of our rights to use, market, or distribute such
                technology.




26




Any
      of
      these developments could materially and adversely affect our business, results
      of operations and financial condition. In the future, we may also need to file
      lawsuits to enforce our intellectual property rights, to protect our trade
      secrets, or to determine the validity and scope of the proprietary rights of
      others. Whether successful or unsuccessful, such litigation could result in
      substantial costs and diversion of resources. Such costs and diversion could
      materially and adversely affect our business, results of operations and
      financial condition.





**Risks
      Related to Corporate and Stock Matters**





***Our
      ability to effectively manage our business may be inhibited because we currently
      lack a Chief Executive Officer, Chief Financial Officer, and
      President.***





During
      and subsequent to our most recent fiscal quarter, our senior management team
      underwent significant changes. On February 28, 2007, our Chief Executive Officer
      Timothy Neher was transitioned from that role to sole Chairman of the Board
      of
      Directors. On March 12, 2007, Mark Gitter resigned his position as Chief
      Financial Officer. On March 15, 2007, Edna Carter became Chief Accounting
      Officer and Controller and assumed all responsibilities previously held by
      Mr.
      Gitter. On May 11, 2007, our President Gerald Parrick submitted his resignation
      effective on August 24, 2007. As a result of these management changes, we
      presently do not have a Chief Executive Officer, Chief Financial Officer, or
      President. Our remaining senior management report to the Board of Directors,
      with director Neil Morris as the primary liaison between the members of the
      Board and senior management. Our ability to achieve our financing and business
      goals may be impeded by the absence of key senior management persons.





***Our
      Authorized Preferred Stock Exposes Stockholders To Certain
      Risks.***




Our
      Certificate of Incorporation authorizes the issuance of up to 10,000,000 shares
      of preferred stock, par value $.01 per share. To date, 7,500 shares of
      preferred stock have been issued. The authorized preferred stock constitutes
      what is commonly referred to as “blank check” preferred stock. This type of
      preferred stock allows the Board of Directors to divide the preferred stock
      into
      series, to designate each series, to fix and determine separately for each
      series any one or more relative rights and preferences and to issue shares
      of
      any series without further stockholder approval. Preferred stock authorized
      in
      series allows our Board of Directors to hinder or discourage an attempt to
      gain
      control of us by a merger, tender offer at a control premium price, proxy
      contest or otherwise. Consequently, the preferred stock could entrench our
      management. In addition, the market price of our common stock could be
      materially and adversely affected by the existence of the preferred
      stock.




***Our
      Common Stock Has A Limited And Volatile Trading
      History.***




Our
      common stock trades in the United States on the Over-the-Counter Electronic
      Bulletin Board (OTCBB). The number of shares traded daily has been extremely
      limited and the prices at which Wherify’s common stock has traded have
      fluctuated fairly widely. There can be no assurance as to the prices at which
      our common stock will trade in the future, although they may continue to
      fluctuate significantly. Prices for our common stock will be determined in
      the
      marketplace and may be influenced by many factors, including the
      following:





·
            The
                depth and liquidity of the markets for our common
                stock;


·
            Investor
                perception of us and the industry in which we operates;
                and


·
            General
                economic and market conditions.





The
      effect that of any of the events highlighted in these Risk Factors may have
      on
      our business should they occur.




***We
      Have The Ability And The Obligation To Issue Additional Shares Of Common Stock
      In The Future, And Such Future Issuance May Materially Adversely Affect
      Stockholders.***




Wherify
      has various abilities and obligations to issue additional shares of common
      stock
      in the future. These abilities and obligations include the following as of
      April
      11, 2007 (including the obligation to issue shares upon conversion of the
      debentures or exercise of the warrants issued to Cornell Capital Partners and
      Newbridge Securities Corporation, and as amended on April 11,
      2007):




27




·
            Options
                to purchase approximately 5.7 million shares of our common stock;
                and


·
            Warrants
                and convertible debentures to purchase or acquire approximately 29.5
                million shares of our common stock.





