United
      States Securities and Exchange Commission


Washington,
      D.C. 20549


Form
      10-QSB





(Mark
      One)


[X]
      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





FOR
      THE
      QUARTERLY PERIOD ENDED DECEMBER 31, 2006





OR


[
 ]
      TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE


EXCHANGE
      ACT OF 1934


For
      the
      transition period from to





Commission
      file number 000-31779





SECURITY
      INTELLIGENCE TECHNOLOGIES, INC.


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







Florida
            65-0928369(State
                or other jurisdiction of
            (IRS
                Employerincorporation
                or organization)
            Identification
                No.)





145
      Huguenot Street, New Rochelle, New York 10801


(Address
      of principal executive offices)





(914)
      654-8700


(Issuer's
      telephone number)








Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x  No o








The
      number of shares of common stock $.0001 par value, of the Registrant issued
      and
      outstanding as of February 8, 2007 was
      93,584,668.








SECURITY
      INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES


FORM
      10-QSB





PERIOD
      ENDED DECEMBER 31, 2006








TABLE
      OF
      CONTENTS





PART
                I -
            FINANCIAL
                INFORMATIONITEM
                1.
            Consolidated
                Financial Statements:Consolidated
                Balance Sheets as of December 31, 2006 (unaudited) andJune
                30, 2006
            3Consolidated
                Statements of Operations (unaudited) for the three and six monthsended
                December 31, 2006 and December 31, 2005Consolidated
                Statements of Cash Flow (unaudited) for the six monthsended
                December 31, 2006 and December 31, 2005
            5Notes
                to Consolidated Financial Statements
            6Item
                2.
            Management's
                Discussion and Analysis of Financial Conditionand
                Results of Operations
            16PART
                II -
            OTHER
                INFORMATIONItem
                2.
            Unregistered
                Sale of Equity Securities and Use of Proceeds
            20Item
                3.
            Controls
                and Procedures
            21Item
                6.
            Exhibits
                and Reports on Form 8-K
            21








2


SECURITY
      INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES


CONSOLIDATED
      BALANCE SHEETS


December
                  31,2006
              
              June
                  30,(Unaudited)
              
              2006ASSETSCurrent
                  Assets:Cash
              
              $
              31,757
              
              $
              27,126Inventory
              
              
              665,390
              
              
              662,424Other
                  current assets
              
              
              56,010
              
              
              186,946Total
                  current assets
              
              
              753,157
              
              
              876,496Property
                  and Equipment, at cost less accumulated depreciation and amortizationof
                  $16,000 and $12,000 at December 31, 2006 and June 30, 2006 respectively
              
              
              9,000
              
              
              13,000Receivable
                  from CCS International, Ltd. less allowance for uncollectible amountsof
                  $2,936,511 at December 31, 2006 and June 30, 2006
              
              
              -
              
              
              -Other
                  assets
              
              
              18,199
              
              
              18,199Total
                  assets
              
              $
              780,356
              
              $
              907,695LIABILITIES
                  AND STOCKHOLDERS' DEFICITCurrent
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              2,950,468
              
              $
              2,468,121Note
                  payable - CEO/stockholder
              
              
              1,988,094
              
              
              1,981,744Notes
                  payable affiliate - revolving credit agreement
              
              
              614,298
              
              
              614,298Notes
                  payable - other
              
              
              436,250
              
              
              271,500Customer
                  deposits
              
              
              1,547,839
              
              
              1,510,452Deferred
                  revenue
              
              
              466,708
              
              
              425,173Total
                  current liabilities
              
              
              8,003,657
              
              
              7,271,288Long
                  term debt - convertible notes payable
              
              
              494,000
              
              
              494,000Total
                  liabilities
              
              
              8,497,657
              
              
              7,765,288Commitments
                  and contingencies - See NotesStockholders'
                  deficit:Preferred
                  stock, $.0001 par value, 10,000,000 shares
                  authorized:Series
                  A Convertible-$1.00 per share liquidation preference,3,500,000
                  shares authorized, issued and outstanding
              
              
              350
              
              
              350Series
                  B Convertible-$1.00 per share liquidation preference,1,500,000
                  shares authorized, issued and outstanding
              
              
              150
              
              
              150Series
                  C Convertible-$.01 per share liquidation preference,5,000,000
                  shares authorized, issued and outstanding
              
              
              -
              
              
              -Common
                  stock, $.0001 par value, 300,000,000 shares authorized,93,584,668
                  and 92,635,295 issued and outstanding at December 31,2006
                  and June 30, 2006 respectively (Note 8)
              
              
              9,358
              
              
              9,264Additional
                  paid in capital
              
              
              8,822,071
              
              
              8,770,073Accumulated
                  deficit
              
              
              (16,579,118
              )
              
              (15,642,884
              )Accumulated
                  other comprehensive income
              
              
              29,888
              
              
              5,454Total
                  stockholders' deficit
              
              
              (7,717,301
              )
              
              (6,857,593
              )Total
                  liabilities and stockholders' deficit
              
              $
              780,356
              
              $
              907,695
  The
        accompanying notes are an integral part of these financial
        statements.


3


SECURITY
        INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
 STATEMENTS
        OF OPERATIONS
 (Unaudited)





Three
                Months Ended
            
            Six
                Months EndedDecember
                31,
            
            December
                31,2006
            
            2005
            
            2006
            
            2005Revenues
            
            $
            548,835
            
            $
            952,259
            
            $
            1,308,619
            
            $
            1,729,800Costs
                and expenses:Cost
                of sales
            
            
            200,534
            
            
            284,832
            
            
            432,735
            
            
            501,344Compensation
                and benefits
            
            
            400,422
            
            
            497,198
            
            
            907,167
            
            
            1,020,780Professional
                fees
            
            
            47,032
            
            
            72,700
            
            
            90,457
            
            
            130,372Stock
                based compensation
            
            
            20,895
            
            
            -
            
            
            41,794
            
            
            -Selling,
                general and administrative expenses
            
            
            317,278
            
            
            424,556
            
            
            645,039
            
            
            788,464Depreciation
                and amortization
            
            
            2,000
            
            
            2,000
            
            
            4,000
            
            
            4,000988,161
            
            
            1,281,286
            
            
            2,121,192
            
            
            2,444,960Operating
                loss
            
            
            (439,326
            )
            
            (329,027
            )
            
            (812,573
            )
            
            (715,160
            )Interest
                expense
            
            
            68,363
            
            
            48,245
            
            
            123,661
            
            
            140,802Net
                loss
            
            $
            (507,689
            )
            $
            (377,272
            )
            $
            (936,234
            )
            $
            (855,962
            )Loss
                per share, basic and diluted:
            
            $
            (0.01
            )
            $
            (0.00
            )
            $
            (0.01
            )
            $
            (0.01
            )Weighted
                average number of shares (Note 8)
            
            
            93,584,668
            
            
            83,153,654
            
            
            93,266,503
            
            
            80,018,677









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


4


SECURITY
        INTELLIGENCE TECHNOLOGIES, INC.


CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 (Unaudited)
  Six
                  Months EndedDecember
                  31,2006
              
              2005CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  loss
              
              $
              (936,234
              )
              $
              (855,962
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              4,000
              
              
              4,000Amortization
                  of deferred compensation
              
              
              41,794
              
              
              -Stock
                  issued to consultant and employee for services
              
              
              9,000
              
              
              451,119Stock
                  issued to 401 K plan
              
              
              1,298
              
              
              17,780Decrease
                  (increase) decrease in other comphrensive loss
              
              
              24,434
              
              
              (7,870
              )Noncash
                  compensation - CEO/stockholder
              
              
              125,000
              
              
              -Noncash
                  interest expense - CEO/stockholder
              
              
              32,512
              
              
              33,089CHANGES
                  IN OPERATING ASSETS AND LIABILITIES:(Increase)
                  decrease in inventory
              
              
              (2,966
              )
              
              66,797Decrease
                  (increase) in other current assets
              
              
              130,936
              
              
              (53,902
              )Increase
                  in accounts payable and accrued expenses
              
              
              482,347
              
              
              179,918Increase
                  in customer deposits
              
              
              37,387
              
              
              64,304Increase
                  (decrease) in deferred revenue
              
              
              41,535
              
              
              (386,261
              )Net
                  cash used in operating activities
              
              
              (8,957
              )
              
              (486,988
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Borrowings
                  under notes payable - other
              
              
              200,000
              
              
              -(Repayments)
                  of notes payable - other
              
              
              (35,250
              )
              
              (59,325
              )(Repayments)
                  under note payable - CEO/stockholder
              
              
              (151,162
              )
              
              (174,908
              )Borrowings
                  under revolving credit agreement - affiliate
              
              
              -
              
              
              424,179Proceeds
                  from issuance of common stock
              
              
              -
              
              
              343,000Net
                  cash provided by financing activities
              
              
              13,588
              
              
              532,946Net
                  increase in cash
              
              
              4,631
              
              
              45,958Cash,
                  beginning of period
              
              
              27,126
              
              
              1,243Cash,
                  end of period
              
              $
              31,757
              
              $
              47,201
  The
        accompanying notes are an integral part of these financial
        statements.


5
 Security
            Intelligence Technologies, Inc. and Subsidiaries
 Notes
            To
            Consolidated Financial Statements
 December
            31, 2006 and 2005
 (Unaudited)


1
      -
      Interim Financial Statements





The
      accompanying unaudited consolidated financial statements of Security
      Intelligence Technologies, Inc. and subsidiaries (the "Company") have been
      prepared pursuant to generally accepted accounting principles for interim
      financial statements and the rules and regulations of the Securities and
      Exchange Commission. Accordingly, certain information and note disclosures
      normally included in annual financial statements prepared in accordance with
      generally accepted accounting principles have been condensed or omitted pursuant
      to those rules and regulations. These financial statements should be read in
      conjunction with the financial statements and the notes thereto included in
      the
      Company's latest audited financial statements for the year ended June 30, 2006
      filed on Form 10-KSB. On November 17, 2005, the board of directors approved
      a
      three-for-one stock distribution pursuant to which the Company issued two shares
      for each share of common stock outstanding on the record date, November 28,
      2005. All share and per share information in this Form 10-QSB retroactively
      reflects the stock distribution. See Note 8.





In
      the
      opinion of management, all adjustments (consisting of normal recurring
      adjustments) necessary for a fair presentation of the Company's financial
      condition, results of operations and cash flows for the periods presented have
      been included. The Company's quarterly results presented herein are not
      necessarily indicative of results for a full year.





Organization
      and Nature of Business





The
      Company is engaged in the design, assembly and sale of security and surveillance
      products and systems. The Company purchases finished items for resale from
      independent manufacturers, and also assembles off-the-shelf electronic devices
      and other components into proprietary products and systems at its own
      facilities. The Company generally sells to businesses, distributors, government
      agencies and consumers through its sales office in Miami, Florida, its executive
      offices located in New Rochelle, New York and through its retail store/service
      center in London, England.





Principles
      of Consolidation





The
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiaries, Homeland Security Strategies, Inc., a New York
      corporation, that commenced operations on August 20, 2003; Homeland Security
      Strategies of California, Inc., a California corporation, that operated a sales
      office that commenced operations on December 26, 2003 and closed in September
      2004; Homeland Security Strategies Inc. of Florida, Inc., a Florida corporation,
      that operates a sales office that commenced operations on January 30, 2004
      and
      Homeland Security Strategies (UK), Ltd. (formerly Counter Spy Shop of Mayfair
      Limited), a United Kingdom corporation that operates a retail store/service
      center. All significant intercompany balances and transactions have been
      eliminated in consolidation.





Going
      Concern and Liquidity





The
      financial statements of the Company have been prepared assuming the Company
      will
      continue as a going concern, which contemplates the realization of assets and
      the satisfaction of liabilities in the normal course of business. The
      Company incurred net losses of $936,234 and $3,051,943 for the six months ended
      December 31, 2006 and the fiscal year ended June 30, 2006, respectively. In
      addition, at December 31, 2006, the Company had a working capital deficit of
      $7,250,500, long term debt of $494,000, and a deficiency in stockholders’ equity
      of $7,717,301. The Company's bank facility terminated in 2002, and the only
      source of funds other than operations has been loans from the Company's chief
      executive officer and GCOM Consultants, Inc. a company owned by the wife of
      the
      chief executive officer, deposits from customers and distributors, proceeds
      from
      notes and the sale of common stock. (See Notes 3, 4, 5, and 6). These factors
      raise substantial doubt about the Company's ability to continue as a going
      concern.


6
 Security
              Intelligence Technologies, Inc. and Subsidiaries
 Notes
              To
              Consolidated Financial Statements
 December
              31, 2006 and 2005
 (Unaudited)


1.
      Nature
      of Business and Summary of Significant Accounting Policies -
      continued:





Going
      Concern and Liquidity - continued:





To
      address the Company’s immediate cash requirements which are necessary for the
      Company to continue in business, management discontinued substantially all
      of
      its retail operations during the fiscal year ended June 30, 2004 and re-focused
      its marketing efforts to focus on its sophisticated bomb jamming and cellular
      monitoring systems to the United States and friendly international governments
      and contractors of the United States Government. Sales to these groups of these
      systems were approximately $161,000 during the six months ended December 31,
      2006 and approximately $640,000 during the fiscal year ended June 30, 2006.
      At
      December 31, 2006, the Company had outstanding purchase orders for an additional
      $1,212,000 of these systems, however, the Company has encountered difficulties
      in delivering two of the open purchase orders that total $1,000,000 and the
      customers have instituted litigation against the Company demanding a refunded
      of
      their deposit and additional damages. As part of this effort, the Company has
      re-focused its staff, and is actively pursuing additional equity and debt
      financing to supplement cash flow from operations. However, the Company’s low
      stock price and its continuing losses make it difficult to obtain equity and
      debt funding, and, there can be no assurances that additional financing will
      be
      available to the Company on acceptable terms, or at all, or that the Company
      will generate the necessary cash flow from operations. The Company and its
      management believe that its bomb jamming and cellular monitoring systems and
      the
      United States and friendly international governments marketplace are viable
      products and markets in which to compete, and ultimately achieve profitability.
      The Company’s ability to continue its operations is dependent upon its ability
      to generate sufficient cash flow either from operations or from financing,
      to
      meet its obligations on a timely basis and to further develop and market its
      products. However, the Company’s financial condition and continuing losses may
      inhibit potential customers from purchasing the Company’s products. The
      accompanying financial statements do not include any adjustments that might
      result from the outcome of these uncertainties.





