UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-QSB








x
            Quarterly Report Pursuant to Section
              13 or 15
              (d) of the SecuritiesExchange
              Act of 1934 for the quarterly period ended September 30,
              2006.o
            Transition Report Pursuant to Section
              13 or
              15(d) of the SecuritiesExchange
              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
                of incorporation)
            
            (IRS
                Employer Identification
                No.)




2000
                Bridge Parkway, Suite 201, Redwood Shores,
                CA
            
            94065(Address
                of principal executive
                offices)
            
            (Zip
                Code)





650-551-5200


(Issuer's
      telephone number)





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





Yes:
      x     
No: o





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





Yes:
      o      No:
x





Applicable
      Only to Corporate Issuers:





As
      of
      November 6, 2006, there were 71,928,933 shares of common stock, $.01 par value,
      outstanding.





Transitional
      Small Business Disclosure Format      o Yes      x
      No







**WHERIFY
      WIRELESS, INC.**


**FORM
      10-QSB**


**FOR
      THE QUARTER ENDED SEPTEMBER 30, 2006**




TABLE
        OF
        CONTENTS


PART
                  I. FINANCIAL INFORMATION
              
              
              PageItem
                  1. Financial Statements
              
              
              3Balance
                  Sheets as of September 30, 2006 and June 30, 2006
                  (Unaudited)
              
              
              3Statements
                  of Operations for the three months endedSeptember
                  30, 2006 and 2005 (Unaudited)
              
              
              4Condensed
                  Statements of Cash Flows for the three months endedSeptember
                  30, 2006 and 2005 (Unaudited)
              
              
              5Notes
                  to Financial Statements (Unaudited)
              
              
              6Item
                  2. Management's Discussion and Analysis or Plan of
                  Operation
              
              
              9Item
                  3. Controls and Procedures
              
              
              25PART
                  II. OTHER INFORMATIONItem
                  6. Exhibits
              
              
              24Signatures
              
              
              25EXHIBITS
              
              
              26
 -2-


PART
      I.
      FINANCIAL INFORMATION





Item
      1.
      Financial Statements




**Wherify
        Wireless, Inc**
 **Balance
          Sheet**
 **Unaudited**


**ASSETS**
              
              **September
                    30, 2006**
              
              **June
                    30, 2006****CURRENT
                  ASSETS:**Cash
                  and cash equivalents
              
              $
              285,519
              
              $
              524,722Restricted
                  certificates of deposit
              
              
              1,290,344
              
              
              1,278,014Prepaid
                  expenses
              
              
              104,624
              
              
              29,281Accounts
                  receivable, net
              
              
              21,871
              
              
              10,133Inventory,
                  net of reserve of $502,213 and $0, respectively
              
              
              641,051
              
              
              81,141Security
                  Deposit and other assets
              
              
              322,400
              
              
              373,100**TOTAL
                  CURRENT ASSETS**
              
              
              **2,665,809**
              
              
              **2,296,391**Intangible
                  assets, net of accumulated amortization of $17,941 and $14,191,
                  respectively
              
              
              27,059
              
              
              30,809Property
                  and equipment, net of accumulated depreciation of $1,368,378 and
                  $1,302,036, respectively
              
              
              578,519
              
              
              640,607Deferred
                  debt and equity issuance costs and other non-current
                  assets
              
              
              719,082
              
              
              755,691**TOTAL
                  ASSETS**
              
              **$**
              **3,990,469**
              
              **$**
              **3,723,498****LIABILITIES
                  AND STOCKHOLDERS' DEFICIT****CURRENT
                  LIABILITIES:**Accounts
                  payable
              
              $
              4,905,601
              
              $
              2,836,057Accounts
                  payable - related party
              
              
              3,135,750
              
              
              3,105,750Accrued
                  liabilities
              
              
              1,255,939
              
              
              993,552Accounts
                  payable related to discontinued operating segment
              
              
              2,085,211
              
              
              2,085,211Note
                  payable - related party
              
              
              2,000,000
              
              
              2,000,000Current
                  maturities of convertible debentures
              
              
              1,754,722
              
              
              1,404,990Fair
                  value of derivatives
              
              
              14,149,039
              
              
              2,692,235**TOTAL
                  CURRENT LIABILITIES**
              
              
              **29,286,262**
              
              
              **15,117,795****Commitments
                  and Contingencies**
              
              
              **—**
              
              
              **—****STOCKHOLDERS'
                  DEFICIT**Common
                  stock, $0.01 par value, 100,000,000 shares
                  authorized,61,769,013
                  and 55,301,513 shares issued and outstanding,
                  respectively
              