The
      options, warrants and convertible debentures described above permit the holders
      to purchase shares of common stock at specified prices. These purchase prices
      may be less than the then current market price of our common stock. Any shares
      of common stock issued pursuant to these options, warrants or convertible
      debentures would further dilute the percentage ownership of existing
      stockholders. The terms on which we could obtain additional capital during
      the
      life of these options, warrants or convertible debentures may be adversely
      affected because of such potential dilution. Finally, we may issue additional
      shares in the future other than as listed above. There are no preemptive rights
      in connection with Wherify’s common stock. Thus, the percentage ownership of
      existing stockholders may be diluted if we issue additional shares in the
      future. Future issuances of additional shares could cause immediate and
      substantial dilution to the net tangible book value of shares of common stock
      issued and outstanding immediately before such transaction. Any future decrease
      in the net tangible book value of such issued and outstanding shares could
      materially and adversely affect the market value of these shares.




***The
      Trading Price Of Our Common Stock Entails Additional Regulatory Requirements,
      Which May Negatively Affect Such Trading Price.***




We
      are
      currently subject to the “penny stock” rules promulgated under the Securities
      Exchange Act of 1934. During the period(s) that our stock trades below $5.00
      per
      share, as it currently does, trading in our common stock is subject to the
      requirements of the “penny stock” rules. These rules require additional
      disclosure by broker dealers in connection with any trades generally involving
      any non-NASDAQ equity security that has a market price of less than $5.00 per
      share, subject to certain exceptions. Such rules require the delivery, before
      any “penny stock” transaction, of a disclosure schedule explaining the penny
      stock market and the risks associated therewith, and impose various sales
      practice requirements on broker dealers who sell penny stocks to persons other
      than established customers and accredited investors (generally institutions).
      For these types of transactions, the broker-dealer must determine the
      suitability of the penny stock for the purchaser and receive the purchaser’s
      written consent to the transaction before sale. The additional burdens imposed
      upon broker dealers by such requirements may discourage broker-dealers from
      effecting transactions in our common stock affected. As a consequence, the
      market liquidity of Wherify’s common stock could be severely limited by these
      regulatory requirements.





***Stockholders
      Should Have No Expectation Of Any Dividends.***




The
      holders of our common stock are entitled to receive dividends when, as and
      if
      declared by the board of directors out of funds legally available therefore.
      To
      date, we have not declared nor paid any cash dividends. The board of directors
      does not intend to declare any dividends in the foreseeable future, but instead
      intends to retain all earnings, if any, for use in our business
      operations.





**Item
      3. Controls and Procedures**





***Evaluation
      of Disclosure Controls and Procedures.***





As
      of the
      end of the fiscal quarter ended March 31, 2007, we carried out an evaluation,
      under the supervision and with the participation of Timothy Neher and Edna
      Carter, our principal executive officer and principal financial officer
      respectively, of the effectiveness of the design and operation of our disclosure
      controls and procedures (as such term is defined in Rules 13a-15(e) and
      15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation,
      our principal executive officer and principal financial officer concluded that
      our disclosure controls and procedures were not effective.





Although
      there were no current significant issues or control deficiencies noted by our
      outside auditor’s review of the preparation and reporting of our unaudited
      fiscal quarter ended March 31, 2007 external financial reports on this Form
      10-QSB., management has determined that it currently may continue to have a
      significant deficiency in its ability to report external financial data reliably
      in accordance with generally accepted accounting principles based upon
      previously identified control deficiencies during fiscal 2006 as discussed
      below
      and the staffing limitations imposed by the Company on the accounting function.
      As a result, management believes there is more than a remote likelihood that
      a
      misstatement of the Company’s annual or interim financial statements in an
      amount more than inconsequential may not be prevented or detected. As a result,
      management has determined that the following three control deficiencies as
      previously identified by Malone & Bailey, PC in connection with the
      completion of its audit of, and the issuance of its report on, the financial
      statements of Wherify for the year ended June 30, 2006, may continue to exist
      during our fiscal quarter ended March 31, 2007 and have not yet been
      demonstrably remediated as of our fiscal quarter ended March 31,
      2007:




