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 December 31,
                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.)
 
 63
                    Bovet Road, #521, San Mateo, California
                
                94402-3104(Mailing
                    Address of Principal Executive Offices)
                
                (Zip
                    Code)
 
 650-551-5200
 (Issuer's
        telephone number)
 
 2000
        Bridge Parkway, Suite 201, Redwood Shores, CA 94065
 (Former
        name, former address and formal fiscal year, if changed since last
        report)





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
      February 6, 2007, there were 72,365,599 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 DECEMBER 31, 2006**




TABLE
      OF CONTENTS




PagePART
                  I. FINANCIAL
                  INFORMATIONItem
                  1.
              
              Financial
                  Statements
              
              3Balance
                  Sheets as of December 31, 2006 and June 30, 2006(Unaudited)
              
              3Statements
                  of Operations for the three and six monthsended
                  December 31, 2006 and 2005 (Unaudited)
              
              4Condensed
                  Statements of Cash Flows for the six months endedDecember
                  31, 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
              
              29Signatures
              
              30EXHIBITS





-2-




PART
      I.
      FINANCIAL INFORMATION





Item
      1.
      Financial Statements




**Wherify
        Wireless, Inc**
 **Balance
        Sheets**
 **Unaudited**
  **December
                    31,**
                
                **June
                    30,****2006**
                
                **2006****ASSETS****CURRENT
                    ASSETS:**Cash
                    and cash equivalents
                
                $
                58,993
                
                $
                524,722Restricted
                    certificates of deposit
                
                
                512,709
                
                
                1,278,014Prepaid
                    expenses
                
                
                65,627
                
                
                29,281Accounts
                    receivable, net
                
                
                300,202
                
                
                10,133Inventory,
                    net of reserve of $1,385,512 and $0, respectively
                
                
                2,252,681
                
                
                81,141Security
                    deposit and other assets
                
                
                322,400
                
                
                373,100**TOTAL
                    CURRENT ASSETS**
                
                
                **3,512,612**
                
                
                **2,296,391**Intangible
                    assets, net of accumulated amortization of $21,691 and $14,191,
                    respectively
                
                
                23,309
                
                
                30,809Property
                    and equipment, net of accumulated depreciation of $1,435,896
                    and
                    $1,302,036, respectively
                
                
                528,157
                
                
                640,607Deferred
                    debt and equity issuance costs and other non-current
                    assets
                
                
                88,013
                
                
                755,691**TOTAL
                    ASSETS**
                
                **$**
                **4,152,091**
                
                **$**
                **3,723,498****LIABILITIES
                    AND STOCKHOLDERS' DEFICIT****CURRENT
                    LIABILITIES:**Accounts
                    payable
                
                $
                5,456,307
                
                $
                2,836,057Accounts
                    payable - related party
                
                
                3,171,309
                
                
                3,105,750Accrued
                    liabilities
                
                
                2,846,566
                
                
                993,552Accounts
                    payable related to discontinued operating segment
                
                
                2,085,211
                
                
                2,085,211Deferred
                    revenue
                
                
                169,005
                
                
                -Note
                    payable - related party
                
                
                2,000,000
                
                
                2,000,000Current
                    maturities of convertible debentures
                
                
                2,102,659
                
                
                1,404,990Fair
                    value of derivatives
                
                
                7,058,893
                
                
                2,692,235**TOTAL
                    CURRENT LIABILITIES**
                
                
                **24,889,950**
                
                
                **15,117,795****Commitments
                    and Contingencies**
                
                
                **—**
                
                
                **—****STOCKHOLDERS'
                    DEFICIT**Common
                    stock, $0.01 par value, 200,000,000 shares
                    authorized,72,365,599,
                    and 55,301,513 shares issued and outstanding,
                    respectively
                
                
                723,656
                
                
                553,015Additional
                    paid in capital
                
                
                129,030,934
                
                
                124,591,434Accumulated
                    deficit
                
                
                (150,492,449
                )
                
                (136,538,746
                )**TOTAL
                    STOCKHOLDERS' DEFICIT**
                
                
                (20,737,859
                )
                
                (11,394,297
                )**TOTAL
                    LIABILITIES AND STOCKHOLDERS' DEFICIT**
                
                **$**
                **4,152,091**
                
                **$**
                **3,723,498**




See
      accompanying notes to financial statements.




-3-




**Wherify
        Wireless, Inc.** **Statements
          of Operations** **Unaudited**
  **Three
                    Months Ended**
                  **December
                    31,**
                
                **Six
                    Months Ended**
                  **December
                    31,****2006**
                
                **2005**
                
                **2006**
                
                **2005****REVENUES:**Sales
                    Revenue
                
                $
                324,459
                
                $
                64,364
                
                $
                508,780
                
                $
                100,000**OPERATING
                    EXPENSES:**Cost
                    of Goods Sold (except for items stated separately
                    below)
                
                
                280,003
                
                
                6,027
                
                
                284,613
                
                
                9,383Goodwill
                    impairment
                
                
                -
                
                
                -
                
                
                -
                
                
                64,308,022Research
                    and development
                
                
                377,781
                
                
                512,447
                
                
                784,915
                
                
                753,557General
                    and administrative
                
                
                4,029,185
                
                
                2,249,532
                
                
                7,076,603
                
                
                4,342,847Rent
                    expense
                
                
                408,660
                
                
                342,728
                
                
                780,015
                
                
                685,457Amortization
                    & depreciation
                
                
                80,998
                
                
                229,975
                
                
                160,820
                
                
                415,164**TOTAL
                    OPERATING EXPENSES**
                
                
                **5,176,627**
                
                
                **3,340,709**
                
                
                **9,086,966**
                
                
                **70,514,430****OPERATING
                    LOSS**
                
                
                **(4,852,168**
                **)**
                
                **(3,276,345**
                **)**
                
                **(8,578,186**
                **)**
                
                **(70,414,430**
                **)****OTHER
                    INCOME (EXPENSE)**Change
                    in fair value of derivatives
                
                
                7,090,145
                
                
                -
                
                
                (4,366,659
                )Interest
                    expense
                
                
                (514,058
                )
                
                (3,160
                )
                
                (1,031,330
                )
                
                (9,742
                )Interest
                    and other income
                
                
                9,970
                
                
                19,929
                
                
                22,472
                
                
                45,639**NET
                    INCOME (LOSS) FROM CONTINUING**
                  **OPERATIONS**
                
                
                **1,733,889**
                
                
                **(3,259,576**
                **)**
                
                **(13,953,703**
                **)**
                
                **(70,378,533**
                **)****DISCONTINUED
                    OPERATIONS******Loss
                    from operations of discontinued segment
                
                
                -
                
                
                (42,930
                )
                
                -
                
                
                (85,860
                )**NET
                    INCOME (LOSS) ATTRIBUTABLE TO COMMON**
                    **SHAREHOLDERS**
                
                **$**
                **1,733,889**
                
                **$**
                **(3,302,506**
                **)**
                **$**
                **(13,953,703**
                **)**
                **$**
                **(70,464,393**
                **)**Basic
                    and diluted net income (loss) per sharefrom
                    continuing operations
                
                $
                0.03
                
                $
                (0.06
                )
                $
                (0.22
                )
                $
                (1.46
                )Basic
                    and diluted net income (loss) per share
                
                $
                -
                
                $
                (0.00
                )
                $
                -
                
                $
                (0.00
                )from
                    discontinued operationsBasic
                    and diluted net income (loss) per share
                
                $
                0.03
                
                $
                (0.06
                )
                $
                (0.22
                )
                $
                (1.46
                )Weighted
                    average number of shares outstanding
                
                
                68,768,687
                
                
                53,005,324
                
                
                63,092,043
                
                
                48,143,070




See
      accompanying notes to financial statements.




