SECURITIES
      AND EXCHANGE COMMISSION





Washington,
      D.C. 20549





FORM
      10-KSB








x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





For
      the
      fiscal year ended June 30, 2007


OR





o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





For
                the transition period from ________ to
                ________





COMMISSION
      FILE NUMBER 000-31779





SECURITY
      INTELLIGENCE TECHNOLOGIES, INC.


Exact
      name of registrant as specified in its charter)


Florida
              
              65-0928369(State
                  or other jurisdiction of formation)
              
              (IRS
                  Employer Identification No.)





145
      Huguenot Street, New Rochelle, New York 10801


(Address
      of principal executive offices) (Zip Code)





Registrant's
      telephone number, including area code (914) 654-8700





(Former
      name or former address, if changes since last report)





Securities
      registered under Section 12(b) of the Exchange Act: None


Securities
      registered under Section 12(g) of the Exchange Act: Title of class: Common
      stock, par value $.0001 per share





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




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. 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.




The
      Registrant’s revenues for the fiscal year ended June 30, 2007 were
      $1,834,930.









The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, was $533,072
      at
      September 27, 2007.




The
      number of shares of common stock $.0001 par value, of the Registrant issued
      and
      outstanding as of September 27, 2007 was 93,584,668.


2




DOCUMENTS
      INCORPORATED BY REFERENCE




None


3


TABLE
      OF
      CONTENTS





PageNumberPart
                I
            
            
            5Description
                of Business
            
            
            5Description
                of Properties
            
            
            17Legal
                Proceedings
            
            
            17Submission
                Of Matters To A Vote Of Security Holders
            
            
            18Part
                II
            
            
            19Market
                For Registrant’s Common Equity And Related StockholderMatters
            
            
            19Management’s
                Discussion And Analysis Of Financial Condition AndResults
                Of Operations
            
            
            20Financial
                Statements And Supplementary Data
            
            
            25Changes
                In And Disagreement With Accountants OnAccounting
                And Financial Disclosure
            
            
            25Controls
                And Procedures
            
            
            25Other
                Information
            
            
            26Part
                IIIDirectors,
                Executive Officers, Promoters and Control Persons;Compliance
                with Section 16 (a) of the Exchange Act of the Registrant
            
            
            26Executive
                Compensation
            
            
            28Security
                Ownership of Certain Beneficial Owners And Management
            
            
            31Certain
                Relationships and Related Transactions
            
            
            32





4


Forward-Looking
      Statements





Statements
      in this Form 10-KSB report may be “forward-looking statements” within the
      meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
      statements include, but are not limited to, statements that express our
      intentions, beliefs, expectations, strategies, predictions or any other
      statements relating to our future activities or other future events or
      conditions. These statements are based on current expectations, estimates and
      projections about our business based, in part, on assumptions made by
      management. These statements are not guarantees of future performance and
      involve risks, uncertainties and assumptions that are difficult to predict.
      Therefore, actual outcomes and results may, and probably will, differ materially
      from what is expressed or forecasted in the forward-looking statements due
      to
      numerous factors, including those described above and those risks discussed
      from
      time to time in this Form 10-KSB report, including the risks described under
      “Risk Factors” and Management’s Discussion and Analysis of Financial Condition
      and Results of Operations” and in other documents which we file with the
      Securities and Exchange Commission. In addition, such statements could be
      affected by risks and uncertainties related to our financial condition, factors
      which affect the security industry, market and customer acceptance, competition,
      government regulations and requirements and pricing, as well as general industry
      and market conditions and growth rates, and general economic conditions. Any
      forward-looking statements speak only as of the date on which they are made,
      and
      we do not undertake any obligation to update any forward-looking statement
      to
      reflect events or circumstances after the date of this Form 10-KSB.





**PART
      I**


**Item
        1. Description of Business**





**Our
      Business**





We
      design, assemble, market and sell security products for use by military, law
      enforcement and security personnel in the public and private sectors. Our
      clients include governmental agencies, multinational corporations and
      non-governmental organizations. Our principal products are:




·
            equipment
                designed to jam bombs which are activated by remote radio-controlled
                signals such as cell phones and garage door
                openers;




·
            systems
                which are used to monitor mobile and other communications;
                and




·
            countermeasure
                security equipment, including counter surveillance, wiretap detection,
                voice stress analysis lie detection equipment and voice logging
                systems.




Our
      operations have generated losses since our organization, and our losses are
      continuing. We believe that our ability to operate profitably in the future
      will
      be dependent upon our ability to continue to develop and market our bomb jamming
      equipment and to market our communications monitoring systems. We design and
      assemble the bomb jamming equipment, which we introduced in 2004. We market
      the
      communications monitoring systems pursuant to a distribution agreement. Although
      we offer a number of other security products, revenue from these products has
      not been significant.




Our
      revenue from bomb jamming and communications monitoring equipment was
      approximately $405,000 for the year ended June 30, 2007 and $640,000 for the
      year ended June 30, 2006. At June 30, 2007, we had six firm orders for bomb
      jamming equipment and communications monitoring equipment, totaling $1,627,000.
      The customers for three of the orders totaling $1,072,000 have instituted
      litigation against us based on alleged breaches of contract. (See Item 3. Legal
      Proceedings). We have been unable to obtain an export license to ship one
      additional order for $140,000 and cannot be certain we will ever be able to
      obtain an export license for this order. The remaining two orders totaling
      $415,000 are scheduled for shipment during the second quarter of fiscal
      2007.





5





Stock
      Distribution




On
      November 17, 2005, we effected a three-for-one stock distribution, pursuant
      to
      which we issued two shares of common stock for each share of common stock
      outstanding on November 28, 2005, the record date. In connection with the stock
      distribution, our authorized common stock was increased from 100 million
      shares to 300 million shares.




**About
      US**




We
      are a
      Florida corporation organized under the name Hipstyle.com, Inc. in June 1999.
      In
      April 2002, in a transaction characterized as a reverse acquisition, we acquired
      CCS International, Ltd. (“CCS”), and our corporate name was changed to Security
      Intelligence Technologies, Inc. The transaction by which we acquired the stock
      of CCS is referred to in this annual report as the “reverse acquisition.” From
      and after April 17, 2002 and continuing through the year ended June 30, 2003,
      our business was the business conducted by CCS prior to the reverse
      acquisition.




Prior
      to
      2004, a significant portion of our revenue was derived from sales by our retail
      stores which were operated by CCS. Commencing in mid 2003 and continuing through
      March 2004, we closed all of our retail stores, although we continue to make
      modest retail sales from our headquarters. 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.




Our
      principal executive offices are located at 145 Huguenot Street, New Rochelle,
      New York 10801, telephone (914) 654-8700. Our website is www.secintel.com .
      Neither
      the information nor other statements contained in our website nor the
      information contained in any other Internet website is a part of this annual
      report.




References
      to “we,” “us,” “our” and similar words refer to Security Intelligence
      Technologies, Inc. and its subsidiaries, unless the context indicates
      otherwise.




**RISK
      FACTORS**




An
      investment in our securities involves a high degree of risk. In determining
      whether to purchase our securities, you should carefully consider all of the
      material risks described below, together with the other information contained
      in
      this annual report before making a decision to purchase our securities. You
      should only purchase our securities if you can afford to suffer the loss of
      your
      entire investment.




*We
      require significant working capital in order to fund our
      operations.*




At
      June
      30, 2007, we had cash of approximately $7,000, no accounts receivable, and
      a
      working capital deficit of approximately $8.6 million. In order to pay our
      current obligations and develop and market our products, we require significant
      additional working capital. We have incurred losses in the past, our losses
      are
      continuing and we are continuing to generate negative cash flow from operations.
      As a result, our working capital deficiency is increasing. In the event that
      we
      are unable to raise the necessary funding we may be unable to continue
      operations and it may be necessary to seek protection under the Bankruptcy
      Code.




*Because
      of our lack of working capital, we have incurred penalties for failing to pay
      our payroll taxes* .




Because
      of our working capital problems we are delinquent in payment of payroll taxes.
      At June 30, 2007, our liabilities included delinquent payroll taxes and
      associated interest and penalties of $1,444,635. Our failure to pay these tax
      obligations could subject us to increased interest and penalties and our
      property may become subject to tax liens which would impair our ability to
      operate and could result in our seeking protection under the Bankruptcy
      Code.




*Our
      increasing current liabilities reflect our inability to pay creditors
      currently.*




We
      have
      used our deposits from our distributors and clients to pay our creditors and
      finance our operations. If our vendors do not extend us necessary credit, we
      may
      not be able to fill our current orders, which may affect the willingness of
      our
      distributors and our clients to continue to place orders with us or to make
      advance payments to us. Our inability to obtain advance payments from
      distributors and clients will impair our ability to obtain components necessary
      to make products, which, in turn, may result in a cessation of our
      business.




6




*If
      we
      continue to operate at a loss, we may be unable to continue in
      business.*




We
      sustained net losses of $2.3 million, or $.02 per share (basic and diluted),
      for
      the fiscal year ended June 30, 2007, and $3.1 million, or $.04 per share (basic
      and diluted), for the fiscal year ended June 30, 2006, and our losses are
      continuing. Our failure to operate profitably is affecting the willingness
      of
      distributors and clients to place orders with us and the willingness of our
      suppliers to provide us with necessary components. We cannot assure you we
      will
      ever be able to operate profitably, and if we are unable to operate profitably,
      we may be unable to continue in business, and it
      may be necessary for us to seek protection under the Bankruptcy
      Code.




*Our
      independent auditors have included an explanatory paragraph in their report
      as
      to our ability to continue as a going concern.*




As
      a
      result of our continuing and significant losses and our working capital
      deficiency, our independent auditors have included in their report an
      explanatory paragraph as to our ability to continue as a going
      concern.