              
              617,690
              
              
              553,015Additional
                  paid in capital
              
              
              126,312,855
              
              
              124,591,434Accumulated
                  deficit
              
              
              (152,226,338
              )
              
              (136,538,746
              )**TOTAL
                  STOCKHOLDERS' DEFICIT**
              
              
              (25,295,793
              )
              
              (11,394,297
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              **$**
              **3,990,469**
              
              **$**
              **3,723,498**





See
      accompanying notes to financial statements.




-3-




**Wherify
      Wireless, Inc.**


**Statement
      of Operations**


**Unaudited**




**Three
                  Months Ended September 30,****2006**
              
              **2005****REVENUE**Sales
                  Revenue
              
              $
              184,321
              
              $
              36,634**OPERATING
                  EXPENSES:**Cost
                  of goods sold (except for items stated separately below)
              
              
              4,610
              
              
              3,356Goodwill
                  impairment
              
              
              —
              
              
              64,308,022Research
                  and development
              
              
              407,183
              
              
              268,429General
                  and administrative
              
              
              3,047,368
              
              
              2,065,996Rent
                  expense
              
              
              371,355
              
              
              —Rent
                  expense - related party
              
              
              —
              
              
              228,486Amortization
                  and depreciation
              
              
              79,822
              
              
              185,188**TOTAL
                  OPERATING EXPENSES**
              
              
              **3,910,338**
              
              
              **67,059,477****OPERATING
                  LOSS**
              
              
              **(3,726,017**
              **)**
              
              **(67,022,843**
              **)****OTHER
                  INCOME (EXPENSE)**Change
                  in fair value of derivatives
              
              
              (11,456,804
              )
              
              —Interest
                  expense
              
              
              (517,272
              )
              
              (6,583
              )Interest
                  and other income
              
              
              12,501
              
              
              25,711**NET
                  LOSS FROM CONTINUING OPERATIONS**
              
              
              **(15,687,592**
              **)**
              
              **(67,003,715**
              **)****DISCONTINUED
                  OPERATIONS**Loss
                  from operations of discontinued segment
              
              
              —
              
              
              (42,930
              )**NET
                  LOSS**
              
              **$**
              **(15,687,592**
              **)**
              **$**
              **(67,046,645**
              **)**Basic
                  and diluted net loss per share from continuing operations
              
              $
              (0.27
              )
              $
              (1.55
              )Basic
                  and diluted net loss per share from discontinued
                  operations
              
              $
              —
              
              $
              (0.00
              )Basic
                  and diluted net loss per share
              
              $
              (0.27
              )
              $
              (1.55
              )Weighted
                  average number of shares outstanding
              
              
              57,415,399
              
              
              43,279,529




See
      accompanying notes to financial statements.




-4-


**Wherify
        Wireless, Inc.**
 **Condensed
          Statement of Cash Flows**


**Unaudited**


**Three
                  Months Ended September 30,****2006**
              
              **2005****NET
                  CASH USED IN OPERATING ACTIVITIES**
              
              (1,727,260)
              
              (2,025,710)**INVESTING
                  ACTIVITIES:**Increase
                  in restricted certificates of deposit
              
              
              (12,330
              )
              
              (223,020
              )Purchase
                  of property and equipment
              
              
              (4,255
              )
              
              (29,678
              )**NET
                  CASH PROCEEDS USED IN INVESTING ACTIVITIES**
              
              
              (16,585
              )
              
              (252,698
              )**FINANCING
                  ACTIVITIES:**Net
                  proceeds from issuance of stock
              
              
              1,504,642
              
              
              1,352,935**NET
                  CASH PROVIDED BY FINANCING ACTIVITIES**
              
              
              1,504,642
              
              
              1,352,935**CHANGE
                  IN CASH AND CASH EQUIVALENTS**
              
              
              (239,203
              )
              
              (925,473
              )**CASH
                  AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
              
              
              524,722
              
              
              1,208,089**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              $
              285,519
              
              $
              282,616




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.




**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). On
      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 September 30, 2006 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 September 30, 2006, the Company recognized stock−based
      compensation expenses of $0.2 million related to outstanding stock options
      according to the provisions of FAS 123R, using the modified−prospective
      transition method.