-4-


**Wherify
        Wireless, Inc.**
 **Condensed
        Statements of Cash Flows** **Unaudited**


**Six
                    Months Ended December 31,****2006**
                
                **2005****NET
                    CASH USED IN OPERATING ACTIVITIES**
                
                $
                (5,254,245
                )
                $
                (5,070,368
                )**INVESTING
                    ACTIVITIES:**Decrease
                    in restricted certificates of deposit
                
                
                765,305
                
                
                799,210Purchase
                    of property and equipment
                
                
                (21,411
                )
                
                (88,268
                )**NET
                    CASH PROCEEDS USED IN INVESTING ACTIVITIES**
                
                
                743,894
                
                
                710,942**FINANCING
                    ACTIVITIES:**Net
                    proceeds from issuance of stock
                
                
                4,044,622
                
                
                4,336,200**NET
                    CASH PROVIDED BY FINANCING ACTIVITIES**
                
                
                4,044,622
                
                
                4,336,200**CHANGE
                    IN CASH AND CASH EQUIVALENTS**
                
                
                (465,729
                )
                
                (23,226
                )**CASH
                    AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
                
                
                524,722
                
                
                1,208,089**CASH
                    AND CASH EQUIVALENTS - END OF PERIOD**
                
                $
                58,993
                
                $
                1,184,863




See
      accompanying notes to financial
      statements.




-5-




**WHERIFY
      WIRELESS, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**(Unaudited)**





**NOTE
      1 - BASIS OF PRESENTATION**




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




*Going
        Concern*
 
 Wherify's
        financial statements have been prepared on a going concern basis, which
        contemplates the realization of assets and settlement of liabilities and
        commitments in the normal course of business for the foreseeable future.
        Since
        inception, the Company has accumulated losses aggregating to $150,492,449
        and
        has insufficient working capital to meet its current operating needs and
        is
        dependent on successful new financings to continue its operations, all of
        which
        raise substantial doubt about Wherify's ability to continue as a going concern.
        As of February 20, 2007 the Company has had to delay payment of its last
        two
        payrolls to employees, and is late on its calendar 2007 payroll tax
        obligations.
 
 Management's
        plans for Wherify's continued existence include selling additional stock
        or
        borrowing additional funds to pay overhead expenses while proceeding with
        its
        current business plan to launch and market its new GPS enabled wireless location
        products.
 
 Wherify's
        future success is dependent upon its ability to achieve profitable operations,
        generate cash from operating activities and obtain additional financing.
        There
        is no assurance that Wherify will be able to generate sufficient cash from
        operations, sell additional shares of common stock or borrow additional
        funds.
 
 Should
        Wherify be unable to obtain additional cash this will have a material adverse
        effect on its financial position, results of operations and its ability to
        continue in existence. The consolidated financial statements do not include
        any
        adjustments that might result from the outcome of this
        uncertainty.




*Revenue
          Recognition*
  Wherify
          adopted revenue recognition policies to comply fully with the guidance
          in Staff
          Accounting Bulletin (“SAB”) No. 104, *Revenue
          Recognition* ,
          SAB
          Topic 13, *Revenue
          Recognition* ,
          FASB’s
          Emerging Issues Task Force (“EITF”) Issue 00-21, *Revenue
          Arrangements with Multiple Deliverables* ,
          and
          AICPA Statement of Position (“SOP”) 97-2, *Software
          Revenue Recognition* .
          Revenue
          is recognized when persuasive evidence of an arrangement exists, the delivery
          and acceptance of the equipment has occurred or services have been rendered,
          the
          price is fixed or determinable, and the collectibility of payment is reasonably
          assured. The application of this guidance requires management to exercise
          judgment in evaluating these factors in light of the terms and conditions
          of its
          customer contracts and other existing facts and circumstances to determine
          appropriate revenue recognition. Application of SOP 97-2 requires determining
          whether a software arrangement includes multiple elements, and if so, whether
          vendor-specific objective evidence (VSOE) of fair value exists for those
          elements. Changes to the elements in a software arrangement, the ability
          to
          identify VSOE for those elements, the fair value of the respective elements,
          and
          changes in a product’s estimated life cycle, could materially impact the amount
          of earned and unearned revenue. Judgment is also required to assess whether
          future releases of certain software represent new products or upgrades
          and
          enhancements to existing products. Application of EITF 00-21 requires
          determining whether a revenue arrangement includes multiple revenue-generating
          activities, such as product sale and services, and if so whether allocation
          of
          the arrangement’s consideration is required to more than one unit of
          accounting.
 
 Wherify
          has two types of revenue: hardware revenue and subscription revenue, and
          consists of shipped customer orders and completed services. Hardware revenue
          is
          recognized at the later of shipment date or upon satisfying contractual
          requirements or obligations under the sales contract, whichever is later.
          Subscription revenue is recognized at completion of performance. Prior
          to
          September 2006, the Company recognized revenues primarily from the sale of
          FACES software and subscriptions. Starting in September 2006 recognized
          revenues
          are primarily from the sale of wireless location devices and services.
          Revenues
          are also offset with a reserve for any price refunds and consumer rebates
          consistent with the EITF Issue 01-09, *Accounting
          for Consideration Given by a Vendor to a Customer* ,
          as
          appropriate.
 
 Hardware
          sales currently consist principally of revenues from the sale of GPS-enabled
          wireless location devices, primarily Wherifone handsets plus accessories
          to new
          subscribers and to agents and other third-party distributors. The revenue
          and
          related expenses associated with the sale of wireless handsets and accessories
          through our indirect sales channels are recognized when the products are
          delivered and accepted by the agent or third-party distributor, as this
          is
          considered to be a separate earnings process from the sale of wireless
          services
          and the probability of collection is likely. Shipping and handling costs
          for
          wireless handsets sold to agents and other third-party distributors are
          classified as costs of equipment sales.
 
 Subscription
          revenues are earned by providing access to Wherify’s wireless GPS-enabled
          location services network (activation revenue) and for usage of its wireless
          telecommunications system including enhanced GPS-enabled locates (airtime
          revenue). Activation revenue from postpaid subscribers is billed either
          in
          advance or arrears and recognized ratably over the service period. Airtime
          revenue, including locates, call time, roaming revenue and long-distance
          revenue, is billed in arrears based on minutes of use and is recognized
          when the
          service is rendered. Prepaid airtime sold to subscribers and revenue collected
          from pay-in-advance subscribers is recorded as deferred revenue prior to
          the
          commencement of services, and revenue is recognized when airtime is used
          or
          expires. Activation and airtime services provided are billed throughout
          the
          month according to the bill cycle in which a particular subscriber is placed.
          As
          a result of bill cycle cut-off times, the Company is required to make estimates
          for service revenues earned but not yet billed at the end of each month,
          and for
          advanced billings. Estimates for activation revenues are based upon the
          most
          current bill cycle revenues. Estimates for airtime revenues are based upon
          historical minutes of use.
 