*Our
      lack of credit facilities may impair our ability to operate.*




Our
      only
      source of funds since prior to July 1, 2003, other than deposits by our
      distributors and clients, has been sales of our common stock or the exercise
      of
      options to buy our common stock, from which we received gross proceeds of
      $343,000 during the fiscal year ended June 30, 2006, loans and credit facilities
      from our officers and members of their families and a placement of notes to
      certain of our stockholders and other individuals. In view of our substantial
      working capital deficit and continuing losses, we may be unable to raise equity
      or obtain additional credit. If we are not able to generate the capital or
      obtain the credit we require, it may be necessary for us to cease operations
      and
      seek protection under the Bankruptcy Code.




*A
      significant portion of our revenue results from revenues recognized from the
      termination of distribution agreements with non refundable
      deposits.*




For
      the
      year ended June 30, 2007, approximately $250,000, or 13.6% of our revenue,
      resulted from the termination of distribution agreements that had non-refundable
      deposits. We had entered into distribution agreements pursuant to which the
      distributors made a non-refundable deposit on account of products to be
      purchased in the future. To the extent that the agreement is terminated or
      expires without the required purchases being made, we have recognized the amount
      of the unapplied deposit as revenue. We cannot assure you that our distributors
      will not seek a refund of the deposit, notwithstanding the non-refundable nature
      of the deposit or that the distributors will not be successful if they pursue
      such a claim in court.




*If
      we
      are unable to generate sales of our bomb-jamming equipment or the communications
      monitoring equipment, we may not be able to continue in
      business.*




Although
      we have sold a number of products in the past, our sales of these products
      have
      not been sufficient to enable us to operate profitably. We believe that, unless
      we acquire rights to other products for which there is a significant market,
      our
      ability to generate profits is dependent upon our ability to develop market
      and
      sell our bomb-jamming equipment and to market and sell the communications
      monitoring equipment that we distribute pursuant to a distribution agreement
      with a foreign supplier. If we cannot generate sufficient sales of these
      products, we may be unable to continue in business, and it may be necessary
      for
      us to seek relief under the Bankruptcy Code.




*If
      we
      do not have access to the most current technology, we may not be able to market
      our products and services.*




The
      security industry is constantly changing to meet new requirements, which result
      from new threats to government and industry, both from potential threats to
      persons and property, to industrial and governmental espionage, as well as
      general concern about personal and family safety. In order to meet these needs
      we must both anticipate problems and develop methods for reducing the potential
      risk. We rely primarily on the performance and design characteristics of our
      products in
      marketing our products, which requires access to state-of-the art technology
      in
      order to be competitive. Our business could be impaired if we cannot obtain licenses for
      such updated technology or develop state-of-the-art technology ourselves. With
      respect to our bomb-jamming equipment, we need to be able to adapt our products
      to meet new technical requirements based on changes in the nature of threats
      from remotely controlled explosive devices. Because of our financial problems,
      we are not able to devote any significant effort to research and development,
      which could increase our difficulties in making sales of our products. If we
      cannot meet the developing challenges, we will not be able to market our
      bomb-jamming equipment successfully. Furthermore, if our potential customers
      are
      not confident that, because of our limited financial resources, we will be
      able
      to develop products to meet future requirements as they develop, they may be
      reluctant to purchase our products.




7




*Because
      of our limited resources, we may not be able to develop or implement a
      successful marketing program* .




Our
      ability to implement an expanded marketing program is dependent upon our ability
      to fund the program. If we are not able to obtain necessary financing, we may
      be
      unable to market our products. Furthermore, our financial condition may inhibit
      potential customers from purchasing our equipment and our competitors may use
      our financial condition in marketing to the same customers.




*Because
      of the nature of our products, our ability to market our products is dependent
      upon the acceptance of our products by government agencies and government
      contractors.*




Our
      products, particularly our bomb-jamming equipment and communications monitoring
      equipment, are marketed primarily to domestic and foreign governments,
      government agencies, including the military, and government contractors. We
      are
      subject to a long selling cycle in seeking to market to these customers, and,
      after a long selling effort, we may not be successful in generating orders
      for
      our products, either because the products do not meet the government
      specifications or because governments and government agencies are reluctant
      to
      place a significant purchase order with a company that does not have adequate
      working capital or financial resources. Further, if government agencies,
      particularly agencies of the United States government, including the military,
      purchase competing products, other potential customers may follow their lead
      and
      also purchase competing products. As a result, we cannot assure you that we
      can
      or will be successful in marketing to these customers and, if we are not
      successful in this marketing effort, it may be necessary for us to terminate
      our
      business and seek protection under the Bankruptcy Code.




*Our
      failure to deliver our products could result in litigation and judgments against
      us.*




If,
      because of our lack of working capital or for other reasons, we are unable
      to
      deliver our products to our distributors and clients, we may be subject to
      litigation resulting from such failure. I f
      one or
      more of our creditors or customers obtain significant judgments against us
      and
      seeks to enforce the judgments, our ability to continue in business would be
      impaired and it may be
      necessary for us to seek protection under the Bankruptcy Code.




*Although
      we have sold the stock of CCS, creditors of CCS have asserted and may continue
      to assert claims against us.*




CCS
      had
      obligations and liabilities, including judgments, which had been reflected
      as
      liabilities on our balance sheet prior to our sale of CCS. The liabilities
      of
      CCS include stock price guarantees made by CCS in connection with its settlement
      of debt obligations. 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. Although we
      are not a party to any of the agreements or judgments pursuant to which these
      liabilities or other obligations arose, CCS’ creditors have sought and may
      continue to seek to make a claim against us. A creditor of CCS has obtained
      a
      default judgment against us based on an allegation that we were responsible
      for
      the debts of CCS. If such claims continue to be brought against us, we would
      incur significant expense in defending the claims with no assurance that we
      will
      prevail




*We
      are subject to government regulations, which if violated, could prohibit us
      from
      conducting a significant portion of our export business and result in criminal
      liability.*




The
      United States and other governments have strict regulations concerning the
      exporting and importing of security devices, which may restrict sales of certain
      products to bona fide law enforcement agencies or may restrict the sale of
      certain products from the United States. If we violate any of these laws, we
      may
      be subject to civil or criminal prosecutions. If we are charged with any such
      violations, regardless of whether we are ultimately cleared, we may be unable
      to
      sell our products. .




8




*Because
      we rely on third parties for much of our distribution, we lack control over
      the
      distribution of our products.*




Because
      we have a limited staff, our marketing is generally conducted by third party
      distributors who have distribution rights within a specified territory. We
      have
      no control over the manner in which they market our products, including their
      compliance with local laws. The inability of our distributors to market and
      sell
      our products would impair our ability to operate profitably. Furthermore, in
      the
      event that any of our distributors violates the laws of the countries in which
      they operate, our ability to sell in those countries may be impaired and it
      is
      possible that we may be subject to claims that we are a party to such
      violations. We would incur significant expense in defending any such claim,
      even
      if we were to prevail. Further, any such violation by any of our distributors
      could impair our relationship with the licensor of any products which we license
      and could result in the termination or non-renewal of one or more of such
      licenses.




*Because
      we have no alternate source of supply, we may not be able to sell our
      communications monitoring equipment if the supplier is unable or unwilling
      to
      provide us with product.*




We
      sell
      our communications monitoring equipment pursuant to a distribution agreement
      with the foreign supplier of the product. This supplier holds the right to
      the
      product, and, in the event that, for any reason, it fails to supply us with
      product, we have no other source of supply. We may not be able to obtain
      distribution rights to any comparable product. Since we consider the
      communications monitoring equipment to be crucial to our growth, our growth
      would be impaired by our inability to market such a product.




*Because
      we are dependent on our management, the loss of key executive officers could
      harm our business.*




Our
      business is largely dependent upon our senior executive officers, Ben Jamil,
      our
      chief executive officer, and Chris R. Decker, our chief financial officer.
      Although we have employment agreements with both Mr. Jamil and Mr. Decker,
      the
      employment agreements do not guarantee that they will continue with us. Our
      business may be adversely affected if any of our key management personnel or
      other key employees left our employ.




*Because
      we lack patent or copyright protection, we cannot assure you that others will
      not be able to use our proprietary information in competition with
      us.*




We
      have
      no patent or copyright protection for our proprietary software or products,
      including our bomb-jamming equipment, and we rely on non-disclosure agreements
      with our employees. Since our business is dependent upon our proprietary
      products, the unauthorized use or disclosure of this information could harm
      our
      business.




*Major
      corporations may be able to develop and fund marketing efforts that could enable
      them to dominate the market.*




A
      number
      of major companies, many of which have strong relationships with the United
      States and other governments, can both offer security products to governments
      and industry and fund a product development and marketing program. These
      companies have the financial ability to dominate the market, to effectively
      set
      a standard which may be incompatible with our technology and to use their
      financial resources and government and industry contacts to successfully compete
      against us in all major markets, regardless of whether their technology is
      superior or inferior to ours.




*Our
      growth may be limited if we cannot make acquisitions or obtain licenses to
      new
      products* .




A
      part of
      our growth strategy is to acquire other businesses that are related to our
      current business and to obtain licenses to new products in the security field.
      Any acquisitions may be made with cash or our securities or a combination of
      cash and securities. To the extent that we require cash, we may have to borrow
      the funds or issue equity. Our stock price and financial condition may adversely
      affect our ability to make acquisitions for equity or to raise funds for
      acquisitions through the issuance of equity securities. If we fail to make
      any
      acquisitions, our future growth may be limited. Furthermore, because of our
      stock price and our continuing losses, it may be difficult for us to make an
      acquisition, and if we make an acquisition, the issuance of any stock or other
      equity securities in connection with the acquisition may result in significant
      dilution to our stockholders and may result in a change of control. As of the
      date of this annual report, we do not have any agreement or understanding,
      either formal or informal, as to any acquisition.