28




*Control
      Deficiencies Identified as of Fiscal Year Ended June 30, 2005*





In
      connection with the completion of its audit of, and the issuance of its report
      on the financial statements of Wherify for the fiscal year ended June 30, 2006,
      Malone & Bailey, PC identified deficiencies in Wherify’s internal controls
      related to expense recognition and disclosure control deficiencies related
      to
      transactions involving issuances of Wherify’s stock and stock options. The
      adjustment to expense and the footnote disclosure deficiencies were detected
      in
      the audit process and were appropriately corrected, recorded and disclosed
      in
      the Annual Report on Form 10-KSB for the fiscal year ended June 30, 2005.
      Following a review of the deficiencies identified by Malone & Bailey, PC,
      management determined that we had incorrectly accounted for a number of
      equity-related transactions, several of which were related to the then pending
      merger of Wherify Wireless California and Wherify Acquisition, Inc., that
      included various stock option transactions and stock option awards for services.
      Management further determined that we had incorrectly omitted expense
      recognition for various expenses incurred in the year just ended. As a result,
      management concluded that our disclosure controls and procedures were not
      effective and that the following three deficiencies were identified in our
      control process as of our fiscal year ended June 30, 2005:




(1)
            we did not have adequate transaction
              controls
              over the accounting, review and processing of certain unusual or complex
              accounting transactions;(2)
            we did not have a systematic and documented
              program of internal controls and procedures over our accounting and
              financial reporting process to ensure that unusual or complex transactions
              are recorded, processed, summarized and reported on a timely basis
              in our
              financial disclosures; and(3)
            there is a need for the improved supervision
              and training of our accounting staff.




*Misstatement
      Identified During Our Third Fiscal Quarter Ended March 31, 2006 for the
      Unaudited Quarter Ended September 30, 2005*





On
      February 13, 2006, based on an internal management review of our quarterly
      filings for fiscal 2006, our management and the Audit Committee of the Board
      of
      Directors concluded that a misstatement had occurred on our previously reported
      unaudited interim financial statements for the three month period ended
      September 30, 2005, which resulted in the restatement of the unaudited interim
      financial statements for the quarter ended September 30, 2005, as described
      in
      Note 2 to the Notes to Financial Statements of our Form 10-QSB/A for the
      unaudited quarter ended September 30, 2005, and as further described in our
      concurrently filed Form 8-K on this matter. Specifically, the restatement of
      the
      Company’s previously issued financial statement for the three month period ended
      September 30, 2005 was to correct a misstatement relating to the accounting
      for
      a $12,467,059 deemed dividend on preferred stock from our June 30, 2005
      financial statements which had incorrectly been included as a first quarter
      fiscal 2006 deemed dividend on preferred stock. As a result of correcting this
      error, our reported net loss for the quarter decreased by $12,467,059 to a
      restated loss of $67,046,645 or ($1.55) per share versus the reported loss
      of
      $79,513,704 or ($1.84) per share. This restatement had no impact on any other
      previously reported financial results. This external financial reporting error
      was determined by management to have occurred from clerical oversight in the
      preparation of our unaudited first fiscal quarter external financial report
      and
      is a result of inadequate supervision and training of our accounting staff
      and
      the former chief financial officer in ensuring the reliability of our external
      financial reporting. Management believes it has directly addressed the issues
      resulting in this restatement by hiring a new chief financial officer and the
      immediate implementation of an external financial reporting preparation and
      review process that is expected to prevent or detect any such clerical issues
      in
      the future.