 The
          Company launched its North American wireless location services in October
          2006.
          The Company’s North American subscribers’ rate plan include a feature whereby a
          subscriber’s monthly usage is automatically charged at the most advantageous
          rate plan then in effect for the minutes used. For prepaid plans, the Company
          defers revenue based on an estimate of the portion of unused minutes expected
          to
          be utilized prior to expiration. As the Company lacks historical subscriber
          usage patterns for its specialized services, the Company must apply judgment
          to
          estimate the number of unused minutes to be utilized, as well as those
          which are
          likely to expire or be forfeited. No deferral of revenue is recorded for
          the
          minutes expected to expire or be forfeited, as no future performance is
          expected
          to be required by the Company, nor is there any obligation to refund or
          redeem
          for value the expired minutes. The balance of the deferred phone
          sales and activation fees as of December 31, 2006 and June 30,
          2006 was $169,005 and $0, respectively, and has been included
          in Deferred revenue in the consolidated balance sheets. When
          available, revenues for enhanced services and optional features would be
          recognized as earned. Service revenues also include billings to our subscribers
          for Universal Service Fund (USF) and other regulatory fees.
  The
          Company has determined that the sale of wireless services through its direct
          sales channels with an accompanying handset constitutes a revenue arrangement
          with multiple deliverables in accordance with EITF No. 00-21, *Accounting
          for Revenue Arrangements with Multiple Deliverables.* The
          Company accounts for these arrangements as separate units of accounting,
          including the wireless service and handset. Arrangement consideration received
          for the handset is recognized as equipment sales when the handset is delivered
          and accepted by the subscriber. Arrangement consideration received for
          the
          wireless service is recognized as service revenues when earned. As the
          non-refundable, up-front activation fee charged to the subscriber does
          not meet
          the criteria as a separate unit of accounting, the Company allocates the
          additional arrangement consideration received from the activation fee to
          the
          handset (the delivered item) to the extent that the aggregate handset and
          activation fee proceeds do not exceed the fair value of the handset. Any
          activation fees not allocated to the handset would be deferred upon activation
          and recognized as service revenue on a straight-line basis over the expected
          customer relationship period. The Company determined that the sale of wireless
          services through its indirect sales channels (agents) does not constitute a
          revenue arrangement with multiple deliverables. For indirect channel sales,
          the
          Company continues to defer non-refundable, up-front activation fees and
          associated costs to the extent of the related revenues in accordance with
          SAB No. 104, *Revenue
          Recognition* .
          These
          deferred fees and costs are amortized on a straight-line basis over the
          estimated customer relationship period, presumably the contract period.
 
 Due
          to
          our limited commercial sales history, our ability to evaluate the collectibility
          of customer accounts requires significant judgment. The Company evaluates
          its
          equipment customer and service customer accounts for collectibility at
          the date
          of sale and on an ongoing basis.




**NOTE
      2 - STOCK-BASED COMPENSATION**




Prior
      to
      January 1, 2006 we accounted for stock based compensation under Statement of
      Financial Accounting Standards No. 123 Accounting for Stock−Based Compensation
      (FAS 123). As permitted under this standard, compensation cost was recognized
      using the intrinsic value method described in Accounting Principles Board
      Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Effective
      January 1, 2006, the Company has adopted Statement of Financial Accounting
      Standards No. 123 (Revised 2004), Share−Based Payment (FAS 123R) and applied the
      provisions of the Securities and Exchange Commission Staff Accounting Bulletin
      No. 107 using the modified−prospective transition method. Prior periods were not
      restated to reflect the impact of adopting the new standard. As a result of
      the
      adoption of FAS 123R, stock−based compensation expense recognized during
      the quarter ended December 31, 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 December 31, 2006, the Company recognized stock−based
        compensation expenses of $0.1 million related to outstanding stock options
        according to the provisions of FAS 123R, using the modified−prospective
        transition method. During the three and six months periods ended December
        31,
        2006, third party consultants were issued 436,666 shares of unrestricted
        common
        stock under the Company’s 2004 Stock Plan in exchange for various current
        obligations and future services.




Prior
      to
      the adoption of FAS 123R and for the six months ended December 31, 2005, no
      tax
      benefit from the exercise of stock options has or have 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 three and six months periods ended December 31, 2005, Wherify granted
        its employees options to purchase 150,000 shares of common stock and 1,513,567
        shares of common stock, respectively. The options vest over a four year period
        and expire ten years from the grant date. Since the exercise price of the
        options was equal to the market value of the stock on the grant date,
        Wherify did not record any compensation expense under the intrinsic method.
        During the three and six months periods ended December 31, 2005, no options
        were
        issued to third party consultants. During
        the three and six months ended December 31, 2005, third party consultants
        were
        issued 185,000 shares of common stock in exchange for investor services.




-6-




During
      the three months ended December 31, 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 six months ended December 31,
      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
                
                
                110,000
                
                $
                0.27
                
                
                9.8Exercised
                
                
                0Forfeited/Canceled/Repriced
                
                
                (2,122,951
                )
                $
                0.75Repriced
                
                
                1,339,780
                
                $
                0.30
                
                
                9.3Outstanding
                    on December 31, 2006
                
                
                5,547,989
                
                $
                0.86
                
                
                7.0Exercisable
                    on December 31, 2006
                
                
                3,240,893
                
                $
                0.76
                
                
                5.9




The
          weighted−average grant−date fair value during the six months ended December 31,
          2006 and December 31, 2005 was $0.275 per share and $3.30 per share,
          respectively. Additionally, 0 options and 200,757 options were exercised
          and
          355,339 options and 548,374 options vested during the six month periods
          ended
          December 31, 2006 and December 31, 2005, respectively. The unrecognized
          share-based compensation cost related to stock option expense at December
          31,
          2006 is $786,416 and
          will
          be recognized over a weighted average of 2.9 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 December 31, 2006 the Company recognized compensation expense
        of
        $67,232 for stock-based compensation.




**NOTE
      3 - INVENTORY**




Net
          inventory consists primarily of approximately $1.0 million of work in process
          at
          our contract manufacturer, approximately $0.5 million of consigned finished
          goods currently at various distribution channels, and approximately $0.8
          million
          of finished goods.
 
 The
          Company contracted with an external party to manufacture units of its enhanced
          GPS-enabled wireless location product (the Wherifone TM ).
          The
          Company commenced mass manufacture of its Wherifone during the quarter
          ended
          September 30, 2006 to meet international product requirements and in
          anticipation of its North American Wherifone retail launch that occurred
          on
          October 1, 2006. The Company includes in inventory work in process currently
          at
          its contract manufacturer for which there is an expected obligation to
          purchase
          per terms of the contract.
 
 The
          Company recognizes impairment losses on its inventory when there is evidence
          that the value of the goods will be less than the costs. The Company performs
          a
          detailed inventory valuation and impairment review each fiscal quarter
          and
          considers multiple factors including an evaluation of the stages of production
          work in process at its third party contract manufacturer, demand forecast,
          product development plans, and current geographic sales levels. At December
          31,
          2006 the Company recognized an impairment of $1.4 million on its inventories
          primarily related to the fair market value of units to be sold into the
          North
          American marketplace.