Revenue
      recognition





The
      Company recognizes revenue from sales upon the delivery of merchandise to a
      customer. The Company recognizes revenue from its sophisticated monitoring
      systems and bomb jamming systems after installation, testing and customer
      acceptance. Non-refundable advance payments received under marketing and
      distribution arrangements are deferred and either applied as payments towards
      customer purchases made pursuant to the terms of the respective agreements,
      or
      recognized as income at the termination of the agreement if specified purchase
      quotas have not been met by the customer. Customer deposits are initially
      recorded as liabilities and recognized as revenue when the related goods are
      shipped.





Contingent
      Liabilities of CCS





On
      March
      22, 2005, the Company sold all of the stock of its wholly owned subsidiary
      CCS
      International Ltd. (“CCS”). The Company’s balance sheet at December 31, 2006
      does not reflect any liabilities of CCS, since the Company was not an obligor
      or
      guarantor with respect to any of the liabilities except as set forth in Note
      3.
      Prior to the sale of CCS the Company issued shares of common stock to settle
      debt obligations of CCS or its subsidiaries. These agreements contain a price
      guarantee that requires CCS to settle in cash any difference between the
      original face amounts of the debt and proceeds from the creditor’s subsequent
      sale of the shares. Since the obligation to make the payment is an obligation
      of
      CCS, and not the Company, the amount by which the target prices exceeded the
      value of the stock on December 31, 2006, which was approximately $808,000,
      is
      not reflected as a liability of the Company at December 31, 2006. In addition
      at
      December 31, 2006, CCS’s creditors had initiated lawsuits against CCS for
      nonpayment of accrued liabilities and its distributors has initiated litigation
      for breeches of their agreements in the total amount of approximately $995,000.


7
 Security
            Intelligence Technologies, Inc. and Subsidiaries
 Notes
            To
            Consolidated Financial Statements
 December
            31, 2006 and 2005
 (Unaudited)







1.
      Nature
      of Business and Summary of Significant Accounting Policies -
      continued:





Contingent
      Liabilities of CCS - continued:





Judgments
      of approximately $ $770,000 have been entered against CCS in these matters.
      Although the Company has no contractual obligation with respect to any of the
      obligations of CCS, and the Company believes that it has a valid defense to
      any
      claim that it has any liability with respect to any liabilities or obligations
      of CCS, it is possible that creditors of CCS or its subsidiaries may make a
      claim against the Company and that they may prevail. One CCS creditor has
      obtained a default judgment against the Company based upon the claim that the
      Company was responsible for CCS’s obligations and another CCS creditor has
      initiated an action against the Company claiming that the Company is responsible
      for CCS’s obligations. (See Note 11).





Financial
      Guarantees





The
      Company has issued shares of common stock to settle its debt obligations
      pursuant to an agreement that requires the Company to settle in cash any
      difference between the original face amounts of the debt and proceeds from
      the
      creditor’s subsequent sale of the shares. The Company accounts for these
      transactions by recording the debt at fair value with periodic mark-to-market
      adjustments until the guarantee is settled. Unrealized gains or losses resulting
      from changes in fair value are included in earnings and accrued expenses.





Stock-based
      Compensation





The
      Company periodically grants stock options to employees in accordance with the
      provisions of its stock option plans, with the exercise price of the stock
      options being set at the closing market price of the common stock on the date
      of
      grant. The Company also granted shares of preferred stock and stock options
      to
      its senior executive officers pursuant to their employment agreements. The
      Company accounts for stock-based compensation plans under Accounting Principles
      Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
      accordingly accounts for employee stock-based compensation utilizing the
      intrinsic value method. FAS No. 123, "Accounting for Stock-Based Compensation",
      establishes a fair value based method of accounting for stock-based compensation
      plans. The Company has adopted the disclosure only alternative under FAS No.
      123, which requires disclosure of the pro forma effects on earnings and earnings
      per share as if FAS No. 123 had been adopted as well as certain other
      information.





In
      December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” This
      statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation” and
      supersedes APB No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R)
      requires all stock-based compensation to be recognized as an expense in the
      financial statements and that such cost be measured according to the fair value
      of stock options. In April 2005 the SEC announced that the effective date of
      SFAS no. 123R for small business issuers will be suspended until the first
      interim or annual reporting period of the company’s first fiscal year beginning
      on or after December 15, 2005, which, for the Company, is the first quarter
      of
      the fiscal year ended June 30, 2007. Prior to this, the Company provided the
      pro
      forma disclosures required by SFAS No. 148, "Accounting for Stock-Based
      Compensation - Transition and Disclosure," on a quarterly basis.





Stock
      options granted to non-employees are recorded at their fair value, as determined
      in accordance with SFAS No. 123 and Emerging Issues Task Force Consensus No.
      96-18, and recognized over the related service period. Deferred charges for
      options granted to non-employees are periodically re-measured until the options
      vest.









8
 Security
            Intelligence Technologies, Inc. and Subsidiaries
 Notes
            To
            Consolidated Financial Statements
 December
            31, 2006 and 2005
 (Unaudited)




1.
      Nature
      of Business and Summary of Significant Accounting Policies -
      continued:





Stock-based
      Compensation-continued:





FASB
      Statement 123, “Accounting for Stock-Based Compensation,” required the Company
      to provide pro forma information regarding net income (loss) and income (loss)
      per share as if compensation cost for the Company’s stock option issuances had
      been determined in accordance with the fair value based method prescribed in
      FASB Statement 123. The Company estimates the fair value of each stock option
      at
      the grant date by using the Black-Scholes option-pricing model with the
      following weighted-average assumptions used for grants in fiscal 2005, 2004,
      2003 and 2002: dividend yield
      of
      0%, risk-free interest rates ranging from 3.38% to 4.32%, expected lives of
      eight years, and expected volatility ranging from 120% to 178%. Under the
      accounting provisions of SFAS Statement 123, the Company’s net loss and loss per
      share for the three and six months ended December 31, 2005 would have been
      the
      pro forma amounts indicated below:


Three
                  Months Ended
              
              Six
                  Months EndedDecember
                  31, 2005
              
              December
                  31, 2005Net
                  loss:As
                  reported
              
              $
              (377,272
              )
              $
              (855,962
              )Add:
                  Stock based employee compensation expenseincluded
                  in reported net loss
              
              
              -
              
              
              -Deduct:
                  Total stock based employee compensationexpense
                  determined under the fair value basedmethod
                  for all awards
              
              
              (295,396
              )
              
              (590,785
              )$
              (672,668
              )
              $
              (1,446,747
              )Loss
                  per share, basic and diluted:As
                  reported
              
              $
              (0.00
              )
              $
              (0.01
              )Proforma
              
              $
              (0.01
              )
              $
              (0.02
              )




Foreign
      Currency Translation





The
      functional currency of the Company's United Kingdom subsidiary is pound
      sterling. Accordingly, the Company translates all assets and liabilities into
      U.S. dollars at current rates. Revenues, costs, and expenses are translated
      at
      average rates during each reporting period. Gains and losses resulting from
      the
      translation of the consolidated financial statements are excluded from results
      of operations and are reflected as a translation adjustment and a separate
      component of stockholders' deficit. Gains and losses resulting from foreign
      currency transactions are recognized in the consolidated statement of operations
      in the period they occur.