9




*If
      we
      make any acquisitions, they may disrupt or have a negative impact on our
      business.*




If
      we
      make any acquisitions, we could have difficulty integrating the acquired
      companies’ personnel and operations with our own. In addition, the key personnel
      of the acquired business may not be willing to work for us, and our officers
      may
      terminate their employment with us. We cannot predict the affect expansion
      may
      have on our core business. Regardless of whether we are successful in making
      an
      acquisition, the negotiations could disrupt our ongoing business, distract
      our
      management and employees and increase our expenses. In addition to the risks
      described above, acquisitions are accompanied by a number of inherent risks,
      including, without limitation, the following:




·
            the
                difficulty of integrating acquired products, services or
                operations;




·
            the
                potential disruption of the ongoing businesses and distraction of
                our
                management and the management of acquired companies;




·
            the
                difficulty of incorporating acquired rights or products into our
                existing
                business;




·
            difficulties
                in disposing of the excess or idle facilities of an acquired company
                or
                business and expenses in maintaining such facilities;




·
            difficulties
                in maintaining uniform standards, controls, procedures and policies;




·
            the
                potential impairment of relationships with employees and customers
                as a
                result of any integration of new management
                personnel;




·
            the
                potential inability or failure to achieve additional sales and enhance
                our
                customer base through cross-marketing of the products to new and
                existing
                customers;




·
            the
                effect of any laws or government regulations, including any foreign
                laws
                or regulations, which relate to the business
                acquired;




·
            potential
                unknown liabilities associated with acquired businesses or product
                lines,
                or the need to spend significant amounts to retool, reposition or
                modify
                the marketing and sales of acquired products or the defense of any
                litigation, whether of not successful, resulting from actions of
                the
                acquired company prior to our acquisition.




Our
      business could be severely impaired if and to the extent that we are unable
      to
      succeed in addressing any of these risks or other problems encountered in
      connection with these acquisitions, many of which cannot be presently
      identified, these risks and problems could disrupt our ongoing business,
      distract our management and employees, increase our expenses and adversely
      affect our results of operations.




*The
      rights of the holders of common stock may be impaired by the potential issuance
      of preferred stock* .




Our
      certificate of incorporation gives our board of directors the right to create
      new series of preferred stock. As a result, the board of directors has and
      in
      the future may, without stockholder approval, issue preferred stock with voting,
      dividend, conversion, liquidation or other rights which could adversely affect
      the voting power and equity interest of the holders of common stock. Preferred
      stock, which could be issued with the right to more than one vote per share,
      could be utilized as a method of discouraging, delaying or preventing a change
      of control. The possible impact on takeover attempts could adversely affect
      the
      price of our common stock. Although we have no present intention to issue any
      additional shares of preferred stock or to create any new series of preferred
      stock, we may issue such shares in the future. At present, all of the authorized
      preferred stock has been issued to our executive officers; however, we may
      amend
      our certificate of incorporation to increase the number of authorized shares
      of
      preferred stock.




10




*The
      issuance of shares through our stock compensation and incentive plans may dilute
      the value of existing stockholders* .




We
      anticipate using stock options, stock grants and other equity-based incentives,
      to provide motivation and compensation to our officers, employees and key
      independent consultants. The award of any such incentives will result in an
      immediate and potentially substantial dilution to our existing stockholders
      and
      could result in a decline in the value of our stock price.




*Shares
      may be issued pursuant to our stock plans which may affect the market price
      of
      our common stock.*




We
      may
      issue stock upon the exercise of options or pursuant to stock grants covering
      a
      total of 9,613,083 shares of common stock pursuant to our stock incentive plans,
      including options to purchase 7,828,500 shares which were outstanding on June
      30, 2007. In addition we have granted options to purchase an additional
      36,000,000 shares to our senior executive officers. The exercise of these
      options and the sale of the underlying shares of common stock and the sale
      of
      stock issued pursuant to stock grants may have an adverse effect upon the price
      of our stock.




*A
      third party may claim ownership of stock held by our chief executive
      officer.*




In
      connection with an agreement between Mr. Ben Jamil and two financial consultants
      entered into prior to the April 2002 reverse acquisition of CCS into us, the
      consultants or their designees were to purchase a 30% interest in five of our
      former subsidiaries, and that 30% was to have been exchanged for 1,500,000
      shares of our series B preferred stock. Mr. Jamil advised the consultants and
      their designees that, as a result of their failure to pay the consideration
      for
      the shares, the agreement is terminated and they have no interest in the series
      B preferred stock or the stock in the five subsidiaries. It is possible that the
      consultants or their designees may claim that they own the series B preferred
      stock and we can give no assurance that their claim will not be
      upheld.




*Control
      by the chairman of our board of directors might limit independent, public
      stockholder influence over us and prevent a third party from acquiring us even
      if an acquisition is in the best interest of our stockholders* .




As
      of
      June 30, 2007, Ben Jamil, our chairman of the board and chief executive officer,
      beneficially owns 50.9% of our common stock and, as a result of preferred stock
      ownership, holds 76.8% of our voting rights, and he exercises control over
      our
      operations and, at a meeting of stockholders, he may be able to elect all of
      the
      members of our board of directors and approve any matter requiring stockholder
      approval including an amendment to our certificate of incorporation to increase
      our authorized preferred and common stock.




*Because
      we are not subject to compliance with rules requiring the adoption of certain
      corporate governance measures, our stockholders have limited protections against
      interested director transactions, conflicts of interest and similar
      matters.*





The
      Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by
      the
      SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market
      as a
      result of Sarbanes-Oxley requires the implementation of various measures
      relating to corporate governance. These measures are designed to enhance the
      integrity of corporate management and the securities markets and apply to
      securities which are listed on those exchanges or the Nasdaq Stock Market.
      Because we are not presently required to comply with many of the corporate
      governance provisions and because we chose to avoid incurring the substantial
      additional costs associated with such compliance any sooner than necessary,
      we
      have not yet adopted all of these measures. Because none of our directors are
      independent directors, we do not have independent audit or compensation
      committees. We also are not in compliance with requirements relating to the
      distribution of annual and interim reports, the holding of stockholders meetings
      and solicitation of proxies for such meeting and requirements for stockholder
      approval for certain corporate actions. Until we comply with such corporate
      governance measures, regardless of whether such compliance is required, the
      absence of such standards of corporate governance may leave our stockholders
      without protections against interested director transactions, conflicts of
      interest and similar matters and investors may be reluctant to provide us with
      funds necessary to expand our operations.




11




*Failure
      to achieve and maintain effective internal controls in accordance with Section
      404 of the Sarbanes-Oxley Act could have a material adverse effect on our
      business and operating results and stockholders could lose confidence in our
      financial reporting.*




Effective
      internal controls are necessary for us to provide reliable financial reports
      and
      effectively prevent fraud. If we cannot provide reliable financial reports
      or
      prevent fraud, our operating results could be harmed. We will be required to
      document and test our internal control procedures in order to satisfy the
      requirements of Section 404 of the Sarbanes-Oxley Act, which requires increased
      control over financial reporting requirements, including annual management
      assessments of the  effectiveness of such internal controls and a report by our independent
      certified public accounting firm addressing these assessments. We must be in
      compliance with these requirements for our fiscal year ending June 30, 2008.
      In
      preparing to meet such deadline we may identify deficiencies that we may not
      be
      able to remediate in time to meet the deadline. In addition, if we fail to
      maintain the adequacy of our internal controls, as such standards are modified,
      supplemented or amended from time to time; we may not be able to conclude that
      we have effective internal controls over financial reporting in accordance
      with
      Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an
      effective internal control environment could also cause investors to lose
      confidence in our reported financial information, which could have a material
      adverse effect on our stock price.




*Because
      there is no active public market for our common stock, you may have difficulty
      selling common stock that you own.*




Although
      we are registered pursuant to the Securities Exchange Act of 1934 and because
      of
      the low price of our stock, there is only a limited for our stock and you may
      not be able to sell your shares in the public market.




*We
      do
      not anticipate paying dividends on our common stock* .




**Industry
      Overview**





Increasingly,
      governments, including the military, businesses and individuals have recognized
      the need for security products and services to protect them from the risks
      associated with terrorism, physical attacks, and threats of violence,
      white-collar crime and fraud.





The
      United States has been the target of several deadly terrorist attacks directed
      towards its citizens and facilities around the world. As a result, institutions,
      including the United States Department of Defense and other government agencies
      and multinational corporations are redefining strategies to protect against
      and
      combat terrorism.




As
      a
      company in the security products industry, we market our products in three
      markets - the law enforcement security market, the government military market
      and the specialized security services market.





Law
      Enforcement Security Products Market. In
      response to an increased emphasis on safety and protection, the number of active
      police officers has increased significantly over the past several years. By
      2004
      there were more than 900,000 law enforcement personnel in the United States.
      As
      a result of the terrorist’s attacks on September 11, 2001, the United States
      established the Department of Homeland Security funding it with a budget of
      $13
      billion in its first fiscal year which has escalated to $42.7 billion in fiscal
      2007, an increase of 228%.




Military
      Market. Worldwide defense expenditures are estimated at $950 billion. The United States
      spends several times more on its military than any conceivable adversary, and
      together with its allies accounts for more than two-thirds of total worldwide
      defense spending. United States defense spending has surged since the late
      1990s. Between 1999 and 2004, the United States defense budgets increased by
      more than 41% with most of the increase coming after the September 11, 2001,
      terrorist attacks.




12




Specialized
      Security Services Market. Corporations are increasingly contracting private companies to handle all or
      a
      portion of their security services. We believe that demand by multinational
      corporations and governmental agencies for security services such as risk
      assessment, crisis management, guard force management, security force
      organization and executive protection is likely to increase as these entities
      continue to establish operations and manufacturing facilities in developed
      and
      developing countries. In addition, demand for corporate investigative services
      continues to grow as businesses react to the need to protect their assets
      against the growing threat of white collar crime including fraud, counterfeiting
      and piracy of intellectual property.