*Accounting
      Corrections and Account Reclassifications Identified During Our Fourth Fiscal
      Quarter Ended June 30, 2006 for the Unaudited Quarter Ended March 31,
      2006*




29




To
      prepare our external financial report for our fiscal quarter ended March 31,
      2006, we were required to review and determine the proper accounting entries
      required in applying specific and complex accounting rules for accounting for
      derivatives under Financial Accounting Standard No. 133 (“FAS 133”) for our
      convertible debentures issued on March 10, 2006 and on March 14, 2006. This
      necessitated us to first determine whether or not our convertible debentures
      required classification as a liability and once so determined, we had to
      identify certain accounting methodologies and entries to properly apply the
      rules under FAS 133 to our situation. In the course of completing these new
      complex and sophisticated accounting entries, we generated complex accounting
      calculations and account reclassifications to affect their fair value
      recognition as liabilities to be included in the external financial report.
      In
      connection with the completion of its review of our fiscal quarter ended March
      31, 2006, Malone & Bailey, PC identified certain accounting corrections and
      account reclassifications still required in applying the rules for accounting
      for derivatives under FAS 133 that were required to fully compute their fair
      value recognition as liabilities. These corrections amounted to an immaterial
      net change to our expense recognition for the period, but did indicate that
      further efforts were required to adequately train our staff regarding certain
      complex accounting requirements, including FAS 133 requirements. Additionally,
      during the fourth quarter of our 2006 fiscal year, a new accounting manager
      was
      hired into the accounting function, further strengthening the experience and
      accounting knowledge available to us to prepare and process our external
      financial reports.





The
      Company views as a serious issue its inability to conclude its disclosure
      controls and procedures are effective. The Company is committed to correct
      the
      prior year’s identified significant deficiency in disclosure controls and
      procedures and internal controls as soon as feasible. Management, in
      consultation with its outside auditors and other outside advisers as
      appropriate, is continuing its work to finish those procedures deemed necessary
      to resolve these three previously identified control deficiencies. Management
      remains encouraged by the remedial steps taken during our most recent three
      fiscal quarters and the ongoing improvements over disclosure controls being
      instituted in our accounting function including those listed below.





***Changes
      in Internal Controls Over Financial Reporting.***




During
      the fiscal quarter ending March 31, 2007, there were no changes in internal
      controls over financial reporting that have materially affected, or are
      reasonably likely to materially affect, our internal controls over financial
      reporting.






**PART
      II** **-** **OTHER
      INFORMATION**





**Item
      1. Legal Proceedings**





*Venture
      Corporation Limited, a Singapore Corporation v. Wherify Wireless, Inc, a
      California Corporation*





On
      October 15, 2004, Venture Corporation Limited, a Singapore corporation
      ("Venture"), filed suit against Wherify California, in the United States
      District Court, Central District of California. The complaint sought
      approximately $5 million in damages for breach of contract, fraud and common
      counts alleging that Wherify California failed to pay certain amounts owed
      for
      the manufacture of the children's model personal locater ("CM1"). Wherify
      California answered Venture's complaint on November 16, 2004 and filed a
      cross-complaint alleging that Venture failed to timely deliver conforming goods.
      A court trial concluded on November 4, 2005, and on December 27, 2005 the
      District Court's judgment awarding Venture approximately $1.7 million in damages
      (including costs) was entered. On January 26, 2006, a Notice of Appeal was
      filed
      with the United States Court of Appeals for the Ninth Circuit. Venture has
      commenced collection procedures. On March 20, 2007, Venture filed a motion
      to
      dismiss the appeal; Wherify California filed an opposition to the motion to
      dismiss on April 2, 2007.