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





The
        Company has determined that the conversion feature of the secured convertible
        debentures and the warrants issued with the secured convertible debentures
        are
        embedded derivative instruments pursuant to SFAS No. 133, Accounting for
        Derivative Instruments and Hedging Activities, as amended. Under the provisions
        of EITF Issue No. 00−19, Accounting for Derivative Financial Instruments Indexed
        to, and Potentially Settled in, a Company's Own Stock, the accounting treatment
        of these derivative financial instruments requires that the Company record
        the
        derivatives at their fair values as of the inception date of the note agreements
        and at fair value as of each subsequent balance sheet date as a liability.
        Any
        change in fair value is recorded as non−operating, non−cash income or expense at
        each balance sheet date. The Company estimates fair value using the
        Black−Scholes option pricing model. This model requires the use of estimates
        such as the expected holding period, the expected future volatility of the
        company's common stock and the risk−free rate of return over the holding period.
        These estimates directly affect the reported amounts of the derivative
        instrument liabilities. At December 31, 2006, the Company estimated the fair
        value of the conversion feature and warrant liability and related expense
        at
        $7.1 million.




-7-




**NOTE
      5 - Contingencies**





**Legal
      Proceedings**




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




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





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




On
        August
        5, 2005, plaintiffs Sylvie Lariviere, Robert Rios, Toni Lange, Fernand Beland,
        Frederic Serre and Roland Vroye, filed their first amended complaint against
        I.Q. Biometrix, Inc., a Delaware corporation, in Fresno County Superior Court,
        State of California. Plaintiffs’ complaint alleges causes of action for breach
        of contract and fraud for a failure to issue stock options pursuant to an
        alleged oral and/or written agreement. The complaint seeks to recover damages,
        including punitive damages, and/or an award of stock options. On October
        25,
        2005, Wherify demurred on behalf of itself, Greg Micek and William Scigliano
        and
        on January 4, 2005, the demurrer was sustained on several grounds. This matter
        had been set for trial on January 18, 2007 and has been delayed and the matter
        is continued until March 2007 due to change of counsel. The Company’s management
        feels that a reasonable estimate for potential liability for the company
        is
        somewhere within a range of $0 to $500,000. Management of the Company has
        also
        determined that no amount within that range is a better estimate of a potential
        liability than any other amount. Therefore, no amount has been set aside
        for
        this contingent liability.




*Westport
        Office Park, LLC v. Wherify Wireless, Inc, a California
        Corporation*
  On
        January 5, 2007, Westport Office Park, LLC (“Westport”), filed an Entry of
        Stipulation and Agreement against Wherify Wireless, Inc, a California
        Corporation (“Wherify California”), in the Superior Court of California—San
        Mateo County. The Stipulation and Agreement contains a Confession of Judgment
        relating to an unlawful detainer action filed by Westport against Wherify
        California. Upon entry by the Court, the judgment terminated Wherify
        California's right to possession of the premises located at 2000 Bridge Parkway,
        Suite 201, Redwood City, California, consisting of approximately 25,690 square
        feet on the second floor of the building. This facility served as Wherify’s
        principal office. The unlawful detainer action and Stipulation and Agreement
        was
        a consequence of Wherify California’s failure to make its past and current lease
        payments plus other related obligations as a result of Wherify's financial
        difficulties and the ongoing nature of its current fund raising activities.
        Base
        rent charges are currently $126,072 per month. The lease commenced on September
        3, 1999 and was scheduled to terminate on or about September 3, 2009. Based
        on
        the terms of the Stipulation and Agreement, Wherify California was required
        to
        relinquish possession of the space and has accrued unpaid rent and other
        charges
        estimated at approximately $1.1 million. In response to the Stipulation and
        Agreement, Wherify vacated the leased premises on January 17, 2007





**NOTE
      6 - EQUITY**




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




-8-




**NOTE
      7 - SUBSEQUENT EVENTS**





On
        January 5, 2007, Westport Office Park, LLC ("Westport") notified Wherify
        that it
        had filed a Stipulation and Agreement it had entered into with Wherify
        California Inc., (“Wherify California”) a wholly-owned subsidiary of Wherify, in
        San Mateo Superior Court (“Court”). The Stipulation and Agreement contains a
        Confession of Judgment relating to an unlawful detainer action filed by Westport
        against Wherify California. Upon entry by the Court, the judgment will terminate
        Wherify California's right to possession of the premises located at 2000
        Bridge
        Parkway, Suite 201, Redwood City, California, consisting of approximately
        25,690
        square feet on the second floor of the building. This facility has served
        as
        Wherify’s principal office. The unlawful detainer action and Stipulation and
        Agreement was a consequence of Wherify California’s failure to make its past and
        current lease payments plus other related obligations as a result of Wherify's
        financial difficulties and the ongoing nature of its current fund raising
        activities. Base rent charges are currently $126,072 per month. The lease
        commenced on September 3, 1999 and was scheduled to terminate on or about
        September 3, 2009. Based on the terms of the Stipulation and Agreement, Wherify
        California must relinquish possession of the space and pay the accrued unpaid
        rent and other charges estimated at approximately $1.1 million. Wherify and
        Wherify California are currently taking steps to preserve and protect important
        company assets and records, have vacated the premises back to the landlord,
        and currently are in the process of relocating its principal
        office.





On
          February 2, 2007, Cornell Capital Partners, LLC (“Cornell”) conditionally agreed
          to refrain from declaring its secured Convertible Debentures in default
          and
          forebear from acceleration of its right of repayment of the Debentures
          for 120
          days. In addition Cornell conditionally agreed to make the following amendments
          to the Debentures: (i) extend the maturity date to February 1, 2009; (ii)
          modify
          the interest rate to 8% payable monthly in arrears beginning eight months
          after
          the effective date of these amendments (the “Payment Date”); when due the
          interest may be paid in cash or capitalized and added to the principal
          amount of
          the Debenture, at the option of the Company; (iii) the Company will be
          required
          to make monthly amortization payments under the Debentures in the principal
          amount of $200,000 per month beginning on the Payment Date; (iv) the conversion
          price will be amended to a fixed conversion price of $0.25 with certain
          anti-dilution provisions; (v) Cornell will not convert any portion of the
          Debenture into an excess of 800,000 shares of common stock in any month
          unless
          at any time during such month the stock price is greater than $0.35 per
          share;
          (vi) the Company may make early redemptions of the amended Debentures at
          any
          time and without any additional penalty or premium provided that the Company
          provides Cornell with advance notice, waives the conversion restriction
          set
          forth in (v) above and raises the conversion cap from 4.99% to 9.99%. In
          addition, Cornell conditionally agreed to cancel warrants to purchase 15,500,000
          shares of common stock and retain the remaining warrants to purchase 7,000,000
          shares of common stock. Cornell conditionally agrees to exercise the retained
          warrants on a cash basis so long as the shares underlying the warrants
          are
          subject to an effective registration statement at the time of exercise
          and no
          event of default under the Debentures has occurred. All the amendments
          agreed to
          on February 2, 2007 and described above are conditioned upon the closing
          of a
          successful financing by the Company which results in raising net proceeds
          to the
          Company of at least $4.5 million by June 2, 2007 (the “Financing”). Upon the
          closing of the Financing, Cornell agrees to waive all known defaults of
          the
          Company that exist as of the closing date and agrees not to accelerate
          the
          repayment of the Debentures, as amended, at any time prior to the Payment
          Date.
  On
            February 22, 2007, Wherify Wireless, Inc. entered into a private placement
            and
            sold $1,200,000 aggregate principal amount of a 10% Senior Convertible
            Promissory Note (the “Note”) pursuant to the terms of a concurrently dated
            Securities Purchase and Option Agreement (the “Agreement”) among Wherify, the
            lender parties thereto (“Purchaser”), and a placement agent. The Note is due on
            February 15, 2008, or earlier in the event by Wherify of a merger, business
            combination, or sale of substantially all its assets. The Note is convertible
            into common stock at $0.10 per share, or into certain preferred stock
            in
            connection with the option described below. In connection with the sale
            of the
            Note, Wherify issued a five year warrant (the “Warrant”) to purchase Three
            Million (3,000,000) shares of common stock at an exercise price of $0.10
            per
            share. Also under the terms of the Agreement, Wherify granted the placement
            agent a five year warrant to purchase Three Million (3,000,000) shares
            of common
            stock at an exercise price of $0.10 per share. Taking into account the
            placement
            agent commission of $120,000 and other placement expenses, Wherify received
            net
            cash proceeds of approximately $1,000,000. Wherify will use the proceeds
            for
            general working capital purposes and to retire outstanding debt obligations.
 