**Our
      Products**




We
      design, develop, manufacture and market six core security product lines to
      governments and government representatives including bomb-jamming systems to
      nullify radio-controlled improvised explosive devices and communications,
      cellular monitoring systems, countermeasure equipment, voice stress analysis
      lie
      detection equipment, encryption products and voice logging systems.




*Bomb-Jamming
      Systems*




Our
      bomb-jamming equipment is designed to prevent the explosion of radio- controlled
      improvised explosive devices that are detonated by signals transmitted from
      instruments such as cell phones and garage door openers. Our b omb
      jammers blanket an area with radio interference; neutralizing radio controlled
      improvised explosive devices. These products are designed to protect against
      assassinations, border control and check point bombings, roadside bombs and
      other forms of terrorism where the radio waves are used to detonate a bomb.
      These products are designed to:




·
            jam
                remote controlled military grade radio command detonators
                and;




·
            neutralize
                radio-controlled triggers of improvised explosive devices
                and;




·
            defend
                against radio fired mines




We
      offer
      our bomb jamming equipment in a number of configurations, including a portable
      unit that can be carried in a briefcase, stationary unit that can be used to
      protect a building, a vehicle mounted unit that can be incorporated into an
      armored vehicle, a system that can be used to protect a convoy of vehicles
      and a
      tower-mounted unit that is designed to protect a stadium. We also offer an
      armored vehicle that includes our bomb-jammer as an integral part of the
      vehicle.




Our
      bomb-jamming equipment is based on our proprietary software, which can disable
      radio-controlled improvised explosive devices according to the tactical
      environment. Because the type of threat is ever changing, and terrorists
      eventually adapt to overcome countermeasures, our bomb-jamming equipment must
      constantly be updated and modified to meet the ever-changing threat. Because
      of
      our working capital deficiency, we may not be able to develop equipment to
      meet
      new and changing threats.




*Communications
      monitoring Systems*




We
      market
      integrated systems for the surveillance of global system for mobile
      communications and other communications. With the recent developments in
      communication technologies, there are many fundamental systems underlying
      digital wireless communications throughout the world. Intelligence professionals
      require the ability to monitor, intercept and block various global systems
      for
      mobile communications, personal communication systems and other systems using
      a
      variety of communications access and monitoring systems. Our customers for
      our
      integrated systems for the
      surveillance of global systems for mobile communications usually
      request us to custom design a system to meet their communications surveillance
      requirements which are based on extensive engineering studies of the existing
      communications systems in each customer’s country, along with an in-depth
      analysis of the various individual needs of the customer. An example of our
      global systems for mobile communications intercept systems is the GSM 2060,
      a
      passive off-the-air intercept system which allows a user to target a specific
      cellular transmission and listen to both incoming and outgoing conversations.




13




*Countermeasure
      Products*




We
      manufacture professional and government-level technical surveillance
      countermeasure systems for the detection and eradication of hostile transmitters
      also referred to as “bugs” and wiretap devices placed on telephone lines. These
      systems are commonly utilized by federal agencies charged with maintaining
      national security and by corporate security personnel for protection against
      corporate espionage. These systems include our ECMSA-1300, a portable system
      which hunts out hostile transmitters and wireless cameras, our VL-8000 bug
      detection “sweep” system, and the CCTA-1000 Telephone System Analyzer, capable
      of detecting highly sophisticated telephone wiretap devices.




*Voice
      Stress Analysis Lie Detection Equipment*




Much
      like
      a polygraph machine, our VSATM systems are hardware-based platforms for lie
      detection. The systems operate by detecting an uncontrollable voluntary response
      in voice pitch originating from the larynx. This pitch is converted to a numeric
      gauge. Changes in response against a control number indicate projected deception
      in the subject’s response to pointed questions. These systems are frequently
      used for pre-employment screening, criminal investigations, insurance and
      private investigations, and corporate security.




*Encryption
      Equipment*




We
      market
      a suite of encryption products that can be used with telephone, cellular, fax
      and satellite communications whereby users can communicate with each other
      and
      provide a high level of encryption security to protect against unwanted
      interception. The encryption products are all small, handheld, and portable,
      and
      are capable of being rapidly deployed with minimal training.




*Voice
      Logging Systems*




Our
      voice
      logging systems offer a low-cost platform for the digital recording of telephone
      activity for call centers, emergency communications, corporate environments
      and
      small businesses. These systems are capable of recording all line activity,
      number dialed, call duration, and call specifics. The system can monitor live
      activity in real-time, and play back recorded or archived
      conversations.




**Markets
      and Marketing**




Our
      marketing targets the United States Government its contractors and friendly
      international governments and focuses on our sophisticated bomb-jamming and
      communications monitoring systems. Sales of these systems to governments and
      government contractors were $405,000 during the year ended June 30, 2007 and
      $640,000 during the fiscal year ended June 30, 2006.




We
      believe that there is a substantial potential market for our bomb-jamming and
      communications monitoring equipment, with the United States government, its
      contractors and friendly international governments being potential customers.
      In
      Iraq, in Afghanistan, and around the world, military personnel and their
      vehicles and installations are targeted, many times a day, by terrorists using
      remote-controlled improvised explosive devices - activated remotely by devices
      ranging from cell phones (the primary initiator) to electronic door openers.
      These radio-controlled improvised explosive devices are said by the Iraq
      Coalition Casualty Count, an internet site that states that it uses official
      casualty reports to categorize deaths by selected criteria, to have accounted
      for more than 51% of all American casualties in Iraq as of May 31, 2005. The
      same threat is also directed at American diplomats, military contractors, as
      well as the military, diplomatic, political and business interests of friendly
      countries.




In
      March
      2005, we were designated as an authorized vendor by the United States General
      Services Administration and we have listed our bomb jamming systems and six
      of
      our countermeasure products on our schedule. This program permits government
      agencies to purchase our products, but it does not represent an order or a
      commitment for an order. Any orders must be filled pursuant to the applicable
      procurement policies of the agencies or department involved, and the inclusion
      in the General Services Administration schedule does not constitute a commitment
      to purchase any units.




14




We
      have a
      network of international distributors who market and service our systems and
      equipment to friendly foreign governments. We and our distributors currently
      operate in a number of countries and serve a client base representing
      governmental and non-governmental agencies as well as multinational corporations
      worldwide.




When
      first entering a foreign market, we seek to promote our full range of products
      and services by seeking qualified sales representatives with local ties and
      existing relationships within the country’s business and governmental
      communities. We try to tailor our marketing strategy to the particular
      geographic area of the world to which we are marketing our
      products.




We
      employ
      a variety of marketing programs in support of our reseller’s channels to make
      our target markets aware of the value of our integrated systems and technology
      and to help create pre-sales demand for our resellers. These programs include
      trade shows, seminars, direct mailings, brochures and other promotional efforts
      designed to generate sales leads. Training programs are an integral part of
      our
      customer service. In addition to enhancing customer satisfaction, we believe
      that they also help develop customer loyalty and brand awareness, so that we
      may
      sell additional products to the same customer. We also use our website to
      generate brand awareness. However, because of our limited resources, we have
      reduced our advertising and promotional expense.




**Services**




We
      offer
      comprehensive security training programs in counterintelligence and
      counter-surveillance at our offices in Miami, Florida, and New Rochelle, New
      York. This training, offered to United States government agencies, friendly
      nations, and clients in the private sector in the United States and in foreign
      countries, includes methods of recognizing, deterring, and minimizing security
      risks. We have conducted seminars for intelligence personnel, crime fighting
      associations and their associated membership societies, from CIA to FBI to
      United States Customs, United States Coast Guard, military branches, police
      departments from New York City’s strategic command to police chiefs from a
      number of cities and towns across the country.




We
      offer
      the design, integration, application analysis and technical support of
      sophisticated electronic and computer driven surveillance, monitoring, tracking
      and recovery and secure communication equipment. We offer site surveys and
      security solutions that include consultations and law enforcement training
      by
      experienced security personnel who act as advisors and instructors. We engage
      independent consultants to oversee in-country installations and train the
      client’s personnel in the installation, use and maintenance of their security
      equipment. These clients are from the corporate world as well as governmental,
      public and private agencies.




**Manufacturing
      and Suppliers**




We
      currently manufacture our bomb jamming systems in New Rochelle, New York and
      Sofia, Bulgaria from readily available components.




We
      offer
      an armored vehicle which includes our vehicular-mounted bomb-jammer as an
      integral component. We purchase the armored vehicle from a third party supplier
      of armored vehicles.




We
      purchase our communications monitoring equipment from one foreign supplier.
      We
      believe alternative suppliers are readily available.




**Government
      Regulations**




The
      United States and other governments have strict regulations concerning the
      exporting and importing of certain security devices that may restrict sales
      of
      certain products to bona fide law enforcement agencies or may restrict the
      sale
      of products in or from the United States. We are subject to federal licensing
      requirements with respect to the sale in foreign countries of certain of our
      products. In addition, we are subject to a variety of federal, state, local
      and
      foreign regulations that govern our operations and the workplace. We are also
      subject to certain regulations promulgated by, among others, the United States
      Departments of Commerce and State. We do not offer or sell products or permit
      our resellers or distributors to sell products in any country where such sale
      would violate the laws of the United States or the other country.




15




**Product
      Design and Installation**




Our
      engineering staff is involved in both developing new systems made possible
      by
      the advances in technology and continually improving the production process
      and
      reducing the cost of the products.




We
      generally provide installation services for the more sophisticated integrated
      systems for the surveillance of global systems for mobile communications
      systems. Installation phases may include site surveys, identification of central
      command site location, supervision of the installation of site interfaces,
      and
      training personnel to manage systems. We generally provide warranty maintenance
      and support services for the first three to twelve months following installation
      of a system, depending on the terms of each particular contract. Thereafter,
      long-term service is provided on a service-contract basis.