Prior
      to
      the adoption of FAS 123R and for the three months ended September 30, 2005,
      no
      tax benefits from the exercise of stock options has been recognized. Any future
      excess tax benefits derived from the exercise of stock options will be recorded
      prospectively and reported as cash flows from financing activities in accordance
      with FAS 123R.




During
      the quarter ended September 30, 2005, Wherify granted its employees options
      to
      purchase 1,371,068 shares of common stock. 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
      did not record any compensation expense under the intrinsic method. During
      the
      three months ended September 30, 2005, third party consultants were issued
      50,000 shares
      of
      common stock, representing a value of $225,000 which had been previously
      recognized as administrative expense .
      The
      following table illustrates the effect on net loss and net loss per share as
      if
      Wherify had recorded compensation expense equal to the fair value of the options
      on the grant date.





-6-


Three
                  Months Ended
                September
                  30, 2005Net
                  loss as reported
              
              $
              (67,046,645
              )Less:
                  option expenseUnder
                    fair valuemethod
              
              
              (99,694
              )Pro
                  forma net loss
              
              $
              (67,146,399
              )Basic
                  and diluted net loss
                  per common share:As
                  reported
              
              $
              (1.55
              )Pro
                  forma
              
              $
              (1.55
              )




During
      the three months ended September 30, 2005,the risk free interest rate used
      in
      the Black−Scholes option pricing model (the Model) was 5.5%. The expected
      volatility used in the model was 52%.




A
      summary
      of the options issued by the Company for the three months ended September 30,
      2006 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
            
            
            36,000
            
            $
            .30
            
            
            9.9Exercised
            
            
            0
            
            $Forfeited/Canceled
            
            
            (1,964,837
            )
            $
            1.54Repriced
            
            
            1,339,780
            
            $
            .30
            
            
            9.5Outstanding
                on September 30, 2006
            
            
            5,632,103
            
            $
            .66
            
            
            7.3Exercisable
                on September 30, 2006
            
            
            3,217,878
            
            $
            .80
            
            
            6.2





The
      weighted−average grant−date fair value during the three months ended September
      30, 2006 and September 30, 2005 was $0.30 per share and $3.30 per share,
      respectively. Additionally, 0 options and 82,391 options were
      exercised and 271,015
        and 263,430 options
        vested during the periods ended September 30, 2006 and September 30, 2005,
        respectively. The unrecognized share-based compensation cost related to stock
        option expense at September 30, 2006 is approximately $1,200,000 and
        will
        be recognized over a period of approximately three 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 September 30, 2006 the Company recognized compensation expense
      of
      $70,500.




**NOTE
      3 - INVENTORY**




The
      Company contracted with an external party to manufacture units of its enhanced
      GPS-enabled wireless location product (the Wherifone TM )
      product. The Company commenced mass manufacture of its Wherifone TM product
      during the current quarter to meet international product requirements and in
      anticipation of its North American Wherifone TM retail
      launch on October 1, 2006. The Company recognizes impairment losses on its
      inventory when there is evidence that the value of the goods will be less than
      the costs. At September 30, 2006 the Company recognized $502,213 impairment
      on
      its inventories.




-7-




**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 September 30, 2006, the Company estimated the fair
      value of the conversion feature and warrant liability and related expense at
      $11.5 million







**NOTE
      5 - 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.




**NOTE
      6 - SUBSEQUENT EVENTS**





On
      November 1, 2006 the Company entered into an agreement with Cornell Capital
      Partners, LP wherein terms were defined for the full redemption of the 7%
      secured convertible debentures issued on March 10, 2006 and the 7% secured
      convertible debentures issued on March 14, 2006, and for the concurrent
      cancellation of certain warrants to purchase 16,250,000 shares of the Company’s
      common stock. The full redemption would require that the Company pay to Cornell
      on or before December 31, 2006 the entire principal amount outstanding plus
      all
      accrued and outstanding interest then owed, plus the redemption premium of
      20%
      of the principal amount. Cornell would retain the remaining 5,000,000 warrants
      that would be exercisable on a cash-basis only.





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.