*Lariviere,
      et al. v. I.Q. Biometrix, Inc., a Delaware Corporation, et al.*





On
      August
      5, 2005, plaintiffs Sylvie Lariviere, Robert Rios, Toni Lange, Fernand Beland,
      Frederic Serre and Roland Vroye, filed their first amended complaint against
      I.Q. Biometrix, Inc., a Delaware corporation, in Fresno County Superior Court,
      State of California. Plaintiffs' complaint alleges causes of action for breach
      of contract and fraud for a failure to issue stock options pursuant to an
      alleged oral and/or written agreement. The complaint seeks to recover damages,
      including punitive damages, and/or an award of stock options. On October 25,
      2005, Wherify demurred on behalf of itself, Greg Micek and William Scigliano
      and
      on January 4, 2005, the demurrer was sustained on several grounds and the
      parties subsequently began discovery. This matter has been set for trial on
      August 28, 2007.




30




*Westport
      Office Park, LLC v. Wherify Wireless, Inc, a California
      Corporation*





On
      January 5, 2007, Westport Office Park, LLC (“Westport”), filed an Entry of
      Stipulation and Agreement against Wherify Wireless, Inc, a California
      Corporation (“Wherify California”), in the Superior Court of California—San
      Mateo County. The complaint sought a judgment for possession of certain leased
      premises occupied by Wherify California as its principal offices in favor of
      Westport, approximately $1.1 million in then outstanding amounts due and owing
      under the terms of the lease, and certain other amounts deemed owed. Wherify
      California answered Westport’s complaint on January 17, 2007 by vacating from
      the leased premises. The Company has accrued an amount of approximately $1.1
      million pending resolution of this matter.





On
      March
      30, 2007, Westport Office Park recorded a judgment lien with the United States
      Patent and Trademark Office on two patents held in name of the
      Company's California subsidiary, Wherify Wireless, Inc., a California
      corporation. The specific patents are U.S. Patent Application 11/126,827 and
      U.S. Design Patent D526985. Generally, the appropriate means to remove a
      judgment lien would be to pay the amount due to the creditor. The Company has
      not determined at this time whether the lien was properly recorded, and intends
      to take all legal actions appropriate to restore good title to each patent.
      The
      Company is still assessing the impact if any of the judgment lien.





*Baystar
      Capital II, L.P. v. Wherify Wireless, Inc. et al*





On
      March
      2, 2007 Baystar Capital II, L.P. ("Baystar") filed suit against Wherify
      Wireless, Inc. in Marin County Superior Court, State of California. Plaintiff's
      complaint alleges various causes of action relating to an alleged breach of
      a
      stock purchase agreement entered between the parties in early 2005. Plaintiff
      essentially sought damages arising from an alleged failure to provide stock
      certificates by an agreed upon date. The parties entered into a settlement
      agreement on or about May 4, 2007.





*Fixture
      Hardware Co. v. Wherify Wireless, Inc.*





On
      or
      about April 25, 2007, Fixture Hardware Co. filed a complaint against Wherify
      Wireless, Inc. in the United States District Court for the Northern District
      of
      Illinois. Plaintiff claims breach of a purchase agreement related to product
      display stands made available to Wherify under the agreement. Plaintiff seeks
      damages in the approximate amount of $245,000. Wherify recently received service
      of the complaint and is still reviewing its legal options.





**Item
      6. Exhibits**




Exhibit No.
            
            Description31.1
            
            Principal Executive Officer Certification
              Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
            
            Principal Financial Officer Certification
              Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
            
            Principal Executive Officer Certification
              Pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection
              906 of the Sarbanes-Oxley Act of 200232.2
            
            Principal Financial Officer Certification
              Pursuant to 18 U.S.C. Section 1350, as adopted, pursuant toSection
              906 of the Sarbanes-Oxley Act of 2002





31




**SIGNATURES**





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




WHERIFY
              WIRELESS,
              INC.Date
              May
              21, 2007
            
            /s/ Timothy
              J. NeherTimothy
              J. Neher, Chairman of the Board of
              Directors(Principal
              Executive Officer)


Date
                May
                21, 2007
              
              /s/ Edna
                CarterEdna
                Carter, Chief Accounting Officer and
                Controller(Principal
                Financial Officer)
  32