 Further
            under the Agreement, Wherify issued to the Purchaser an option (the “Option”) to
            purchase an aggregate up to $7,500,000 stated value of Series A Convertible
            Preferred Stock (the “Preferred Stock”). The Option is exercisable at a 20%
            discount price to the face amount of the Preferred Stock by either full
            or
            partial exercise. Specifically, the Purchaser may exercise the Option
            in full by
            delivering to Wherify $6,000,000 gross cash proceeds less any amount
            of the Note
            the Purchaser elects to exchange. Alternatively, the Purchaser may exercise
            the
            Option in part by delivering to Wherify at least $4,500,000 gross cash
            proceeds
            plus any amount of the Note the Purchaser elects to exchange at a ratio
            of $1.25
            principal amount of the Preferred Stock for every $1.00 of Notes exchanged.
            The
            Option expires June 2, 2007. If issued as a result of the Option, the
            Preferred
            Stock will possess both an optional and mandatory conversion feature
            into common
            stock at $0.125 per share. The Preferred Stock will have voting rights
            on a
            converted basis of one vote per conversion share.


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





**Critical
      Accounting Policies and Estimates**




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





*Revenue
      Recognition*




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




-9-




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





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





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





The
        Company launched its North American wireless location services in October
        2006.
        The Company’s North American subscribers’ rate plan include a feature whereby a
        subscriber’s monthly usage is automatically charged at the most advantageous
        rate plan then in effect for the minutes used. For prepaid plans, the Company
        defers revenue based on an estimate of the portion of unused minutes expected
        to
        be utilized prior to expiration. As the Company lacks historical subscriber
        usage patterns for its specialized services, the Company must apply judgment
        to
        estimate the number of unused minutes to be utilized, as well as those which
        are
        likely to expire or be forfeited. No deferral of revenue is recorded for
        the
        minutes expected to expire or be forfeited, as no future performance is expected
        to be required by the Company, nor is there any obligation to refund or redeem
        for value the expired minutes. The balance of the deferred phone sales and
        activation fees as of December 31, 2006 and June 30, 2006 was $169,005
        and $0, respectively, and has been included
        in Deferred revenue in the consolidated balance sheets. When
        available, revenues for enhanced services and optional features would be
        recognized as earned. Service revenues also include billings to our subscribers
        for Universal Service Fund (USF) and other regulatory fees.





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




-10-





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





*Cost
      of Revenues*





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




*Research
      and Development Expense*





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





*General
      and Administrative Expense*





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




**1.**  **Introduction**




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




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




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





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





We
      have
      incurred operating losses from continuing operations of approximately $8.6
      million during the six months ended December 31, 2006 and $70.4 million during
      the six months ended December 31, 2005. For the six months ended December 31,
      2006 net losses from continuing operations were approximately $14.0 million
      and
      approximately $70.4 million during the comparable six months ended December
      31,
      2005. Net cash used for operating activities during the six months ended
      December 31, 2006 was approximately $5.3 million and approximately $5.1 million
      was used during the comparable six months ended December 31, 2005. We have
      an
      accumulated deficit of approximately $150.5 million as of December 31, 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.




-11-




As
        of
        December 31, 2006, Wherify had cash and cash equivalents of approximately
        $59
        thousand, restricted certificates of deposit of approximately $0.5 million,
        which are being utilized as collateral to support our obligations under a
        letter
        of credit related to our contract manufacturer, trade accounts receivable
        of
        approximately $0.3 million, inventory of approximately $2.3 million, other
        current assets of approximately $0.4 million, current liabilities of
        approximately $12.3 million (excluding the non-cash portion of fair value
        of
        derivatives of approximately $7.1 million and approximately $3.2 million
        in past
        due rent obligations to our former landlord) and deferred revenue of
        approximately $0.2 million. Wherify also has a liability related to the
        non-current payable portion of the convertible debenture of approximately
        $2.1
        million. The
        net
        decrease in cash and cash equivalents during the six months ended December
        31,
        2006 is primarily due to net cash used in operating activities of approximately
        $5.3 million, partly offset by receiving proceeds of approximately $4.0 million
        from the issuance of common shares plus the use of restricted certificates
        of
        deposit of approximately $0.8 million. Our average net cash used in operations
        during the six months ended December 31, 2006 was approximately $0.9 million
        per
        month as compared to approximately $0.8 million per month in the prior year
        period.




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 January 31, 2007, as amended. On February 2, 2007 we announced
        a
        revision to the Cornell agreement wherein certain amendments extending and
        modifying the terms of the convertible debentures, including the cancellation
        of
        all but 7 million warrants, were made contingent on the Company closing on
        new
        financing of at least $4.5 million within 120 days of February 2, 2007. On
        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 and subsequent
        revision as 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, 2006 Wherify borrowed an additional
        $1.0
        million from Stephen J. Luczo and issued Mr. Luczo a promissory note that
        is
        repayable on September 16, 2006 or at such earlier date as Wherify completes
        a
        financing, and which repayment date has been extended by both
        parties.


On
          February 22, 2007, Wherify Wireless, Inc. entered into a private placement
          and
          sold $1,200,000 aggregate principal amount of a 10% Senior Convertible
          Promissory Note (the “Note”) pursuant to the terms of a concurrently dated
          Securities Purchase and Option Agreement (the “Agreement”) among Wherify, the
          lender parties thereto (“Purchaser”), and a placement agent. The Note is due on
          February 15, 2008, or earlier in the event by Wherify of a merger, business
          combination, or sale of substantially all its assets. The Note is convertible
          into common stock at $0.10 per share, or into certain preferred stock in
          connection with the option described below. In connection with the sale
          of the
          Note, Wherify issued a five year warrant (the “Warrant”) to purchase Three
          Million (3,000,000) shares of common stock at an exercise price of $0.10
          per
          share. Also under the terms of the Agreement, Wherify granted the placement
          agent a five year warrant to purchase Three Million (3,000,000) shares
          of common
          stock at an exercise price of $0.10 per share. Taking into account the
          placement
          agent commission of $120,000 and other placement expenses, Wherify received
          net
          cash proceeds of approximately $1,000,000. Wherify will use the proceeds
          for
          general working capital purposes and to retire outstanding debt obligations.
 