-8-


**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.




**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 an operating loss of approximately $3.7 million during the three months
      ended September 30, 2006 and $67.0 million during the three months ended
      September 30, 2005. For the three months ended September 30, 2006 net losses
      from continuing operations were $15.7 million and $67.0 million during the
      comparable three months ended September 30, 2005. Net cash used for operating
      activities during the three months ended September 30, 2006 was $1.7 million
      and
      $2.0 million was used during the comparable three months ended September 30,
      2005. We have an accumulated deficit of $152.2 million as of September 30,
      2006.
      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.




As
      of
      September 30, 2006, Wherify had cash and cash equivalents of approximately
      $0.3
      million, ($1.0 million as of November 6, 2006) restricted certificates of
      deposit of approximately $1.3 million which were being utilized as collateral
      to
      support our obligations under a letter of credit related to our contract
      manufacturer, other current assets of approximately $1.6 million and current
      liabilities of $12.0 milion (excluding the non-cash portion of fair value of
      derivatives, of approximately $14.1 million and approximately $3.1 million
      in
      past due rent obligations to our former landlord). Wherify also has a liability
      related to the non-current payable portion of the convertible debenture of
      approximately $3.0 million The net decrease in cash and cash equivalents during
      the three months ended September 30, 2006 is primarily due to net cash used
      in
      operating activities of $1.7 million, mostly offset by receiving proceeds of
      approximately $1.5 million from the issuance of common stock. Our average net
      cash used in operations during the three months ended September 30, 2006 was
      approximately $0.6 million per month as compared to approximately $0.7 million
      per month in the prior year period.




-9-




We
      have
      financed our operations through private offerings of our common stock, issuance
      of debt and 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. 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 to Cornell Capital Partners.,
      and on November 1, 2006 we entered into an agreement that will allow for the
      complete buy-out of this debenture obligation to Cornell and the cancellation
      of
      all but 5 million warrants under these agreements if the buy-out terms are
      completed by December 31, 2006. On March 10, 2006 we also entered into a Standby
      Equity Distribution Agreement (“SEDA”) with Cornell Capital Partners pursuant to
      which we may periodically issue and sell to Cornell Capital Partners shares
      of
      common stock for up to a total purchase price of $40 million during the period
      commencing on the effectiveness of the registration statement registering such
      shares and terminating 24 months thereafter. 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 to be
      sold by certain persons who are stockholders of Wherify, including up to
      2,200,000 shares, which may be issued under the SEDA, and on November 8, 2006
      we
      withdrew the active registration statement pending the outcome of our Cornell
      buy-out agreement discussed above. 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. On June 16, 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.





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 is a "going concern" paragraph in Wherify's auditor's report 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. We have worked out an
      arrangement with our prior landlord pursuant to which we have begun paying
      back-due rent as well as paying for certain back-due expenses covered by the
      prior landlord. Under the agreement, upon achieving adequate financing, we
      are
      required to settle our debt with the prior landlord, which was approximately
      $3.1 million as of September 30, 2006. We intend to settle our remaining debt
      with the prior landlord through cash currently on-hand, the proceeds raised
      from
      the future sales of common stock and/or cash proceeds from future operations.
      As
      of November 6, 2006, we were six months in arrears with our rent payments to
      our
      new landlord, although as of October 2006 we have commenced making current
      rent
      payments and we have entered into an agreement with our current landlord to
      resolve our outstanding past due balance before calendar 2007.




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 product
      in both North America and internationally during fiscal 2007. We launched retail
      sales in North America with Toys R Us nationwide in all 660 Toys R Us retail
      locations on October 1, 2006. 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.




-10-




As
      of
      November 6, 2006, Wherify had cash and cash equivalents of approximately $1.0
      million and restricted certificates of deposit of approximately $1.3 million.
      We
      believe that our current cash balance will be adequate to continue our current
      business plan into December 2006. Our increase in cash and cash equivalents
      since September 30, 2006 to November 6, 2006 is due to the completion of our
      direct offering of common stock resulting in gross proceeds during this period
      of approximately $2.5 million, partially offset primarily by ongoing operating
      expenses, technology payments and payments for inventory production at our
      contract manufacturer, and spending to prepare for product introduction into
      the
      North American and various foreign countries’ markets.