We
      assemble our bomb-jamming and countermeasure products from components that
      are
      readily available from a number of suppliers. We do not have any long-term
      supply contracts. We purchase our communications monitoring equipment from
      one
      supplier.




**Competition**




The
      security industry includes companies that offer a range of products and
      services, such as access control, personnel protection, surveillance,
      counter-surveillance, computer security, vehicular security, night vision,
      fiber
      optics and communications. In order to meet the needs of a prospective customer,
      we believe that it is necessary to offer integrated solutions across industry
      lines rather than to offer a range of devices. There are a large number of
      companies who offer products or services aimed at one or more segments of the
      security industry, and new technologies are being developed by both new
      companies and major companies. However, we believe that as the severity of
      the
      problem or potential problem increases governments and major corporations,
      including financial institutions, are less concerned with the price of the
      products than with such factors as the perceived ability of the vendor to treat
      the identity of the client, the scope of the work and the solution in confidence
      and the ability of the vendor to offer an integrated approach that seeks to
      address the problem by offering a wide range of products and services rather
      than to offer solutions based on a small range of products and services.
      However, major clients and potential clients are concerned about the financial
      condition of the vendor, and our financial condition, including our significant
      working capital deficiency and our history of losses, raise questions as to
      our
      ability to perform under the purchase order and to provide the necessary support
      following delivery. Competitors have used and may continue to use our financial
      condition and their stronger financial condition, resources and relationships
      in
      marketing their products and services regardless of whether their products
      and
      services are better than ours. As discussed below, many of our competitors
      are
      substantially stronger than we are financially and are very well known in the
      industry and have significant government and industry contacts and
      relationships.




The
      marketplace for manufacturers and vendors for security and surveillance products
      and systems is highly competitive and consists of numerous organizations ranging
      from internet-based mail-order firms to military armament manufacturers such
      as,
      Lockheed Martin, and Harris. Other aerospace manufacturers have entered into
      the
      arena of bomb detection and other explosive ordinance disposal products. The
      security marketplace continues to favor the more established and reliable
      manufacturers such as Harris, Raytheon, and Lockheed Martin, all with proven
      technology.




Currently
      there is growing competition in the cellular interception and monitoring systems
      market. Although many competitors have greater financial, technical and other
      resources, we believe that at present our technology gives us a competitive
      advantage, although because of our financial condition and continuing losses,
      we
      are having difficulty competing in this market. In all of these areas, the
      major
      corporations have the ability to develop competitive products and fund a
      marketing effort that enables them to compete successfully against us regardless
      of whether their products are superior.




**Research
      and Development**




Because
      of our financial condition our research and development effort has been limited
      to the development of certain new products and improvement of existing products.
      Because of our working capital limitations, we have not been able to expand
      our
      research and development effort. During the past two years we did not expend
      any
      significant amount on research and development activities.




16




**Intellectual
      Property Rights**




We
      have
      no patents or copyrights on our products, and we rely on non-disclosure
      agreements with our employees. Since our business is dependent upon our
      proprietary products, the unauthorized use or disclosure of this information
      could harm our business. We currently own a number of United States trademark
      registrations.




**Employees**




As
      of
      September 15, 2007, we had 31 employees, of whom 23 were employed at our main
      office and 8 were employed at our sales offices or manufacturing facilities.
      None of our employees are represented by unions or covered by any collective
      bargaining agreements. We have not experienced any work stoppages or employee
      related slowdowns and believe our relationship with our employees is
      good.




**Item
      2. Description of Properties**




We
      lease
      approximately 9,040 square feet of executive offices, manufacturing and
      warehouse space at 145 Huguenot Street, New Rochelle, NY 10801 under a lease
      that expires on October 31, 2010. The annual rent is approximately $133,000,
      and
      is subject to annual increases. We also lease approximately 3,000 square feet
      for our offices in Miami, Florida, and Sofia, Bulgaria, under leases that expire
      from 2008 to 2009 at a current annual rent of approximately $54,000, subject
      to
      annual increases. We believe that our present facilities are adequate to meet
      our immediate requirements and that any additional space we may require will
      be
      available on reasonable terms.




**Item
      3. Legal Proceedings**





On
      or
      about February 10, 2005 we commenced an action in the Supreme Court of New
      York,
      Westchester County against the landlord of our New Rochelle, 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. This case is currently in discovery.





On
      or
      about March 11, 2005, an action was commenced against us in the City Court
      of
      the City of New Rochelle, New York by the landlord of our New Rochelle, New
      York
      offices, captioned GHP Huguenot LLC v. Security Intelligence Technologies,
      Inc.,
      claiming we were habitually late in paying our monthly rent and seeking to
      evict
      us from the premises. We have denied the material allegations of the claim
      and
      have raised affirmative defenses thereto and believe that we have valid defenses
      to the claim. This case is currently in discovery.





In
      March
      2006, the District of Columbia filed a wage and hour claim on us on behalf
      of a
      former employee alleging he is owed commissions on the sales of equipment.
      On
      March 26, 2007 a judgment was entered against the Company in the amount of
      $161,377. The Company plans to seek to negotiate a settlement of the judgment
      but can give no assurances that it will be able to negotiate any reduction
      in
      the judgment.





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





On
      or
      about March 7, 2005, an action was commenced against us in the Supreme Court
      of
      New York, captioned 444 Madison, LLC v. Security Intelligence Technologies,
      Inc., claiming we are 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
      we retained new outside counsel and filed an order seeking to vacate the
      judgment and restore the case to the Court’s calendar claiming we had
      ineffective counsel. On August 21, 2006, the Court denied the motion and
      reaffirmed the judgment. We believe we have valid defenses to any claim that
      we
      are a successor in interest to CCS International Ltd. We plan to seek to
      negotiate a settlement of the judgment and pursue a malpractice action against
      our prior outside counsel but can give no assurances that we will be able to
      negotiate any reduction in the judgment or that we will recover any amounts
      from
      our outside counsel if we institute an action against him.




17





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





On
      or
      about January 19, 2006, an action was commenced against CCS and us in the
      Supreme Court of the State of New York, Westchester County, captioned El Mundo
      Co., Ltd. v. CCS International Ltd. and Security Intelligence Technologies,
      Inc.
      claiming that CCS breached the distribution agreement it had entered into with
      CCS in 1997 and demanding the return of $433,284 it had paid to CCS and that
      we
      should be held liable as a successor in interest to CCS. The case is currently
      in discovery. We have denied the material allegations of the claim and have
      raised affirmative defenses thereto and believe that we have valid defenses
      to
      the claim that we are a successor in interest to CCS International
      Ltd.





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.
      On or about December 15, 2006 the Company filed a motion to dismiss the action
      for lack of jurisdiction or in the alternative to transfer the venue from
      Arizona to the Southern District of New York. On April 10, 2007 the Arizona
      Court dismissed the action for lack of jurisdiction. The plaintiff has not
      yet
      brought an action against the Company in the State of New York. If the plaintiff
      institutes a claim against the Company in the State of New York the Company
      plans to deny the material allegations of the claim and raise affirmative
      defenses thereto as it believes that it has valid defenses to any such
      claim.





On
      or
      about January 2, 2007, an action was commenced against the Company’s subsidiary
      Homeland Security Strategies, Inc. in the Supreme Court of the State of New
      York, Westchester County, captioned Formosa Forensic Analysis Technology, Inc.
      v. Homeland Security Strategies, Inc. claiming the Company failed to deliver
      certain equipment and demanding a refund of the $64,800 deposit it had paid
      and
      additional damages in an amount to be determined by the Court. 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 $1,400,000. Judgments have been rendered against CCS in these
      matters in the approximate amount of $770,000. Although we are not a party
      to
      any agreement with the plaintiff in any of these actions and have not taken
      any
      action to guarantee these obligations, it is possible that the plaintiffs may
      seek to make a claim against us. We believe that we have no liability in any
      of
      these actions, and will vigorously defend any action which seeks to impose
      liability upon us. Although we have no contractual obligation with respect
      to
      any of the obligations of CCS, and we believe that we have a valid defense
      to
      any claim that we have any liability with respect to any potential liabilities
      or obligations of CCS, three of CCS’s creditors have made claims against us
      claiming that we are a successor in interest to CCS and as noted above, in
      one
      of those cases a default judgment was entered against us. It is possible that
      additional creditors of CCS or its subsidiaries may make additional claims
      against us and that they may prevail. We believe that we have meritorious and
      valid defenses against all such potential litigation, and will vigorously defend
      any actions based on such claims.





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





Not
      applicable.




18





**PART
      II**





**Item
      5. Market for Common Equity and Related Stockholder
      Matters.**





Our
      common stock trades on the over-the-counter market and is quoted on the OTC
      Bulletin Board under the symbol SITG.





The
      table
      below sets forth, for the periods indicated, the high and low bid prices of
      our
      common stock for the periods indicated, as quoted by the OTC Bulletin Board
      Research Service. Such quotations reflect inter-dealer prices, without retail
      markup, markdown or commission, and may not represent actual
      transactions.





Quarter
                Ended
            
            High
                Bid
            
            Low
                BidSeptember
                30, 2005
            
            
            .03
            
            
            .03December
                31, 2005
            
            
            .06
            
            
            .05March
                31, 2006
            
            
            .03
            
            
            .01June
                30, 2006
            
            
            .03
            
            
            .01September
                30, 2006
            
            
            .03
            
            
            .01December
                31, 2006
            
            
            .03
            
            
            .01March
                31, 2007
            
            
            .03
            
            
            .01June
                30, 2007
            
            
            .03
            
            
            .01





On
      September 27, 2007, the last quoted price by the OTC Bulletin Board was $.01
      per
      share of common stock.