Warranties





The
      Company warrants the products and systems it sells to be free from defects
      in
      materials and workmanship under normal use. Parts and labor costs to repair
      defective products or systems are covered during the first ninety days after
      delivery of the product or system. Thereafter the cost is billed to the
      customer. A tabular reconciliation of the Company’s aggregate product warranty
      liability for the six months ended December 31, 2006 and 2005 is as
      follows:




9
 Security
            Intelligence Technologies, Inc. and Subsidiaries
 Notes
            To
            Consolidated Financial Statements
 December
            31, 2006 and 2005
 (Unaudited)




1.
      Nature
      of Business and Summary of Significant Accounting Policies -
      continued:





Warranties-continued:


Six
                  Months EndedDecember
                  31,2006
              
              2005Balance
                  July 1,
              
              $
              35,000
              
              $
              35,000Charges
                  for warranty work
              
              
              -
              
              
              -Accrual
                  for product warranties issuedduring
                  the period
              
              
              -
              
              
              -Balance
                  at December 31
              
              $
              35,000
              
              $
              35,000




Use
      of
      estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent assets and liabilities at the date of the combined
      financial statements, and the reported amounts of revenue and expenses during
      the reporting periods. Actual results could differ from those
      estimates.





Inventories





Inventories
      are valued at the lower of cost (first-in, first-out) or market.





Property
      and equipment





Assets
      are stated at cost. Depreciation is computed over the estimated useful life
      of
      the assets generally using the straight-line method over periods ranging from
      five to seven years. Additions and major renewals and betterments are
      capitalized and depreciated over their estimated useful lives. Repairs and
      maintenance are charged to operating expenses as incurred.





Income
      taxes





The
      Company uses the liability method to determine its income tax expense. Under
      this method, deferred tax assets and liabilities are computed based on
      differences between financial reporting and tax basis of assets and liabilities
      and are measured using the enacted rates and laws that will be in effect when
      the differences are expected to reverse. Deferred tax assets are reduced by
      a
      valuation allowance if, based on the weight of the available evidence, it is
      more likely than not that all or some portion of the deferred tax assets will
      not be realized. The ultimate realization of the deferred tax asset depends
      on
      the Company’s ability to generate sufficient taxable income in the
      future.




10
 Security
            Intelligence Technologies, Inc. and Subsidiaries
 Notes
            To
            Consolidated Financial Statements
 December
            31, 2006 and 2005
 (Unaudited)





1.
      Nature
      of Business and Summary of Significant Accounting Policies -
      continued:





Loss
      Per Share





The
      Company calculates earnings per share in accordance with SFAS No. 128, Earnings
      Per Share, and SEC Staff Accounting Bulletin No. 98. Accordingly, basic and
      diluted loss per share is computed using the weighted average number of shares
      of common stock outstanding and excludes all common stock equivalents
      outstanding during the period. Common
      stock equivalents consist of shares issuable upon the exercise of stock options
      and warrants using the treasury stock method. Stock options and preferred stock
      that are convertible into common stock based on the Company’s attainment of
      performance goals are not includible in the calculation of earnings per share
      until the specified targets are met. The following securities have been excluded
      from the diluted computation for the three and six months ended December 31,
      2006 and 2005 because they are contingently issuable and/or
      antidilutive:


Three
                  and Six Months EndedDecember
                  31,2006
              
              2005Series
                  A convertible preferred stock
              
              
              10,500,000
              
              
              10,500,000Series
                  B convertible preferred stock
              
              
              4,500,000
              
              
              4,500,000Series
                  C convertible preferred stock
              
              
              15,000,000
              
              
              15,000,000Stock
                  options
              
              
              43,828,500
              
              
              43,828,500Warrants
              
              
              1,500,000
              
              
              1,500,000




Reclassifications





Certain
      reclassifications have been made to the prior year financial statements in
      order
      to conform to the current year presentation.





New
      Authoritative Accounting Prouncements





The
      Company does not anticipate the adoption of recently issued accounting
      pronouncements to have a significant impact on the Company’s results of
      operations, financial position or cash flows.





2.
      Accounts Payable and Accrued Expenses





Accounts
      payable and accrued expenses at December 31, 2006 consisted of the
      following:




Accounts
                  payable - trade
              
              $
              700,003Professional
                  fees
              
              
              462,421Payroll
                  liabilities (includes delinquent payroll taxes andassociated
                  interest and penalties of $1,213,724)
              
              
              1,598,158Accrued
                  Interest
              
              
              96,911Deferred
                  rent payable
              
              
              47,975Other
              
              
              45,000$
              2,950,468
   11
 Security
              Intelligence Technologies, Inc. and Subsidiaries
 Notes
              To
              Consolidated Financial Statements
 December
              31, 2006 and 2005
 (Unaudited)
  3.
        Note
        Payable - CEO/stockholder





This
      amount represents a note payable to the Company's chief executive officer and
      includes deferred salary of $534,903 and accrued interest of $180,445 based
      on
      an interest rate of 5% per annum. The Note is due on demand and is secured
      by
      substantially all of the assets of the Company and is subordinated to
      outstanding borrowings under the Notes Payable Affiliate - revolving credit
      agreement (See Note 4). Prior to the sale of CCS (See Note 7), the Company’s
      chief executive officer had advanced to CCS the sum of $750,741. Pursuant to
      his
      employment agreement with the Company, the Company
      guaranteed CCS’ obligations to him to the maximum amount of $738,000. The
      Company’s obligations under this guaranty are payable only from cash flow from
      operations not required for the Company’s business .
      Because
      of CCS’ financial condition, the guaranteed obligations have been reflected as a
      liability on the Company’s balance sheet.





4.
      Notes
      Payable Affiliate - Revolving Credit Agreement




In
      August
      2005, the Company entered into a revolving credit agreement with GCOM
      Consultants, Inc., which is owned by the wife of the Company’s chief executive
      officer, under which the Company may borrow up to $680,000. The Agreement
      terminates on September 1, 2015 and requires monthly payments of $4,410 during
      the term. Borrowings under the agreement bear interest at the annual rate of
      7.025%, are due on demand, and are secured by a security interest in
      substantially all of the Company’s assets. In connection with this agreement,
      the Company’s chief executive officer has subordinated his security interest in
      the Company’s assets to any borrowings under this agreement (See Note 3). As of
      December 31, 2006, the Company had borrowed approximately $615,000 under this
      agreement.




5.
      Notes
      Payable - Others





This
      amount represents notes payable to three individuals, including Menahem Cohen,
      which the Company issued in January 2005 May 2005 and July 2006, and a note
      payable issued to a customer of the Company in January 2006. The notes to the
      three individuals are payable on demand, bears interest at the rate of 5% ,
      11%
      and 12% per annum, and are unsecured. The note to the Company’s customer was due
      in February 2006, is currently in default, bears interest at the rate of 12%
      per
      annum and is secured by 1,500,000 shares of the Company’s common
      stock.





6.
      Long
      Term Debt - Notes Payable - Convertible Credit Facility; Debt Issuance
      Expense





On
      June
      10, 2004 the Company entered into a convertible credit agreement with private
      investors pursuant to which the Company borrowed $494,000. The notes bear
      interest at the rate of 10% per annum, are convertible into the Company’s common
      stock at $.0333 per share and matured on June 30, 2005, except that in the
      event
      of default the conversion rate is reduced to $.01667 per share.  On
      June
      30, 2005 the Company and the lenders entered into an agreement amending the
      terms of the notes which included an extension of the maturity date until June
      30, 2010, a lowering of the conversion price to $.01667 per share and the
      lowering of the interest rate to 0% or the minimum allowed by law, subsequent
      to
      July 31, 2005. The conversion feature was valued at $3,847,832 using the
      Black-Scholes option-pricing model. The Company expensed $2,304,455 of this
      amount in the six months ended December 31, 2004 and $ 1,543,377 during
      the remainder of the year ended June 30, 2005 as debt issuance expense. There
      were no similar expenses during the three and six months ended December 31,
      2006
      and December 31, 2005.