Our
      current capital resources are not sufficient to fund our planned operations
      during upcoming the 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. Additionally, under our $40 million SEDA we may sell and
      Cornell Capital Partners is contractually committed to buy, at our discretion,
      up to $1 million of our common shares per week within certain guidelines and
      limitations, and subject to certain conditions, including effectiveness of
      the
      related registration statement. Further, during the first quarter of calendar
      2007 product sales are expected to begin to provide cash, and the subscriber
      services are also expected start to contribute to our ongoing funding
      requirements. Neither product sales nor subscriber services are expected to
      make
      significant contributions to our funding requirements until later in calendar
      2007. As a result we are carefully controlling our spending and managing our
      investment in our infrastructure pending the closing of our next financing.
      We
      anticipate that to reach profitability will require at least one additional
      public or private funding round beyond our current plans for a near-term
      offering. As of November 9, 2006 the registration statement pertaining to our
      SEDA
      was pulled down, however we may have drawings under our SEDA assuming that
      we
      refile this registration statement, that it is declared effective and that
      we
      can commence draw-downs under that facility. As part of our
      Wherifone TM product
      launch plan, 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 $22 million to $27 million, including the
      cost
      of the buy-out of the secured convertible debentures obligations, and based
      on
      our projected cash used in operations of approximately $0.9 million per month,
      comprised of human resources costs of approximately $0.4 million per month,
      occupancy costs of approximately $0.2 million per month, monthly payments on
      debentures of approximately $0.2 million, 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 current rent and security deposit obligations of approximately
      $0.8 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 successful product launch we expect to accelerate the growth of 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 once initiated.





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. 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. 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.




Wherify
      is currently considering a number of different financing opportunities in order
      to meet its short-term cash flow needs.. Management recognizes the need for
      additional funding and will be taking those steps to prepare for future public
      and private financing rounds as soon as practical. On November 7, 2006 the
      Company announced that it had retained the services of an investment banker.
      Adequate funds may not be available on terms acceptable to us. If additional
      funds are raised through the issuance of equity securities, including the
      issuance of stock under the Standby Equity Distribution Agreement, dilution
      to
      existing stockholders may result. If funding is insufficient at any time in
      the
      future, we may be unable to continue the launch our Wherifone TM product
      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 is insufficient 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.




-11-




Even
      with
      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.





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




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 product.





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.







**5.**  **Results
      of Operations for the Three Months Ended September 30,
      2006**




Quarter
      ended September 30, 2006 compared to quarter ended September 30,
      2005





Net
      revenues for the quarter ended September 30, 2006 were $184,321 as compared
      to
      $36,634 of net revenues for the quarter ended September 30, 2005. The quarter
      ended September 30, 2006 included international Wherifone TM product
      sales of $134,001 and $50,320 of sales related to the FACES products. Revenues
      in the quarter ended September 30, 2005 were primarily generated by the sales
      of
      FACES products.





Operating
      expenses for the quarter ended September 30, 2006 were $3.9 million as compared
      to $67.1 million for the quarter
      ended September 30, 2005. The decrease in expenses is primarily due to a $64.3
      million goodwill impairment in the quarter ended September 30,
      2005.





Engineering
      and development expenses were approximately $0.4 million and $0.3 million for
      quarters ended September 30, 2006 and 2005, respectively. The increase in
      expenses of approximately $0.1 million was due to expenses associated with
      the
      preparation for the product launch of Wherifone TM .




-12-




General
      and administrative expenses, excluding rent, amortization and depreciation
      expenses, increased by approximately $1.0 million from $2.1 million in the
      quarter ended September 30, 2005 to $3.1 million in the quarter ended September
      30, 2006. The increase in these expenses is due primarily to $0.3 million stock
      option non-cash expense related to the implementation of SFAS 123R, $0.1 million
      of implementation cost for the new billing system and customer service
      management, $0.2 million of marketing expenses related to the product launch
      of
      Wherifone TM ,
      $0.2
      million of higher sales salaries expense, and $0.5 million inventory adjustment,
      partially offset by approximately $0.4 million in lower legal fees that were
      associated with the merger in quarter ended September 30, 2005.





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 increased by approximately $11.5 million from the prior
      year
      period amount due to the non-cash expense 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 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.




**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/A, 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 WHERIFY'S BUSINESS**




Wherify's
      business is subject to numerous risks and uncertainties, including risks and
      uncertainties relating to our limited operating history; liquidity; incurrence
      of net losses; lengthy development, manufacturing and sales cycles; competition;
      product related risks; and other risks as discussed below. The following
      important factors, among others, could cause actual results to differ materially
      from those contained in forward-looking statements made in this report or
      presented elsewhere by management from time to time.