As
      of
      September 27 2007, we had approximately 536 record holders of our common
      stock.




We
      have
      not paid dividends on our common stock and we do not anticipate paying dividends
      on our common stock in the foreseeable future.




The
      following table sets forth information as of June 30, 2007 and for the year
      then
      ended, as to equity compensation plans pursuant to which we may issue our equity
      securities.





Equity
      Plan Compensation Information


Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights
                (a)
              
              Weighted
                  average exercise price of outstanding options, warrants and
                  rights
                (b)
              
              Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflects in columns
                  (a))
                (c)Equity
                  compensation plans approved by security holders
              
              
              -0-
              
              
              --
              
              
              -0-Equity
                  compensation plans not approved by security holders
              
              
              43,828,500
              
              $
              .12
              
              
              1,784,583Total
              
              
              43,828,500
              
              $
              .12
              
              
              1,784,583


We
      have
      two stock option plans, adopted by our board of directors in 2002, and 2004.
      We
      did not obtain stockholder approval for either of these plans. These two plans
      provide for the issuance of a total of 7,950,000 shares of common stock pursuant
      to non-qualified stock options. As of September 15, 2007, options to purchase
      7,828,500 shares were outstanding, of which options to purchase a total of
      1,950,000 shares were held by our officers and directors.




19




In
      addition, in October 2005, our board of directors adopted the 2006 Stock
      Incentive Plan (the “2006 Plan”) which provided for the grant of non-qualified
      stock options to purchase a maximum of 8,250,000 shares of common stock or
      the
      grant of shares to directors, employees, officers, agents, consultants and
      independent contractors who perform services for the Company. As of June 30,
      2007, we had issued 6,586,917 shares of common stock under the 2006 Plan and
      there were no outstanding grants of options to purchase shares of common stock
      under the 2006 Plan.





In
      addition to the options granted pursuant to these plans, in April 2002, we
      granted Mr. Jamil, our chief executive officer, non-qualified stock options
      to
      purchase 3,000,000 shares of common stock with an exercise price of $.667 per
      share, being the fair market value on the date of grant pursuant to his April
      2002 employment agreement. In March 2005, we granted Mr. Jamil stock options
      to
      purchase 30,000,000 shares of common stock pursuant to his employment agreement
      and we granted Mr. Decker, our chief financial officer, non-qualified stock
      options to purchase 3,000,000 shares of common stock pursuant to his employment
      agreement. The exercise price for the options granted in March 2005 is $.0667
      per share, being the fair market value on the date of grant. The terms of Mr.
      Jamil’s and Mr. Decker’s employment agreements are set forth under “Item 10.
      Executive Compensation.”




Common
      Stock Purchase Warrants





In
      March
      2004, we issued three year warrants to purchase 1,500,000 shares of common
      stock
      at an exercise price of $.05 per share to a consultant. These warrants expired
      in March 2007.





**Sales
      of Unregistered Securities**




During
      the fiscal year ended June 30, 2007, we issued the following securities exempt
      from the registration requirements of the Securities Act pursuant to Section
      4(2) of the Securities Act. No underwriting or other compensation was paid
      in
      connection with these transactions:





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 valued at $1,298 to our 401K plan as our
      discretionary match of our employee’s contributions.




**Item
      6. 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 June
      30,
      2007 and June 30, 2006. 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 by entering into credit agreements 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 June 30,
      2007, we had borrowed approximately $680,000 under this agreement.




20




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.





Because
      of our working capital problems we are delinquent in payment of payroll taxes.
      At June 30, 2007, our liabilities included delinquent payroll taxes and
      associated interest and penalties of $1,444,635.




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. Although
      we no longer have any interest in CCS, CCS has significant liabilities and
      contractual obligations, and creditors of CCS may claim that we are liable
      for
      CCS’ obligations. One creditor of CCS has obtained a default judgment against
      us, and another has commenced litigation against us for obligations of CCS.
      If
      creditors of CCS obtain and seek to enforce any significant judgment against
      us,
      we may seek protection under the Bankruptcy Code.




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 year ended June 30, 2007 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.





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.




21





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





Prior
      to
      2004, a significant portion of the Company’s revenue was derived from sales by
      retail stores which were operated by the Company’s wholly-owned subsidiary, CCS
      International, Inc. (“CCS”). Commencing in mid 2003 and continuing through March
      2004, the Company closed all of its retail stores, although the Company
      continues to make modest retail sales from its headquarters. On March 22, 2005,
      the Company sold the stock of CCS for $100 and contingent consideration
      consisting of 5% of CCS’s and its subsidiaries’ net sales through March 31,
      2015. Because of CCS’s financial condition the Company has established a full
      reserve for uncollectible amounts due from them of $2,936,511. The Company’s
      balance sheet at June 30, 2007 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 Notes 5 and 9. 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
      creditors 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 June 30, 2007, which was
      approximately $824,000, is not reflected as a liability of the Company at June
      30, 2007. In addition at June 30, 2007, CCS’s creditors had initiated lawsuits
      against CCS for nonpayment of accrued liabilities and its distributors has
      initiated litigation for breaches of their agreements in the total amount of
      approximately $1,400,000. 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, creditors of CCS or its subsidiaries have
      and
      may continue to make claims against the Company and 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 two other CCS
      creditors have initiated actions against the Company claiming that the Company
      is responsible for CCS’s obligations. (See Note 17 of Notes to Financial
      Statements).





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





Effective
      July 1, 2006, The Company adopted Statement of Financial Accounting Standards
      Statement 123(R) “Share Based Payment” (“SFAS123(R)”) utilizing the “modified
      prospective” method as described in SFAS 123(R). In the “modified prospective”
method, compensation cost is recognized for all share-based payments granted
      after the effective date and for all unvested awards granted prior to the
      effective date. In accordance with SFAS 123(R) prior period amounts were not
      restated. SFAS 123(R) also requires the tax benefit associated with these
      share-based payments to be classified as financing activities in the Statement
      of Cash Flows, rather than operating cash flows as required under previous
      regulations.




22




FASB
      Statement 123, “Accounting for Stock-Based Compensation,” requires 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
      of
      3.38% to 4.32%, expected lives of eight years, and expected volatility ranging
      from 120% to 178%.





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.





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.




23




RESULTS
      OF OPERATIONS - Years Ended June 30, 2007 and 2006





Revenues.
      Revenues for the year ended June 30, 2007 (“fiscal 2007”) were $1,834,930, a
      decrease of $564,815 or 23.5%, from revenues of $2,399,745 for the year ended
      June 30, 2006 (“fiscal 2006”) primarily as a consequence of (i) decreased sales
      from our bomb jamming systems and cellular monitoring systems, and (ii) a
      decrease of $312,518 in revenues recognized from the termination of distribution
      agreements with non refundable deposit balances to $249,945 in fiscal 2007
      from
      $562,463 in fiscal 2006.




Cost
      of
      Revenue. Cost of sales decreased by $43,697 or 5.3%, to $774,825 in the fiscal
      2007 from $818,522 in fiscal 2006 as a consequence of decreased sales. Cost
      of
      sales as a percentage of product sales increased to 48.9% in fiscal 2007 from
      44.6% in fiscal 2006 primarily as a consequence of selling lower margin products
      in fiscal 2007.




Compensation
      and benefits. Compensation and benefits decreased by $534,429, or 26.9% to
      $1,453,842 in fiscal 2007 from $1,988,271 in fiscal 2006 primarily as a
      consequence of (i) the outsourcing certain marketing and sales functions to
      outside consultants, (ii) the closure of the Company’s United Kingdom operations
      on December 31, 2006, (iii) reduced commissions as a result of lower sales
      and
      (iv) the elimination of certain administrative functions.





Professional
      fees and legal matters. Professional fees and legal matters decreased by
      $450,997, or 57.2% to $337,017 in fiscal 2007 from $788,014 in fiscal 2006.
      Based on a review of our 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 is attributable to the grant of
      options to employees and was valued at $48,664 using the Black-Scholes
      option-pricing model and was expensed during fiscal 2007. There were no
      comparable expenses in fiscal 2006.





Selling,
      general and administrative expenses. Selling, general and administrative
      expenses decreased by $413,693, or 25.7% to $1,197,069 in fiscal 2007 from
      $1,610,762 in fiscal 2006. The decrease was primarily the consequence of (i)
      a
      decrease in travel expense and trade show expense of $69,563, (ii) a decrease
      in
      rent expense primarily the result of closing the Company’s London facility at
      December 31, 2006 of $53,589 and (iii) the continuation of general cost cutting
      programs to reduce expenses.




Depreciation
      and amortization. Depreciation and amortization remained unchanged at $8,000
      in
      fiscal 2007 and fiscal 2006.




Interest
      expense. Interest expense increased by $64,338 or 27.0% to $302,457 in fiscal
      2007 from $238,119 in fiscal 2006 primarily as a result of a continued increase
      in the Company’s other interest bearing outstanding debt
      obligations.





As
      a
      result of the factors described above, our net loss decreased by $764,999,
      or
      25.1% to $2,286,944, $.02 per share (basis and diluted), in fiscal 2007 from
      $3,051,943, $.04 per share (basis and diluted), in fiscal 2006.





Liquidity
      and Capital Resources





At
      June
      30, 2007 we had cash of $6,823, no accounts receivable and a working capital
      deficit of $8,578,299 and long term debt of $494,000. Our accounts payable
      and
      accrued expenses at June 30, 2007 were $3,373,233. 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 and we did not pay all
      required federal and state payroll taxes.




24





Our
      accounts payable and accrued expenses increased from $2,468,121 at June 30,
      2006
      to $3,373,233 at June 30, 2007 an increase of $905,112 reflecting our inability
      to pay creditors currently. We also had customer deposits and deferred revenue
      of $2,724,272 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. At June 30, 2007 we had borrowed approximately $680,000 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. We
      are a
      defendant in two actions based on claims against CCS and a default judgment
      has
      been entered against us in another action based on claims against CCS. Regardless
      of whether we ultimately prevail, we would incur significant legal and other
      costs in defending any such action.