7.
      Disposition of Assets - Sale of CCS International, Ltd.




On
      March
      22, 2005, the Company sold all of the stock of CCS for $100 and contingent
      consideration consisting of 5% of CCS’s and its subsidiaries’ net sales through
      March 31, 2015. CCS has not generated any sales since that date of sale. Because
      of CCS’s financial condition the Company has established a full reserve for
      uncollectible amounts due from them of $2,936,511. Prior to the sale of CCS,
      the
      Company’s president and chief executive office, had advanced to CCS the sum of
      $750,741.




12
 Security
            Intelligence Technologies, Inc. and Subsidiaries
 Notes
            To
            Consolidated Financial Statements
 December
            31, 2006 and 2005
 (Unaudited)


7.
      Disposition of Assets - Sale of CCS International, Ltd. -
      continued:




Pursuant
      to Mr. Jamil’s employment agreement with the Company, the Company guaranteed CCS
      obligations to Mr. Jamil to the maximum amount of $738,000 (See Notes 3). The
      Company’s obligations under this guaranty are payable only from cash flow from
      operations not required for the Company’s business.  Because
      of CCS’ financial condition, the guaranteed obligations have been reflected as a
      liability of the Company’s balance sheet under the caption “Notes Payable -
      CEO/Stockholder”.





8.
      Common
      Stock





Stock
      Issuances





During
      the six months ended December 31, 2006 the Company issued the following
      securities:





The
      Company issued 300,000 shares of common stock in payment of consulting services
      valued at $3,600.





The
      Company issued 600,000 shares of common stock to employees in payment of $5,400
      of accrued wages.




The
      Company issued 49,373 shares of common stock to its 401 (K) Savings Plan, valued
      at $1,298, as its match to employee’s contributions (See Note 9).





Stock
      Distribution





On
      November 17, 2005 the Company’s board of directors authorized a three-for-one
      stock distribution pursuant to which the Company issued two shares of common
      stock for each share outstanding on the record date, November 28, 2005. The
      shares were distributed to stockholders on or about December 5, 2005. All
      references to numbers of common shares and per share data in the accompanying
      financial statements have been adjusted to reflect the stock distribution on
      a
      retroactive basis. The par value of the additional shares of common stock issued
      in connection with the stock distribution was credited to “Common stock” and a
      like amount charged to “Additional paid-in-capital” in the three month period
      ended December 31, 2005. The terms of the Company’s Series A, Series B and
      Series C Convertible Preferred stock provide for a change in the conversion
      rate
      to adjust for the stock distribution. Accordingly, each share of the Company’s
      Series A, Series B and Series C Convertible Preferred stock has become
      convertible into three shares of the Company’s common stock.





Amendment
      to Articles of Incorporation





On
      November 17, 2005 the Company’s board of directors authorized an amendment to
      the Company’s Articles of Incorporation increasing the authorized shares of the
      Company’s common stock, par value $.0001 per share from one hundred million to
      three hundred million, effective on November 28, 2005.





9.
      401(K)
      Savings Plan





The
      Company maintains a qualified deferred compensation plan under section 401(k)
      of
      the Internal Revenue Code. Under the plan, employees may elect to defer up
      to
      15% of their salary, subject to the Internal Revenue Service limits. The Company
      may make a discretionary match as well as a discretionary contribution. During
      the six months ended December 31, 2006 the Company matched employees
      contributions of $1,298 by issuing 49,373 shares if its common stock to the
      plan. During the six months ended December 31, 2005 the Company matched
      employees contributions of $17,780 by issuing 362,145 shares if its common
      stock
      to the plan.




13
 Security
            Intelligence Technologies, Inc. and Subsidiaries
 Notes
            To
            Consolidated Financial Statements
 December
            31, 2006 and 2005
 (Unaudited)


10.
      Income taxes





The
      Company did not incur any income tax liabilities during the three and six month
      periods ended December 31, 2006 and 2005 due to operating losses. As of December
      31, 2006 and December 31, 2005 the Company has increased its tax valuation
      allowance to offset the deferred tax benefits of net operating losses and other
      temporary differences arising during the three and six month periods ended
      December 31, 2006 and 2005 because management is uncertain as to their ultimate
      realization.





11.
      Legal
      Matters





On
      or
      about February 10, 2005 the Company commenced an action in the Supreme Court
      of
      New York against the landlord of its New York offices; captioned Security
      Intelligence Technologies, Inc. v. GHP Huguenot LLC, claiming the landlord
      breached the lease between the parties by not providing certain agreed to
      services. The case is currently in discovery.





On
      or
      about March 11, 2005, an action was commenced against the Company in the City
      Court of the City of New Rochelle, New York by the Company’s landlord of its New
      York offices, captioned GHP Huguenot LLC v. Security Intelligence Technologies,
      Inc., claiming the Company was a habitually late in paying its monthly rent
      and
      seeking to evict the Company from the premises. The Company has denied the
      material allegations of the claim and has raised affirmative defenses thereto
      and believes that it has valid defenses to the claim. The case is currently
      in
      discovery.





In
      March
      2006, the District of Columbia filed a wage and hour claim on the Company on
      behalf of a former employee alleging he is owed commissions on the sales of
      equipment. The Company has denied the material allegations of the claim and
      has
      raised affirmative defenses thereto and believes that it has valid defenses
      to
      the claim.





On
      or
      about May 19, 2006, an action was commenced against the Company in the Supreme
      Court of New York, captioned Munir Sukhtian Group Co. v. Security Intelligence
      Technologies, Inc. claiming the Company failed to deliver certain equipment
      and
      demanding a refund of the $105,000 deposit it had paid. The Company has denied
      the material allegations of the claim and has raised affirmative defenses
      thereto and believes that it has valid defenses to the claim.





On
      or
      about March 7, 2005, an action was commenced against the Company in the Supreme
      Court of New York, captioned 444 Madison, LLC v. Security Intelligence
      Technologies, Inc., claiming the Company is a successor in interest to CCS
      International Ltd. (“CCS”) and should be held liable for a judgment the
      plaintiff had had been awarded against CCS. On December 23, 2005 the plaintiff
      was awarded a default judgment in the amount of $229,990 plus interest of
      approximately $50,000. In July 2006 the Company retained new outside counsel
      and
      filed an order seeking to vacate the judgment and restoring the case to the
      Court’s calendar claiming the Company had ineffective counsel. On August 21,
      2006, the Court denied the motion and reaffirmed the judgment. The Company
      believes it has valid defenses to any claim that they are a successor in
      interest to CCS International Ltd. The Company plans to seek to negotiate a
      settlement of the judgment and pursue a malpractice action against its prior
      outside counsel but can give no assurances that it will be able to negotiate
      any
      reduction in the judgment or that it will recover any amounts from its outside
      counsel if it institutes an action against him.