-13-




**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
      September 30, 2006, Wherify had cash and cash equivalents of approximately
      $0.3
      million, restricted certificates of deposit of approximately $1.3 million,
      which
      are being utilized as collateral to support our obligations under a letter
      of
      credit related to our contract manufacturer, other current assets of
      approximately $1.6 million and current liabilities of $12.0 million (excluding
      the non-cash portion of fair value of derivatives, of approximately $14.1
      million and approximately $3.1 million in past due rent obligations to our
      former landlord). Wherify also has a liability related to the non-current
      payable portion of the convertible debenture of approximately $3.0 million.
      As
      of November 6, 2006, Wherify had cash and cash equivalents of approximately
      $1.0
      million and restricted certificates of deposit of approximately $1.3 million.
      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 $22 million to $27 million, including the cost of the buy-out
      of
      the secured convertible debentures obligations. 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.




-14-




**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 associate 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
      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;




-15-




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


·
            The
                rate at which we or our competitors introduce new products, the rate
                at
                which these products acquire 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 ouroperations;


·
            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.




-16-




**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 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.




-17-




**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.




-18-




**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.




**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.




-19-





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.




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
      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, no 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;




·
            General
                economic and market conditions; and




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




-20-




**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
      September 30, 2006 (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):




·
            Options
                to purchase approximately 6.0 million shares of our common stock;
                and


·
            Warrants and convertible debentures to purchase
              or
              acquire approximately 42.3 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.




On
        November 1, 2006 the Company entered into an agreement with Cornell Capital
        Partners, LP wherein terms were defined for the full redemption of the 7%
        secured convertible debentures issued on March 10, 2006 and the 7% secured
        convertible debentures issued on March 14, 2006, and for the concurrent
        cancellation of certain warrants to purchase 16,250,000 shares of the Company’s
        common stock. The full redemption would require that the Company pay to Cornell
        on or before December 31, 2006 the entire principal amount outstanding plus
        all
        accrued and outstanding interest then owed, plus the redemption premium of
        20%
        of the principal amount. Cornell would retain the remaining 5,000,000 warrants
        that would be exercisable on a cash-basis only.




**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





***(a)
      Evaluation of Disclosure Controls and Procedures.***




Based
      on
      an evaluation of the effectiveness of Wherify’s disclosure controls and
      procedures (as defined in Rule 13a-15(e) promulgated under the Securities
      Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by
      this report, and because of our incomplete accounting for all of the issues
      related to the complex rules over derivatives treated as liabilities associated
      with our convertible debentures issued during March of 2006 and upon review
      of
      our Form 10-QSB for our current period as discussed below, our Chief Executive
      Officer and Chief Financial Officer concluded that our disclosure controls
      and
      procedures were still not effective as of September 30, 2006 to ensure that
      information required to be disclosed by us in reports that we file or submit
      under the Exchange Act is recorded, processed, summarized and reported within
      the time periods specified in Securities and Exchange Commission rules and
      forms.




-21-




Additional
      effort is needed to fully remedy our three identified deficiencies as discussed
      below and we are continuing our efforts to improve and strengthen our control
      processes and procedures. Our management and Audit Committee intend to continue
      to work with our auditors and other outside advisors, as appropriate, to develop
      and then apply our controls and procedures with the goal of achieving adequate
      and effective disclosure controls. We believe that with a properly planned,
      designed and implemented system of internal controls over financial reporting,
      our disclosure controls and procedures are expected to become effective.




*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.




-22-




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




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 this Annual 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.




*Fiscal
      Quarter Ended September 30, 2006*




Management
      reviewed the various control activities now instituted and applied for both
      preventative and detective controls to our external financial reporting
      processes. The Audit Committee of the Board of Directors, along with a majority
      of the Company’s directors, discussed the matters disclosed in this filing with
      the Company’s independent registered public accountants, Malone & Bailey,
      PC, including management’s follow-up on the prior year’s matters discussed
      above, and no current significant issues or control deficiencies were noted
      by
      our outside auditor’s review of the preparation or reporting of our unaudited
      fiscal quarter ended September 30, 2006 external financial reports on this
      Form
      10-QSB.