**Item
      7. Financial Statements.**





The
      financial statements begin on Page F-1.





**Item
      8. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure.**





Not
      applicable.





**Item
      8A. Controls and Procedures**





As
      of the
      end of the fiscal year ended June 30, 2007, 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.




25





Our
      principal executive officer and principal financial officer have concluded
      that
      there were no significant changes in our internal controls or in other factors
      that could significantly affect these controls during the fourth quarter ended
      June 30, 2007





**Item
      8b. Other Information**





Not
      applicable.





**Part
      III**





**Item
      9. Directors, Executive Officers, Promoters and Control Persons,; Compliance
      with Section 16(a) of the Exchange Act**




Set
      forth
      below is information concerning our directors, executive officers and key
      employees.


Name
              
              Age
              
              PositionBen
                  Jamil
              
              74
              
              Chairman
                  of the board, chief executive officerChris
                  R. Decker
              
              60
              
              Chief
                  financial officer and directorTom
                  Felice
              
              49
              
              DirectorSylvain
                  Naar
              
              65
              
              Director





Ben
      Jamil
      has been chairman of the board, president, chief executive officer and a
      director of CCS from its organization in July 1992 until March 2005, when we
      sold the stock in CCS. He assumed such positions with us upon completion of
      the
      reverse acquisition in April 2002. Mr. Jamil has more than 40 years experience
      in government, military, law enforcement and business security, specializing
      in
      the design, and marketing of sophisticated, hi-tech systems for communication,
      voice and data privacy, surveillance and monitoring.





Chris
      R.
      Decker, a certified public accountant, joined us in April 2002 and became chief
      financial officer and a director in August 2002. Prior to April 2002 he was
      controller for Trumarkets LLC, a broker dealer, from June 1, 2001 until April
      2002, an independent consultant from April 1999 until June 2001, was vice
      president corporate controller for County Seat Stores, Inc., a retailer of
      specialty apparel, from January 1998 until April 1999 and for three years prior
      thereto, was executive vice president, chief financial officer of All American
      Food Group, Inc. a franchising company in the specialty food
      sector.





Tom
      Felice joined CCS at its inception as vice president of consumer sales. He
      took
      a leave of absence in November 2000 to consult for a family business and
      returned to CCS in October 2001 when he became vice president sales and director
      of CCS. He assumed such positions with us upon completion of the reverse merger
      in April 2002. In May 2003 he resigned his positions with CCS and us as vice
      president sales to pursue other opportunities but remains as a member of the
      board of directors.





Sylvain
      Naar was a director of CCS and became a director upon completion of the reverse
      merger in April 2002. He became vice president in May of 2003 and resigned
      from
      that position in August 2003. From 1990 to February 2002, Mr. Naar was vice
      president for product and business development at Copytele, Inc. a developer
      of
      advanced flat panel displays and secure communication products. With over 30
      years experience in telecommunications, Mr. Naar has held numerous executive
      positions at Hazeltine, Thomson, CSF, and Alcatel.





26




Compliance
      with Section 16(a) of the Securities Exchange Act of 1934





Section
      16(a) of the Securities Exchange Act of 1934 requires our directors and
      executive officers, and persons who own more than 10% of our common stock,
      to
      file with the Securities and Exchange Commission initial reports of ownership
      and reports of changes in ownership of our common stock and other equity
      securities. Officers, directors and greater than 10% stockholders are required
      by SEC regulation to furnish us with copies of all Section 16(a) forms they
      file. Based solely on our review of the copies of such reports furnished to
      us
      during the year June 30, 2007, all Section 16(a) filing requirements applicable
      to its officers, directors and greater than 10% beneficial owners were
      satisfied.





Director
      Compensation





Directors
      are not paid any fees or other remuneration for service on the board or any
      of
      its committees.





Meetings
      and Committees of the Board of Directors





Our
      board
      of directors met two times during the fiscal year ended June 30, 2007. The
      board
      of directors has an Audit Committee comprised of two directors, Chris R. Decker,
      our chief financial officer, and Sylvain Naar. Mr. Decker is not an independent
      director. The audit committee did not hold any formal meetings during the fiscal
      year ending June 30, 2007, but did discuss auditing issues via telephone
      conference. The audit committee is primarily responsible for reviewing the
      services performed by our independent public accountants, evaluating our
      accounting policies and our system of internal controls, and reviewing
      significant finance transactions.





The
      functions of the audit committee are focused on three areas:





·  the
        adequacy of our internal controls and financial reporting process and the
        reliability of our financial statements.




·  the
        independence and performance of our independent public
        accountants.




·  our
        compliance with legal and regulatory requirements.




The
      audit
      committee’s policy is to pre-approve all audit and permissible non-audit
      services provided by the independent auditors. These services may include audit
      services, audit-related services, tax services and other services. The
      independent auditors and management are required to periodically report to
      the
      audit committee regarding the extent of services provided by the independent
      auditors in accordance with this pre-approval, and the fees for the services
      performed to date. The audit committee may also pre-approve particular services
      on a case-by-case basis.




The
      audit
      committee meets with management periodically to consider the adequacy of our
      internal controls and the objectivity of its financial reporting. The audit
      committee discusses these matters with our independent public accountants.
      Meetings are held with the independent public accountants who have unrestricted
      access to the audit committee. The audit committee also appoints and engages
      the
      independent public accountants and reviews periodically their performance and
      independence from management. In addition, the audit committee reviews our
      financing plans and reports recommendations to the full board of directors
      for
      approval and to authorize action.





Management
      has primary responsibility for our financial statements and the overall
      reporting process, including our system of internal controls. The independent
      public accountants audit the annual financial statements prepared by management,
      express an opinion as to whether those financial statements present fairly
      our
      financial position, results of operations and cash flows in conformity with
      generally accepted accounting principles and discusses with the audit committee
      any issues they believe should be raised with the audit committee.





The
      audit
      committee reviews our audited financial statements and meets with both
      management and, our independent public accountants, to discuss such audited
      financial statements, and financial statements included in quarterly reports
      on
      Form 10-QSB. Management represents to the audit committee that the financial
      statements are prepared in accordance with generally accepted accounting
      principles. The audit committee receives from and discusses with the written
      disclosure and the letter required by Independence Standards Board Standard
      No.
      1 (Independence Discussions with Audit Committees), which relates to the
      auditors independence.




27




Mr.
      Decker is our audit committee financial expert; however, since he is our chief
      financial officer and secretary, he is not considered independent. Mr. Naar
      is
      not deemed to be independent since he was employed by us during the past three
      years.




**Item
      10. Executive Compensation**





Set
      forth
      below is information with respect to compensation paid or accrued by us for
      fiscal years ended June 30, 2007, and 2006 to our chief executive officer and
      to
      the only other officer who received compensation of $100,000 during either
      of
      those fiscal years.


**S** **UMMARY** **C** **OMPENSATION** **T** **ABLE**


Long-TermCompensation
                  (Adwards)Fiscal
              
              
              
              
              
              Options,
                  SARsName
                  and Principal Position
              
              Year
              
              Salary
              
              Bonus
              
              (Number)Ben
                  Jamil, chief executive officer
              
              
              2007
              
              $
              250,000
              
              $
              -
              
              
              -2006
              
              
              250,000
              
              
              -
              
              
              -2005
              
              
              250,000
              
              
              -
              
              
              30,000,000Chris
                  R. Decker, chief financial officer
              
              
              2007
              
              
              132,000
              
              
              13,200
              
              
              -2006
              
              
              120,000
              
              
              12,000
              
              
              -2005
              
              
              121,523
              
              
              -
              
              
              3,000,000





During
      the fiscal year ended June 30, 2005, we granted 4,000,000 shares of series
      C
      preferred stock to Mr. Jamil and 1,000,000 shares of series C preferred stock
      to
      Mr. Decker. Each share of series C preferred stock is convertible into three
      shares of common stock, if, prior to February 28, 2010, we generate either
      revenue of $6,000,000 or net income before taxes and before deduction of any
      non-cash expenses incurred in connection with the issuance of equity securities
      in connection with the private placement or public offering of our debt or
      equity securities of $250,000. If neither of such targets is met by February
      28,
      2010, the rights of the holders of the preferred stock terminate and the holders
      are required to transfer the shares of series C preferred stock to us for no
      consideration. See Note 13 of Notes to Consolidated Financial Statements. No
      value was given to the series C preferred stock in the Summary Compensation
      Table.





**Employment
      Agreements**





On
      March
      20, 2005, we entered into employment agreements, dated as of March 20, 2005,
      with our chief executive officer, Ben Jamil, and our chief financial officer,
      Chris R. Decker. Mr. Jamil’s agreement replaced an earlier employment agreement
      that he entered into in April 2002.




Mr.
      Jamil’s employment agreement provides for Mr. Jamil to serve as our chief
      executive officer until March 31, 2010, and continuing on a year-to-year basis
      unless terminated by either party. Mr. Jamil is to receive a base salary of
      $250,000, which, commencing July 1, 2005, is subject to an increase of at least
      10% if our adjusted net income for the fiscal year ending on the most recent
      June 30th increases by at least $250,000 or, if the prior year’s operations
      generated a loss, the loss decreases by at least $250,000. Adjusted net income
      is net income before deduction of any non-cash expenses incurred in connection
      with the issuance of equity securities in connection with the private placement
      or public offering of the Corporation’s debt or equity securities. Mr. Jamil may
      receive an increase in his base salary greater than 10% or he may receive an
      increase if we do not meet the performance criteria at the discretion of the
      board of directors. We also agreed to include Mr. Jamil as one of the board
      of
      director’s nominees for election as a director. He is also eligible for a
      discretionary bonus.