14
 Security
            Intelligence Technologies, Inc. and Subsidiaries
 Notes
            To
            Consolidated Financial Statements
 December
            31, 2006 and 2005
 (Unaudited)


11.
      Legal
      Matters - continued:





On
      or
      about September 21, 2005, an action was commenced against the Company in the
      Circuit Court For Miami Dade County captioned Allan Dunteman and Zarco Einhorn
      Salkowski & Britto, PA v. Security Intelligence Technologies, Inc. claiming
      the Company had failed to perform certain duties it was to perform to facilitate
      a settlement the plaintiff had previously reached with CCS International Ltd.
      and demanding $15,000 and that the Company is a successor in interest to CCS
      and
      should be liable for the amount of CCS’s settlement of $88,750 plus interest.
      The Company has denied the material allegations of the claim and has raised
      affirmative defenses thereto and believes that it has valid defenses to the
      claim.





On
      or
      about September 12, 2006, an action was commenced against the Company’s
      subsidiary Homeland Security Strategies, Inc. in the Superior Court of the
      State
      of Arizona, captioned The Armored Group, LLC . v. Homeland Security Strategies,
      Inc. claiming the Company failed to deliver certain equipment and demanding
      a
      refund of the $450,000 deposit it had paid and additional damages of $1,892,000.
      The Company plans to deny the material allegations of the claim and raise
      affirmative defenses thereto and believes that it has valid defenses to the
      claim.





In
      addition to these matters, CCS and one or more of its subsidiaries are the
      defendant in a number of actions, in which the total amount claimed, is
      approximately $995,000. Judgments have been rendered against CCS in these
      matters in the approximate amount of $770,000. Although the Company is not
      a
      party to any agreement with the plaintiff in any of these actions and has not
      taken any action to guarantee these obligations, it is possible that the
      plaintiffs may seek to make a claim against it. The Company believes that it
      has
      no liability in any of these actions, and will vigorously defend any action
      which seeks to impose liability upon it.





Although
      the Company has no contractual obligation with respect to any of the obligations
      of CCS, and it believes that it has a valid defense to any claim that it has
      any
      liability with respect to any potential liabilities or obligations of CCS,
      two
      of CCS’s creditors have made claims against it claiming that it is a successor
      in interest to CCS and as noted above, in one of those cases a default judgment
      was entered against it. It is possible that additional creditors of CCS or
      its
      subsidiaries may make additional claims against the Company and that they may
      prevail. The Company believes that it has meritorious and valid defenses against
      all such potential litigation, and will vigorously defend any actions based
      on
      such claims.





12.
      Supplemental Disclosures of Cash Flow Information





Supplemental
      disclosures of cash flow information for the six month periods ended December
      31, 2006 and 2005 are as follows:




Six
                  Months EndedDecember
                  31,2006
              
              2005Interest
                  paid
              
              $
              43,919
              
              $
              82,908Taxes
                  paid
              
              $
              835
              
              $
              1,677Accrued
                  interest and deferred salary credited tonote
                  payable - CEO/stockholder
              
              $
              157,512
              
              $
              33,089


15


Item
      2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




**General
      Overview**




The
      following discussion should be read in conjunction with our financial
      statements, including the notes thereto. Our financial statements and
      information have been prepared to reflect our financial position as of December
      31, 2006 and December 31, 2005. Historical results and trends should not be
      taken as indicative of future operations.




We
      are
      operating under a heavy financial burden as reflected in our substantial working
      capital deficiency and our continuing losses and negative cash flow from
      operations. We have sought to address these problems during fiscal 2004 by
      closing our retail operations, although we continue to generate modest retail
      sales from our headquarters and our London branch, and by entering into credit
      agreement with certain stockholders pursuant to which we borrowed $494,000.
      These notes were initially due in June 2005, and were extended for five years.




In
      August
      2005, we entered into a revolving credit agreement with GCOM Consultants, Inc.,
      which is owned by the wife of our chief executive officer, under which we may
      borrow up to $680,000. The Agreement terminates on September 1, 2015 and
      requires monthly payments of $4,410 during the term. Borrowings under the
      agreement bear interest at the annual rate of 7.025%, are due on demand, and
      are
      secured by a security interest in substantially all of our assets. In connection
      with this agreement, our chief executive officer has subordinated his security
      interest in our assets to any borrowings under this agreement. As of December
      31, 2006, we had borrowed approximately $615,000 under this
      agreement.




Our
      working capital deficiency has made it difficult for us to attract new business
      and maintain relations with our customers and suppliers. Other than our credit
      agreement and loans from our chief executive officer, our main source of funds
      has been our customer deposits which we use for our operations.





If
      we are
      unable to increase our sales and pay our note holders and other creditors,
      it
      may be necessary for us to cease business and seek protection under the
      Bankruptcy Code.





Prior
      to
      2004, a significant portion of our revenue was derived from sales by our retail
      stores which were operated by CCS, which was then our wholly-owned subsidiary.
      In March 2005, we sold the stock of CCS to Menahem Cohen, who was then our
      vice
      president and a director, for $100 and contingent consideration consisting
      of 5%
      of CCS’s and its subsidiaries’ net sales through March 31, 2015. CCS has not
      generated any sales since that date of sale.




During
      the fiscal year ended June 30, 2004 and continuing thereafter, we changed the
      direction of our sales effort. We substantially reduced our retail operations
      by
      closing our retail stores or converting to them to sales offices, followed
      in
      March 2005 with the sale of our retail subsidiaries. We expanded our marketing
      efforts directed at commercial and governmental users, particularly with respect
      to our sales of our bomb-jamming systems and our communications monitoring
      systems. We do not anticipate that retail sales will account for a significant
      portion of our sales on an ongoing basis.




Although
      we have marketed a number of products in the past, we believe that our ability
      to generate profits in the future will be dependent upon our ability to develop
      market and sell our bomb-jamming equipment and market and sell the
      communications monitoring equipment that we distribute pursuant to a
      distribution agreement with a foreign supplier. If we are not able to generate
      sales from these products or from any new products which we may either develop
      or for which we may acquire distribution rights, we may be unable to operate
      profitably and it may be necessary for us to discontinue our operations and
      seek
      protection under the Bankruptcy Code.




A
      significant portion of our revenue for the six months ended December 31, 2006
      represents non-refundable deposits from distributors which were forfeited upon
      expiration or termination of the distribution agreements as a result of the
      failure of the distributors to purchase our products. The deposits were to
      be
      applied to the purchase price of products ordered pursuant to the distribution
      agreement. Although we recognize these deposits as revenue upon expiration
      or
      termination of the contracts, the distributors may claim that they are entitled
      to a refund of the unused deposits, notwithstanding the characterization of
      the
      deposits as non-refundable. Although we believe that we are complying with
      the
      terms of the contracts, we cannot assure you that the distributors will not
      be
      successful if they bring these claims against us.





16


Critical
      accounting policies





We
      prepare our financial statements in accordance with accounting principles
      generally accepted in the United States of America. Preparing financial
      statements in accordance with generally accepted accounting principles requires
      us to make estimates and assumptions that affect the reported amounts of assets
      and liabilities and disclosure of contingent assets and liabilities as of the
      date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. The following paragraphs include a
      discussion of some of the significant accounting policies and methods applied
      to
      the preparation of our consolidated financial statements. See Note 1 of Notes
      to
      Consolidated Financial Statements for further discussion of significant
      accounting policies.





Use
      of
      estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent assets and liabilities at the date of the combined
      financial statements, and the reported amounts of revenue and expenses during
      the reporting periods. Actual results could differ from those
      estimates.