 Further
          under the Agreement, Wherify issued to the Purchaser an option (the “Option”) to
          purchase an aggregate up to $7,500,000 stated value of Series A Convertible
          Preferred Stock (the “Preferred Stock”). The Option is exercisable at a 20%
          discount price to the face amount of the Preferred Stock by either full
          or
          partial exercise. Specifically, the Purchaser may exercise the Option in
          full by
          delivering to Wherify $6,000,000 gross cash proceeds less any amount of
          the Note
          the Purchaser elects to exchange. Alternatively, the Purchaser may exercise
          the
          Option in part by delivering to Wherify at least $4,500,000 gross cash
          proceeds
          plus any amount of the Note the Purchaser elects to exchange at a ratio
          of $1.25
          principal amount of the Preferred Stock for every $1.00 of Notes exchanged.
          The
          Option expires June 2, 2007. If issued as a result of the Option, the Preferred
          Stock will possess both an optional and mandatory conversion feature into
          common
          stock at $0.125 per share. The Preferred Stock will have voting rights
          on a
          converted basis of one vote per conversion share.
 
 The
          above
          disclosure about the February 22, 2007 Agreement does not constitute an
          offer of
          any securities for sale.  The securities offered as part of the February
          22, 2007 private placement have not been registered under the Securities
          Act and
          may not be offered or sold in the United States absent registration or
          an
          applicable exemption from registration requirements. As part of the Agreement,
          Wherify provided registration rights to the Purchaser upon exercise of
          the
          Option to demand registration of the common stock underlying the Note,
          Warrant,
          and Preferred Stock, and to participate in certain subsequent offerings
          of
          securities by Wherify or other shareholders.





Wherify
      currently does not have any credit facility available to it. Wherify has
      financed its operations to date primarily through the issuance of an aggregate
      of approximately 72 million shares of common stock and convertible debentures.
      There are "going concern" paragraphs in Wherify's auditor's reports for the
      fiscal years ended June 30, 2006 and 2005. We continue in the process of
      locating financing sources to meet our financing needs and to provide us greater
      flexibility and certainty with respect to our financing needs. Adequate funds
      may not be available on terms acceptable to us. If additional funds are raised
      through the issuance of equity securities, dilution to existing stockholders
      may
      result. If funding is insufficient at any time in the future, we may be unable
      to produce, develop, market or enhance our products or services, take advantage
      of business opportunities or respond to competitive pressures, any of which
      could have a material adverse effect on our financial position, results of
      operations and cash flows, or we may be unable to continue operations. We have
      no capital leases or material commitments for capital expenditures and there
      are
      no anticipated capital leases or material capital expenditures that are
      reasonably expected to have a material impact on us. 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 December 31, 2006. We intend to settle our remaining debt
      with the prior landlord through cash proceeds raised from the future sales
      of
      common stock and/or cash proceeds from future operations. As of February 6,
      2007, we were eight months in arrears with our rent payments to our current
      landlord, and o n
      January
      5, 2007, the landlord filed an Entry of Stipulation and Agreement against
      Wherify Wireless, Inc, a California Corporation. The complaint sought a judgment
      for possession of certain leased premises occupied by Wherify California as
      its
      principal offices in favor of the landlord, approximately $1.1 million in then
      outstanding amounts due and owing under the terms of the lease, and certain
      other amounts deemed owed. Wherify California answered the landlord’s complaint
      on January 17, 2007 by vacating from the leased premises. The Company has
      accrued an amount of approximately $1.1 million pending resolution of this
      matter.




-12-




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





As
        of
        February 22, 2007, Wherify had cash and cash equivalents of approximately
        $1.0
        million and restricted certificates of deposit of approximately $7 thousand.
        We
        have curtailed all but very critical activities pending obtaining additional
        new
        financing. If we are successful in raising new financing immediately we expect
        to be operating at modest levels until a second and larger financing can
        be
        obtained, as any such immediate new financing will not be adequate to fund
        our
        business plan for the following twelve months and to self-sufficiency from
        ongoing operating cash flow.





Even
        with
        successfully raising new financing, our expected capital resources will not
        be
        sufficient to fund our planned operations during the upcoming twelve month
        period. We intend to fund our future operations with a combination of public
        and
        private offerings of common stock and proceeds from operations. While we
        retain
        our $40 million SEDA under which 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, the pending registration statement was withdrawn from filing with
        the
        SEC and it is unclear whether management will decide to pursue refiling the
        SEDA
        in the future. Further, during the first quarter of calendar 2007 product
        sales
        have begun to provide cash, and the subscriber services have also started
        to
        contribute to our ongoing funding requirements. Neither product sales nor
        subscriber services are expected to make significant contributions to our
        funding requirements until later in calendar 2007. As a result we are dependent
        on successfully closing new financing immediately to continue our operations,
        and in the meantime we are carefully controlling our spending. We anticipate
        that to reach profitability will require at least one additional public funding
        round beyond our immediate new financing efforts. As part of our
        Wherifone TM product
        launch plan, as commenced in North America on October 1, 2006, we are managing
        company funds that specifically allocates resources to those activities that
        in
        the judgment of management best support the success of our product and services
        launches in North America and internationally. There is no assurance that
        our
        Wherify product and services will launch as expected over the next twelve
        months, or if launched that they will achieve the market success we have
        targeted. We anticipate that the amount of funding necessary for the company
        to
        implement our business plan during the next twelve-month period is expected
        to
        range from between $16 million to $21 million, and based on our projected
        cash
        used in operations of approximately $0.9 million per month, comprised of
        human
        resources costs of approximately $0.4 million per month, occupancy costs
        of
        approximately $30 thousand per month, monthly payments on debentures of
        approximately $0.2 million to recommence in September 2007, payment plans
        requirements on our outstanding accounts payables ranging between $0.1 million
        to $0.2 million per month, plus our expected growth in spending to support
        our
        critical new product launch activities, our billings and collections
        infrastructure and customer support services requirements over the next six
        to
        twelve months of approximately $0.1 to $0.3 million per month once initiated,
        and one time costs to catch up on past due rent and other asserted obligations
        of approximately $1.1 million, cash outlays to fund our contract manufacturing
        pipeline of between $3.0 million to $4.5 million, costs associated with the
        purchase of manufactured product from our contract manufacturer, and cash
        outlays to address the costs of new product launches of approximately $0.9
        million including brand development, promotional activities, advertising
        and
        marketing costs. Concurrent with our ongoing North American product launches
        we
        expect to maintain our customer services support and technical infrastructure
        that supports our GPS-enabled location service centers, which could add up
        to
        another $0.2 million per month of costs over time.




-13-





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
        through organic growth, pursuing strategic partnerships for product
        manufacturing, branding and distribution, and later through possible
        acquisitions, which we believe hold the key to our future long-term revenue
        growth opportunities. We believe it will take additional products, either
        created in-house or acquired through acquisitions, to help us increase revenue,
        and ultimately to reach profitability, such as our recently announced
        WheriFind TM product
        line. However, we can make no assurances that these activities will achieve
        the
        desired results of increased revenues, or that any increase in revenues will
        be
        enough to bring Wherify to profitability and positive cash
        flow.