Since
      the
      latter part of our 2006 fiscal year, we have initiated and continued to apply
      various systematic controls over the preparation and review of our accounting
      processes, and are continuously working to improve our internal controls over
      our accounting close and financial reporting processes. Attention remains on
      applying consistent and systematic documentary controls and checklists
      evidencing of the preparation and review/approval of accounting information
      and
      transactions. Additionally, a comprehensive outline for policies and standard
      operating procedures over the company’s process for corporate governance,
      accounting process controls and checklists, standardization of accounting
      transaction approvals and recording, and external financial reporting procedures
      including signatory approvals has been developed and we have begun implementing
      some of these policies and standard operating procedures.




In
      response to the previously identified control deficiencies during fiscal 2006
      as
      discussed above and the need to restate our 2006 first fiscal quarter’s
      unaudited external financial report on Form 10-QSB/A, and the staffing
      limitations imposed by the Company on the accounting function, 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 such that there has been demonstrated
      a
      more than remote likelihood that a misstatement of the Company’s annual or
      interim financial statements that is more than inconsequential may not be
      prevented or detected. As a result, management has determined that the 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 September 30, 2006 and have
      not yet been demonstratably remediated as of our fiscal quarter ended September
      30, 2006. The Company views this as a serious issue. 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 two fiscal
      quarters and the ongoing improvements over disclosure controls being instituted
      in our accounting function including those listed below.




*Steps
      planned to be taken during our 2007 fiscal year:*




1.
      Complete remedial actions to address and resolve our identified internal control
      deficiencies over unusual or complex accounting transactions, including clear
      documentation of procedures to be followed in accounting for our current complex
      accounting matters to be used in conjunction with our ongoing accounting and
      reporting processes for our fiscal year ending June 30, 2007;




-23-




2.
      Implement our plan for a systematic program of company policies and standard
      operating procedures over accounting and external financial reporting processes
      by continuing the process of incorporating existing policies into our recently
      finished comprehensive framework and continue drafting those policies and
      standard operating procedures most relevant to our current accounting
      operations;




3.
      Strengthen the staff accounting skills and improve supervision controls over
      accounting processes including unusual or complex accounting transactions.
      As
      resources are available this will include additional professional staffing
      and
      intermediate and advanced level accounting training seminars, as appropriate.




As
      concluded above, additional effort is needed to fully remedy these three
      identified deficiencies and we are continuing and expect to complete our efforts
      to improve and strengthen our control processes and procedures. Our management
      and Audit Committee intend to continue to work with our auditors and other
      outside advisors, as appropriate, to develop and then apply our controls and
      procedures with the goal of achieving adequate and effective disclosure
      controls. We believe that with a properly planned, designed and implemented
      system of internal controls over financial reporting, our disclosure controls
      and procedures are expected to be determined to be effective in our fiscal
      year
      2007.




***(b)
      Changes in Internal Controls Over Financial Reporting.***




During
      the fiscal quarter ending September 30, 2006, no changes were affected in our
      system of internal controls over financial reporting or in other factors that
      have materially affected, or are reasonably likely to materially affect, our
      internal controls over financial reporting:







PART
      II.
      OTHER INFORMATION





Item
      6.
      Exhibits.




Exhibit No.
            
            Description31.1
            
            Chief Executive Officer Certification
              of
              Periodic FinancialReport
              Pursuant to Section 302 of the arbanes-Oxley Act of2002.
              (+)31.2
            
            Chief Financial Officer Certification
              of
              Periodic FinancialReport
              Pursuant to Section 302 of the Sarbanes-Oxley Act of2002.
              (+)32.1
            
            Chief Executive Officer Certification
              Pursuant to 18 U.S.C.Section
              1350, as adopted pursuant to Section 906 of theSarbanes-Oxley
              Act of 2002. (+)32.2
            
            Chief Financial Officer Certification
              Pursuant to 18 U.S.C.Section
              1350, as adopted, pursuant to Section 906 of theSarbanes-Oxley
              Act of 2002. (+)





(+)
      Filed
      herewith




-24-




SIGNATURES





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has duly caused this report to be signed on its behalf by the undersigned
      thereunto duly authorized.






November 14, 2006
            /s/
                Timothy J. Neher
              Timothy
                  J. Neher, Chief Executive Officer
                (Principal
                  Executive Officer)November 14, 2006
            /s/ Mark
                E. Gitter
              Mark
                  E. Gitter, Chief Financial Officer and
                Treasurer
                  (Principal Accounting
                  Officer)




-25-