Inventories





Inventories
      are valued at the lower of cost (first-in, first-out) or market.





Revenue
      recognition





We
      recognize revenue from sales upon the delivery of merchandise to a customer.
      We
      recognize revenue from our sophisticated monitoring systems and bomb jamming
      systems after installation, testing and customer acceptance. Non-refundable
      advance payments received under marketing and distribution arrangements are
      deferred and either applied as payments towards customer purchases made pursuant
      to the terms of the respective agreements, or recognized as income at the
      termination of the agreement if specified purchase quotas have not been met
      by
      the customer. Customer deposits are initially recorded as liabilities and
      recognized as revenue when the related goods are shipped.





Stock-based
      Compensation





We
      periodically grant stock options to employees in accordance with the provisions
      of our stock option plans, with the exercise price of the stock options being
      set at the closing market price of the common stock on the date of grant. We
      also granted shares of preferred stock and stock options to our senior executive
      officers pursuant to their employment agreements. We account for stock-based
      compensation plans under Accounting Principles Board Opinion No. 25, "Accounting
      for Stock Issued to Employees", and accordingly accounts for employee
      stock-based compensation utilizing the intrinsic value method. FAS No. 123,
      "Accounting for Stock-Based Compensation", establishes a fair value based method
      of accounting for stock-based compensation plans. We have adopted the disclosure
      only alternative under FAS No. 123, which requires disclosure of the pro forma
      effects on earnings and earnings per share as if FAS No. 123 had been adopted
      as
      well as certain other information.





In
      December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” This
      statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation” and
      supersedes APB No. 25, “Accounting for Stock Issued to Employees.” SFAS No.
      123(R) requires all stock-based compensation to be recognized as an expense
      in
      the financial statements and that such cost be measured according to the fair
      value of stock options. In April 2005 the SEC announced that the effective
      date
      of SFAS No. 123R for small business issuers will be suspended until the first
      interim or annual reporting period of the company’s first fiscal year beginning
      on or after December 15, 2005, which for the Company is the first quarter of
      the
      fiscal year ended June 30, 2007. Prior to this date the Company provided the
      pro
      forma disclosures required by SFAS No. 148, "Accounting for Stock-Based
      Compensation - Transition and Disclosure," on a quarterly basis.





17


Stock
      options granted to non-employees are recorded at their fair value, as determined
      in accordance with SFAS No. 123 and Emerging Issues Task Force Consensus No.
      96-18, and recognized over the related service period. Deferred charges for
      options granted to non-employees are periodically re-measured until the options
      vest.





Income
      taxes




We
      use
      the liability method to determine income tax expense. Under this method,
      deferred tax assets and liabilities are computed based on differences between
      financial reporting and tax basis of assets and liabilities and are measured
      using the enacted rates and laws that will be in effect when the differences
      are
      expected to reverse. Deferred tax assets are reduced by a valuation allowance
      if, based on the weight of the available evidence, it is more likely than not
      that all or some portion of the deferred tax assets will not be realized. The
      ultimate realization of the deferred tax asset depends on our ability to
      generate sufficient taxable income in the future. Because of our losses we
      did
      not incur any income tax expense during the six months ended December 31, 2006
      and December 31, 2005.




Financial
      guarantees





The
      agreements pursuant to which we issued certain shares to settle debt obligations
      contain a price guarantee that requires us to settle in cash any difference
      between the original face amounts of the debt and proceeds from the creditor’s
      subsequent sale of the shares. We account for these transactions by recording
      the debt at fair value with periodic mark-to-market adjustments until the
      guarantee is settled. Unrealized gains or losses resulting from changes in
      fair
      value are included in earnings and accrued expenses.





Fair
      Value of Financial Instruments





The
      fair
      values of financial instruments recorded on the balance sheet are not
      significantly different from their carrying amounts due to the short-term nature
      of those instruments, or because they are accounted for at fair
      value.





Foreign
      Currency Translation





The
      functional currency of our United Kingdom subsidiary is pound sterling.
      Accordingly, we translate all assets and liabilities into United States dollars
      at current rates. Revenues, costs, and expenses are translated at average rates
      during each reporting period. Gains and losses resulting from the translation
      of
      the consolidated financial statements are excluded from results of operations
      and are reflected as a translation adjustment and a separate component of
      stockholders' deficit. Translation adjustments were $29,888 as of December
      31,
      2006. Gains and losses resulting from foreign currency transactions are
      recognized in the consolidated statement of operations in the period they
      occur.





Contingent
      Liabilities of CCS





On
      March
      22, 2005, we sold all of the stock of CCS to Menahem Cohen for $100 and
      contingent consideration consisting of 5% of CCS’s and its subsidiaries’ net
      sales through March 31, 2015. CCS has not generated any sales since that date
      of
      sale. Our balance sheet at December 31, 2006 does not reflect any liabilities
      of
      CCS, since we were not an obligor or guarantor with respect to any of the
      liabilities except as set forth in Note 3 of Notes to Consolidated Financial
      Statements. Prior to the disposition of CCS we issued shares of common stock
      to
      settle debt obligations of CCS or its subsidiaries. These agreements contain
      a
      price guarantee that requires CCS to settle in cash any difference between
      the
      original face amounts of the debt and proceeds from the creditor’s subsequent
      sale of the shares. Since the obligation to make the payment is an obligation
      of
      CCS, and not us, the amount by which the target prices exceeded the value of
      the
      stock on December 31, 2006, which was approximately $808,000, is not reflected
      as our liability at December 31, 2006. Although we have no contractual
      obligation with respect to any of the obligations of CCS, and we believe we
      have
      a valid defense to any claim that we have any liability with respect to any
      liabilities or obligations of CCS, it is possible that a creditor of CCS or
      its
      subsidiaries may make a claim against us and that they may prevail.








18




RESULTS
      OF OPERATIONS - Six Months Ended December 31, 2006 and 2005





Revenues.
      Revenues for the six months ended December 31, 2006 (the “2006 Period”) were
      $1,308,619, a decrease of $421,181, or 24.4%, from revenues of $1,729,800 for
      the six months ended December 31, 2005 (the “2005 Period”) primarily
      as a consequence of (i) a decrease of $213,333, or 50.4% in revenues recognized
      from the termination of distribution agreements with non refundable deposit
      balances to $210,174 in the 2006 Period from $423,507 in the 2005 Period and
      (ii) a decrease in product sales of $207,848, or 15.9%, to $1,098,445 in the
      2006 Period from $1,306,293 in the 2005 Period.





Cost
      of
      Revenue. Cost of sales decreased by $68,609, or 13.7% to $423,735 in the 2006
      Period from $501,344 in the 2005 Period as a consequence of decreased product
      sales. Cost of sales as a percentage of product sales increased to 39.4% in
      the
      2006 Period from 38.9% in the 2005 Period primarily as a consequence of selling
      lower margin products in the 2006 Period.




Compensation
      and benefits. Compensation and benefits decreased by $166,380, or 16.3% to
      $854,400 in the 2006 Period from $1,020,780 in the 2005 Period primarily due
      to
      (i) outsourcing certain marketing and sales functions to outside consultants,
      (ii) the result of implementing cost cutting programs and (iii) a reduction
      in
      commission expense caused by lower product sales.