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




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





**4.**  **General**




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




-14-





**5.**  **Results
      of Operations for the Quarter Ended December 31, 2006**




Quarter
      ended December 31, 2006 compared to quarter ended December 31, 2005





Sales
      revenues for the quarter ended December 31, 2006 were $324,459 as compared
      to
      $64,364 of net revenues for the quarter ended December 31, 2005. The quarter
      ended December 31, 2006 included domestic Wherifone TM product
      sales and subscription services of $271,959 following our October 1, 2006 launch
      of the Wherifone TM in North
      America, and $52,500 of ongoing sales related to the FACES products. Revenues
      in
      the quarter ended December 31, 2005 were primarily generated by the ongoing
      sales of FACES products.





Operating
      expenses for the quarter ended December 31, 2006 were approximately $5.2 million
      as compared to approximately $3.3 million for the quarter
      ended December 31, 2005.





Research
      and development expenses were approximately $0.4 million and approximately
      $0.5
      million for quarters ended December 31, 2006 and 2005, respectively. The
      decrease in expenses of approximately $0.1 million was due to lower salaries
      expense.





General
      and administrative expenses, excluding rent, amortization and depreciation
      expenses, increased by approximately $1.8 million from approximately $2.2
      million in the quarter ended December 31, 2005 to approximately $4.0 million
      in
      the quarter ended December 31, 2006. The increase in these expenses is due
      primarily to approximately $0.8 million inventory adjustment, approximately
      $0.6
      million write-off of capitalized legal and audit costs related to the SEDA
      financing, approximately $0.2 million of implementation cost for the new billing
      system and customer service management, approximately $0.4 million of higher
      sales salaries expense and marketing expenses related to the product launch
      of
      Wherifone TM ,
      and
      approximately $0.2 million of investment banking and management services
      expense, 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 $0.2 million from the prior
      year period due to the write-off of intangibles during our fiscal 2006 fourth
      quarter.





Other
      income and expense changed by approximately $6.6 million from the prior year
      period amount primarily due to the approximately $7.1 million credit due to
      the
      accounting affect of remeasurement of the change in fair value of the
      convertible debentures and warrants issued during March 2006, in accordance
      with
      SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. In
      addition, interest expense increased by approximately $0.5 million primarily
      due
      to interest expense charges related to the convertible debentures of $5.0
      million issued in March 2006 and to the notes payable of $2.0 million issued
      in
      February 2006 and June 2006.





**6.**  **Results
      of Operations for the Six Months Ended December 31, 2006**




Six
      months ended December 31, 2006 compared to the six months ended December 31,
      2005





Sales
      revenue for the six months ended December 31, 2006 were $508,780 as compared
      to
      $100,000 of sales revenue for the six months ended December 31, 2005. The six
      months ended December 31, 2006 included domestic and international
      Wherifone TM product
      sales and subscription services of $407,994 including our October 1, 2006 launch
      of the Wherifone TM in North
      America, and $100,786 of ongoing sales related to the FACES products. Revenues
      in the six months ended December 31, 2005 were primarily generated by the
      ongoing sales of FACES products.




-15-





Operating
        expenses for the six months ended December 31, 2006 were approximately $9.1
        million as compared to approximately $70.5 million for the six months ended
        December 31, 2005. The decrease in expenses is primarily due to an approximately
        $64.3 million goodwill impairment recognized during the period ended December
        31, 2005, partially offset by an approximately $2.7 million increase in general
        and administrative expenses in the six months ended December 31,
        2006.





Research
      and development expenses were approximately $0.8 million for each of the six
      months periods ended December 31, 2006 and 2005, respectively. The expenses
      include those costs in both periods associated with the product development
      and
      the preparation for the product launch of Wherifone TM .





General
      and administrative expenses, excluding rent, amortization and depreciation
      expenses, increased by approximately $2.7 million from approximately $4.3
      million in the six months ended December 31, 2005 to approximately $7.1 million
      in the six months ended December 31, 2006. The increase in these expenses is
      due
      primarily to approximately $1.3 of inventory adjustment, $0.2 million stock
      option non-cash expense related to the implementation of SFAS 123R,
      approximately $0.6 million write-off of capitalized legal and audit costs
      related to the SEDA financing, approximately $0.3 million of implementation
      cost
      for the new billing system and customer service management, approximately
      $1.1million of higher salaries expense, marketing and government filings
      expenses related to the product launch of Wherifone TM ,
      approximately $0.2 million of investment banking and management expense,
      partially offset by approximately $1.0 million in lower legal fees that were
      associated with the merger in the quarter ended September 30, 2005.





Amortization
      and depreciation expense decreased by approximately $0.3 million from the prior
      year period due to the write-off of intangibles during our fiscal 2006 fourth
      quarter.





Other
      income and expense changed by approximately $5.4 million from the prior year
      period amount primarily due to the approximately $4.4 million charge due to
      the
      accounting affect of remeasurement of the change in fair value of the
      convertible debentures and warrants issued during March 2006, in accordance
      with
      SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. In
      addition, interest expense increased by approximately $1.0 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.





**New
      Accounting Pronouncements**





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





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




**FORWARD
      LOOKING STATEMENTS**




In
      addition to historical information, this report contains predictions, estimates
      and other forward-looking statements that relate to future events or our future
      financial performance. These statements involve known and unknown risks,
      uncertainties and other factors that may cause our actual results, levels of
      activity, performance or achievements to be materially different from any future
      results, levels of activity, performance or achievements expressed or implied
      by
      the forward-looking statements. These risks and other factors include those
      listed under "Risk Factors" and elsewhere in this Form 10-QSB/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.




-16-




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.




**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**


-17-




As
        of
        December 31, 2006, Wherify had cash and cash equivalents of approximately
        $59
        thousand, restricted certificates of deposit of approximately $0.5 million,
        which are being utilized as collateral to support our obligations under a
        letter
        of credit related to our contract manufacturer, trade accounts receivable
        of
        approximately $0.3 million, inventory of approximately $2.3 million, other
        current assets of approximately $0.4 million, current liabilities of
        approximately $12.3 million (excluding the non-cash portion of fair value
        of
        derivatives of approximately $7.1 million and approximately $3.2 million
        in past
        due rent obligations to our former landlord) and deferred revenue of
        approximately $0.2 million. Wherify also has a liability related to the
        non-current payable portion of the convertible debenture of approximately
        $2.1
        million. As
        of
        February 22, 2007, Wherify had cash and cash equivalents of approximately
        $1
        million and restricted certificates of deposit of approximately $7 thousand.
        There is a going concern paragraph in Wherify’s audit reports for the respective
        fiscal years ended June 30, 2006 and 2005. Substantially all of our cash
        has
        been raised through capital raising transactions rather than operations.
        As we
        have limited revenues, we will need to raise additional working capital in
        the
        near future. There is no assurance that we will be able to raise additional
        working capital at all or on terms favorable to us. If we are unable to raise
        additional working capital, we will need to reduce our costs, which may require
        us to reduce operations, personnel and overhead, or discontinue
        operations.