Professional
      fees and legal matters. Professional fees and legal matters decreased by
      $39,915, or 30.6% to $90,457 in the 2006 Period from $130,372 in the 2005
      Period. Based on a review of our outstanding legal matters and CCS’s outstanding
      legal matters and unpaid settlements, we have established, in consultation
      with
      outside counsel, reserves for litigation costs that we believe are probable
      and
      can be reasonable estimated. We can provide no assurance, however, that such
      reserves will be sufficient to absorb actual losses that may result from
      unfavorable outcomes. Moreover, it is possible that the resolution of litigation
      contingencies will have a material adverse impact on our consolidated financial
      condition, results of operations, and cash flows.





Stock
      based compensation. Stock based compensation was $41,794 during the 2006 period
      and is attributable to the grant of options and warrants to employees in
      accordance with FASB 123(R) that became effective for us on July 1, 2006. There
      was no comparable expense in the 2005 Period.





Selling,
      general and administrative expenses. Selling, general and administrative
      expenses decreased by $90,658, or 11.5% to $697,806 in the 2006 Period from
      $788,464 in the 2005 Period. This decrease was primarily the result of
      implementing cost cutting programs designed to decrease a number of
      administrative support services.





Depreciation
      and amortization. Depreciation and amortization had no change and was $4,000
      in
      the 2006 Period and $4,000 in the 2005 Period.




Interest
      expense. Interest expense decreased by $17,141, or 12.2% to $123,661 in the
      2006
      Period from $140,802 in the 2005 Period primarily as a result of closing costs
      of $37,921 associated with the revolving line of credit we entered into in
      August 2005 reflected in the 2005 Period with no similar expense in the 2006
      Period, partially offset by increased costs resulting from a continued increase
      in the Company’s other interest bearing outstanding debt
      obligations




As
      a
      result of the factors described above, our net loss increased by $80,272, or
      9.4% to $936,234, $.01 per share, in the 2006 Period from $855,962, $.01 per
      share, in the 2005 Period.





Liquidity
      and Capital Resources





At
      December 31, 2006 we had cash of $31,757, no accounts receivable and a working
      capital deficit of $7,250,500 and long term debt of $494,000. During the 2006
      Period, we had a negative cash flow from operations of $8,957. Our accounts
      payable and accrued expenses at December 31, 2006 were $2,950,468. As a result
      of our continuing losses, our working capital deficiency has increased. We
      funded our losses through the sale of our common stock, loans from our chief
      executive officer and a company owned by his wife and the issuance of notes
      to
      private investors. We also utilized vendor credit and customer deposits.





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Our
      accounts payable and accrued expenses increased from $2,468,121 at June 30,
      2006
      to $2,950,468 at December 31, 2006 an increase of $482,347 reflecting our
      inability to pay creditors currently. We also had customer deposits and deferred
      revenue of $2,014,547 which relate to payments on orders which had not been
      filled at that date. We have used our advance payments to fund our operations.
      If our vendors do not extend us necessary credit we may not be able to fill
      current or new orders, which may affect the willingness of our clients to
      continue to place orders with us.





During
      the past three years we have sought, and been unsuccessful, in our efforts
      to
      obtain adequate funding for our business. Because of our losses and our working
      capital deficiency, we are not able to increase our borrowing. Our bank facility
      terminated on November 1, 2002 and since that date we have not been able to
      arrange financing with a replacement bank or institutional lender. In June
      2004,
      we entered into a convertible credit agreement with certain stockholders
      pursuant to which we borrowed $494,000. Our obligations to these lenders matured
      on June 30, 2005, and were extended until June 30, 2010. In August, 2005, we
      entered into a revolving credit agreement with GCOM Consultants, Inc., a company
      owned by the wife of our chief executive officer, under which we may borrow
      up
      to $680,000. We borrowed approximately $615,000 under this agreement. These
      borrowings are due on demand. If demand is made, we do not presently have the
      resources to pay the lender. If the lender seeks to demand payment or otherwise
      enforce the notes, it may be necessary for us to seek protection under the
      Bankruptcy Code. We continue to require funds for our operations, and our
      failure either to obtain financing or generate cash flow from operations would
      materially impair our ability to continue in business, and we cannot assure
      you
      that we will be able to obtain the necessary financing. If we do not obtain
      necessary funding, either from operations or from investors, we may be unable
      to
      continue our operations and it may be necessary for us to seek protection under
      the Bankruptcy Code.




Our
      main
      source of funds other than the private investors has been from loans from our
      chief executive officer, a company owned by the chief executive officer’s wife,
      customer deposits and vendor credits. During fiscal 2006 we received $343,000
      from the sale of our common stock. We cannot provide any assurance that we
      will
      be able to raise any more money through the sale of our equity securities.
      We
      may not be able to obtain any additional funding, and, if we are not able to
      raise funding, we may be unable to continue in business. Furthermore, if we
      are
      able to raise funding in the equity markets, our stockholders might suffer
      significant dilution and the issuance of securities may result in a change
      of
      control. These factors raise substantial doubt about our ability to continue
      as
      a going concern. Our financial statements do not include any adjustments that
      might result from the outcome of these uncertainties.




In
      March
      2005, we sold the stock of CCS. Prior to the sale CCS had incurred liabilities,
      which continue as liabilities of CCS. Although we did not guaranty payment
      of
      the obligations of CCS, it is possible that creditors of CCS may seek payment
      from us. Although we believe that we have no liability to creditors of CCS,
      we
      cannot assure you that a court would not reach a contrary conclusion. Regardless
      of whether we ultimately prevail, we would incur significant legal and other
      costs in defending any such action.










PART
      II
      OTHER INFORMATION





Item
      2.  Unregistered
      Sale of Equity Securities and Use of Proceeds.





During
      the six months ended December 31, 2006 we issued the following in transactions
      which were not registered pursuant to the Securities Act of 1933:





·
            We
                issued 600,000 shares of common stock to employees in payment of
                $5,400 of
                accrued wages.




·
            We
                issued 49,373 shares of common stock to our 401 (K) Savings Plan,
                valued
                at $1,298, as our match to contributions by employees. (See Note
                9).





None
      of
      these shares were issued in transactions involving a public offering pursuant
      to
      Section 4(2) of the Securities Act of 1933, as amended. No underwriting or
      broker was involved in the stock issuances and the Company did not pay any
      compensation to any person in connection with the stock issuances.





20




Item
      3.
      Controls and Procedures





As
      of the
      end of the three months ended December 31, 2006, our chief executive officer
      and
      chief financial officer evaluated the effectiveness of our disclosure controls
      and procedures. Based on their evaluation, the chief executive officer and
      the
      chief financial officer have concluded that our disclosure controls and procedures
      are effective in alerting them to material information that is required to
      be
      included in the reports that we file or submit under the Securities Exchange
      Act
      of 1934 and
      that
      the information required to be disclosed in the reports that we file or submit
      under the Securities Exchange Act of 1934 is accumulated and communicated to
      our
      management, including our chief executive officer and chief financial officer,
      to allow timely decisions regarding required disclosure.




There
      has
      been no change in our internal control over financial reporting that occurred
      during our last fiscal quarter that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.





Item
      6.  EXHIBITS
      AND REPORTS ON FORM 8K





31.1
            Certificate
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.


31.2
            Certificate
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.


32.1
            Certificate
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2002.





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.






SECURITY INTELLIGENCE TECHNOLOGIES,
              INC.By: /s/ Ben
              Jamil
              Ben
                Jamil, chief executive officerBy: /s/ Chris R.
              Decker
              Chris
                R. Decker, chief financial officer




Date:
      February 20, 2007






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