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




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




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




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




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




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




-18-




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




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





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




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




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




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




·
            Overall
                demand for our products;




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




·
            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 of introducing
                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.




-19-





**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.




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




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





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




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




-20-




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.




**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;




-21-




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




·
            Redesign
                those products that use such
                technology.




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




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




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




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




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





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




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




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




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




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




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




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


-22-




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





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




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




**RISKS
      RELATED TO WHERIFY'S INTELLECTUAL PROPERTY**




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




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





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




·
            Significant
                litigation costs;




·
            Diversion
                of resources, including the attention of
                management;




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




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




-23-




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.




**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
      February 6, 2007 (including the obligation to issue shares upon conversion
      of
      the debentures or exercise of the warrants issued to Cornell Capital Partners
      and Newbridge Securities Corporation, and as contingently amended on February
      2,
      2007):




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




·
            Warrants
                and convertible debentures to purchase or acquire approximately 32.3
                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.




-24-




**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 December 31, 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.




Management
      continues to pay careful attention to 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:


-25-




(1)
      we
      did not have adequate transaction controls over the accounting, review and
      processing of certain unusual or complex accounting transactions;




(2)
      we
      did not have a systematic and documented program of internal controls and
      procedures over our accounting and financial reporting process to ensure that
      unusual or complex transactions are recorded, processed, summarized and reported
      on a timely basis in our financial disclosures; and




(3)
      there
      is a need for the improved supervision and training of our accounting staff.




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




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




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




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




*Fiscal
      Quarter Ended December 31, 2006*


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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, 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 December 31,
      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 December 31, 2006 and have
      not
      yet been demonstratably remediated as of our fiscal quarter ended December
      31,
      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 three
      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;




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.***


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During
      the fiscal quarter ending December 31, 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
      1.
      Legal Proceedings





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




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





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




On
        August
        5, 2005, plaintiffs Sylvie Lariviere, Robert Rios, Toni Lange, Fernand Beland,
        Frederic Serre and Roland Vroye, filed their first amended complaint against
        I.Q. Biometrix, Inc., a Delaware corporation, in Fresno County Superior Court,
        State of California. Plaintiffs’ complaint alleges causes of action for breach
        of contract and fraud for a failure to issue stock options pursuant to an
        alleged oral and/or written agreement. The complaint seeks to recover damages,
        including punitive damages, and/or an award of stock options. On October
        25,
        2005, Wherify demurred on behalf of itself, Greg Micek and William Scigliano
        and
        on January 4, 2005, the demurrer was sustained on several grounds. This matter
        had been set for trial on January 18, 2007 and has been delayed and the matter
        is continued until March 2007 due to change of counsel. The Company’s management
        feels that a reasonable estimate for potential liability for the company
        is
        somewhere within a range of $0 to $500,000. Management of the Company has
        also
        determined that no amount within that range is a better estimate of a potential
        liability than any other amount. Therefore, no amount has been set aside
        for
        this contingent liability.


*Westport
        Office Park, LLC v. Wherify Wireless, Inc, a California
        Corporation*
  On
        January 5, 2007, Westport Office Park, LLC (“Westport”), filed an Entry of
        Stipulation and Agreement against Wherify Wireless, Inc, a California
        Corporation (“Wherify California”), in the Superior Court of California—San
        Mateo County. The Stipulation and Agreement contains a Confession of Judgment
        relating to an unlawful detainer action filed by Westport against Wherify
        California. Upon entry by the Court, the judgment terminated Wherify
        California's right to possession of the premises located at 2000 Bridge Parkway,
        Suite 201, Redwood City, California, consisting of approximately 25,690 square
        feet on the second floor of the building. This facility served as Wherify’s
        principal office. The unlawful detainer action and Stipulation and Agreement
        was
        a consequence of Wherify California’s failure to make its past and current lease
        payments plus other related obligations as a result of Wherify's financial
        difficulties and the ongoing nature of its current fund raising activities.
        Base
        rent charges are currently $126,072 per month. The lease commenced on September
        3, 1999 and was scheduled to terminate on or about September 3, 2009. Based
        on
        the terms of the Stipulation and Agreement, Wherify California was required
        to
        relinquish possession of the space and has accrued unpaid rent and other
        charges
        estimated at approximately $1.1 million. In response to the Stipulation and
        Agreement, Wherify vacated the leased premises on January 17, 2007





Item
                4.
            Submission
                of Matters to a Vote of Security Holders




On
      October 27, 2006 an annual meeting of the shareholders of Wherify Wireless,
      Inc., a Delaware corporation (“Wherify”), was held to vote upon the following
      matters. At the meeting 30,274,373 shares representing 51.21% of a total of
      59,114,013 shares of common stock outstanding and eligible to vote at such
      annual meeting were present.




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1.
            Election
                of directors, each to serve until the next annual meeting of stockholders
                of the Company and until their successors shall have been duly elected
                and
                shall qualify.


Nominees:
              
              For:
              
              Withheld:Daniel
                  McKelvey
              
              
              29,044,931
              
              
              1,229,442Wade
                  Fenn
              
              
              29,044,931
              
              
              1,229,442Douglas
                  Hajjar
              
              
              29,450,276
              
              
              824,097John
                  Micek
              
              
              29,044,931
              
              
              1,229,442Timothy
                  Neher
              
              
              29,044,931
              
              
              1,229,442Bill
                  Scigliano
              
              
              29,044,931
              
              
              1,229,442




Consequently
      all nominees were elected by the shareholders of Wherify.


For:
              
              Against:
              
              Abstain:2.
                  Proposal to amend the Company’s Certificate of
                  Incorporation
              
              
              28,256,211
              
              
              872,064
              
              
              1,146,098to
                  increase the authorized number of shares of Common Stockfrom
                  100 million shares to 200 million shares.3. Proposal
                  to amend the Company’s 2004 Stock Plan to increase the
              
              
              26,558,456
              
              
              2,271,583
              
              
              1,444,334number
                  of shares available for issuance to 10 million shares.4. Proposal
                  to ratify the appointment of Malone & Bailey PC as
              
              
              29,821,556
              
              
              99,180
              
              
              353,637independent
                  auditors to the Company for the fiscal year




Consequently
      the three proposals were approved by the shareholders of
      Wherify.


**Item
          6. Exhibits**




Exhibit
                  No.
              
              Description10.1
              
              2004
                  Stock Plan, as amended on October 27, 2006. Incorporated by reference
                  to
                  Exhibit 99.1 to the Current Report on Form 8K, filed on November
                  2,
                  2006.10.2.
              
              Cornell
                  Capital Partners Agreement Letter dated November 1, 2006. Incorporated
                  by
                  reference to Exhibit 99.1 to the Current Report on Form 8K, filed
                  on
                  November 21, 2006.10.3
              
              Letter
                  from Cornell Capital Partners, dated December 29, 2006.
                  (+).31.1
              
              Chief
                Executive Officer Certification of Periodic FinancialReport
                Pursuant to Section 302 of the Sarbanes-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







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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.


February
                27, 2007/s/
                  Timothy J. NeherTimothy
                  J. Neher, Chief Executive Officer
                  (Principal
                    Executive Officer)


February
                27, 2007/s/
                  Mark E. GitterMark
                      E. Gitter, Chief Financial Officer and
                      Treasurer
                        (Principal Accounting Officer)




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