28




In
      connection with Mr. Jamil’s execution of his employment agreement, and as
      provided in the agreement, we (i) granted Mr. Jamil a nonqualified stock option
      to purchase 30,000,000 shares of common stock at an exercise price of $.0667,
      being the fair market value on the date of grant, and (ii) issued to Mr. Jamil
      4,000,000 shares of series C preferred stock, a newly created series of
      preferred stock. See Item 11. Security Ownership of Certain Beneficial Owners
      and Management.




Mr.
      Jamil
      has the right to terminate his employment at any time. Upon termination of
      Mr.
      Jamil’s employment, he may continue as a consultant for two years at a salary
      equal to half of the sum of his salary in effect on the last day of his
      employment plus any bonus paid or payable with respect to the prior fiscal
      year.
      In the event of a termination of Mr. Jamil’s employment as a result of his
      death, we will pay his base salary to his estate for the lesser of one year
      or
      the balance of the term. In the event of a termination of Mr. Jamil’s employment
      other than as permitted by the Agreement, we are to pay Mr. Jamil an amount
      equal to his base salary plus the bonus paid or payable with respect to the
      prior fiscal year multiplied by the number of months remaining in the term
      divided by twelve. In the event of a termination of his employment following
      a
      change of control, as defined in the agreement, all options held by Mr. Jamil
      which have not vested shall vest and we are to pay Mr. Jamil an amount equal
      to
      six times the sum of his salary and bonus for the prior fiscal
      year.




Pursuant
      to the agreement, we guaranteed the obligations to Mr. Jamil of CCS for advances
      made by Mr. Jamil to CCS, to the maximum amount of $738,000. At June 30, 2007,
      CCS owed Mr. Jamil $760,100. Payment of our obligations pursuant to this
      guaranty can only be made from cash flow from operations not required for our
      business.




Mr.
      Decker’s employment agreement provides for Mr. Decker to serve as our chief
      financial officer until March 31, 2010, and continuing on a year-to-year basis
      unless terminated by either party. Mr. Decker is to receive a base salary of
      $120,000, which, commencing July 1, 2005, is subject to an increase of at least
      10% if our adjusted net income for the fiscal year ending on the most recent
      June 30th increases by at least $250,000 or, if the prior year’s operations
      generated a loss, the loss decreases by at least $250,000. Adjusted net income
      is net income before deduction of any non-cash expenses incurred in connection
      with the issuance of equity securities in connection with the private placement
      or public offering of our debt or equity securities. Mr. Decker may receive
      an
      increase in his base salary greater than 10% or he may receive an increase
      if we
      do not meet the performance criteria at the discretion of the board of
      directors. We also agreed to include Mr. Decker as one of the board of
      director’s nominees for election as a director. He is also eligible for a
      discretionary bonus which will not be less than 10% of his base
      salary.




In
      connection with Mr. Decker’s execution of his employment agreement, and as
      provided in the agreement, we (i) granted Mr. Decker a nonqualified stock option
      to purchase 3,000,000 shares of common stock at an exercise price of $.0667,
      being the fair market value on the date of grant, and (ii) issued to Mr. Decker
      1,000,000 shares of series C preferred stock.




Mr.
      Decker has the right to terminate his employment at any time. Upon termination
      of Mr. Decker’s employment, he may continue as a consultant for two years at a
      salary equal to half of the sum of his salary in effect on the last day of
      his
      employment plus any bonus paid or payable with respect to the prior fiscal
      year.
      In the event of a termination of Mr. Decker’s employment as a result of his
      death, we will pay his base salary to his estate for the lesser of one year
      or
      the balance of the term. In the event of a termination of Mr. Decker’s
      employment other than as permitted by the agreement, we are to pay Mr. Decker
      an
      amount equal to his base salary plus the bonus paid or payable with respect
      to
      the prior fiscal year multiplied by the number of months remaining in the term
      divided by twelve. In the event of a termination of his employment following
      a
      change of control, as defined in the agreement, all options held by Mr. Decker
      which have not vested shall vest and we are to pay Mr. Decker an amount equal
      to
      six times the sum of his salary and bonus for the prior fiscal year




**Stock
      Option Plans**




We
      have
      two stock option plans, adopted by our board of directors in 2002, and 2004,
      pursuant to which we may grant non-qualified stock options to purchase a total
      of 7,950,000 shares of common stock. These plans were adopted by the board
      of
      directors, and stockholder approval has not been obtained. As of September
      15,
      2007, options to purchase 7,828,500 shares were outstanding, of which options
      to
      purchase a total of 1,950,000 shares were held by our officers and
      directors.




29




In
      addition, in October 2005, our board of directors adopted the 2006 Stock
      Incentive Plan (the “2006 Plan”) which provided for the grant of non-qualified
      stock options to purchase a maximum of 8,250,000 shares of common stock or
      the
      grant of shares to directors, employees, officers, agents, consultants and
      independent contractors who perform services for the Company. As of June 30,
      2007, we had issued 6,586,917 shares of common stock under the 2006 Plan and
      there were no outstanding grants of options to purchase shares of common stock
      under the 2006 Plan.





In
      addition to the options granted pursuant to these plans, in April 2002, we
      granted Mr. Jamil our chief executive officer, non-qualified stock options
      to
      purchase 3,000,000 shares of common stock with an exercise price of $.667 per
      share being the fair market value on the date of the grant pursuant to his
      employment agreement and in March 2005, we granted Mr. Jamil, our chief
      executive officer, non-qualified stock options to purchase 30,000,000 shares
      of
      common stock pursuant to his employment agreement and we granted Mr. Decker,
      our
      chief financial officer, non-qualified stock options to purchase 3,000,000
      shares of common stock pursuant to his employment agreement. The exercise price
      for the options granted in March 2005 is $.0667 per share, being the fair market
      value on the date of grant.




Option
      Exercises and Outstanding Options





The
      following table sets forth information concerning the exercise of options during
      the fiscal year ended June 30, 2007 and the fiscal year-end value of options
      held by our chief executive officer and chief financial officer, who are the
      only officers named in the summary compensation table. No stock appreciation
      rights have been granted.





**Aggregate
      Option Exercises in Last Fiscal Year and Fiscal Year-End Option
      Value**





Name
            
            Shares
                Acquired Upon Exercise
            
            Value
                Realized
            
            Number
                of Securities Underlying Unexercised Options at FiscalYear
                End
              Exercisable/
              Unexercisable
            
            Value
                of Unexercised In-the-Money Options at FiscalYear
                End
              Exercisable/
              UnexercisableBen
                Jamil
            
            
            —
            
            
            —
            
            
            33,600,000/3,000,000
            
            $
            —/$—Chris
                R. Decker
            
            
            —
            
            
            —
            
            
            4,350,000/—
            
            $
            —/$—




The
      closing price of our common stock on June 30, 2007, was $.008
      per
      share.




**Option
      Grants in Fiscal Year Ended June 30, 2007**


Potential
                  Realizable Value an Annual Rates of Stock Price Appreciation forOption
                  TermName
              
              Number
                  of Shares Underlying OptionsGranted
              
              Percent
                  of Total Options Granted to Employees in FiscalYear
              
              Exercise
                  Price PerShare
              
              ExpirationDate
              
              5%
              
              10%None




30




**Item
      11. Security Ownership of Certain Beneficial Owners and
      Management.**




The
      following table provides information at to shares of common stock beneficially
      owned as of September 25, 2007 by:




·
            each
                director;


·
            each
                officer named in the summary compensation
                table;


·
            each
                person owning of record or known by us, based on information provided
                to
                us by the persons named below, to own beneficially at least 5% of
                our
                common stock; and


·
            all
                directors and executive officers as a group.




Shares
                  of Common
              
              Percentage
                  ofStock
                  Benefically
              
              OutstandingName
              
              Owned
              
              Common
                  StockBen
                  Jamil
              
              
              63,243,000
              
              
              50.9
              %145
                  Huguenot StreetNew
                  Rochelle, NY 10801Chris
                  R. Decker
              
              
              5,500,000
              
              
              5.7
              %145
                  Huguenot StreetNew
                  Rochelle, NY 10801Michael
                  D. Farkas
              
              
              5,101,788
              
              
              5.4
              %1691
                  Michigan Avenue, Suite 425Miami,
                  FL 33139Tom
                  Felice
              
              
              759,000
              
              
              1.0
              %Sylvain
                  Naar
              
              
              -
              
              
              *All
                  directors and executive officers as a group(four
                  individuals)
              
              
              69,552,000
              
              
              53.8
              %





*  Less
      than
      1%.




Except
      as
      otherwise indicated each person has the sole power to vote and dispose of all
      shares of common stock listed opposite his name. Each person is deemed to own
      beneficially shares of common stock that are issuable upon exercise or warrants
      or options or upon conversion of convertible securities if they are exercisable
      or convertible within 60 days of September 27, 2007. The purchase agreement
      pursuant to which we issued the convertible notes provides that the notes cannot
      be converted to the extent that the beneficial owner would, as a result of
      such
      conversion, own more than 4.99% of the common stock, with beneficial ownership
      being determined in accordance with Section 13(d) of the Securities Exchange
      Act
      of 1934. Accordingly, they are not listed in the table of principal
      stockholders. The total number of shares that may be issued upon conversion
      of
      the convertible notes is 35,182,733.




The
      shares beneficially owned by Mr. Jamil represent 32,643,000 shares of common
      stock owned by him and 30,600,000 shares of common stock issuable upon exercise
      of options held by him. An option to purchase an additional 3,000,000 shares
      becomes exercisable when the Company’s annual revenues equal of exceed
      $10,000,000. Mr. Jamil also owns 3,500,000 shares of our series A convertible
      preferred stock, 1,500,000 shares of our series B preferred stock and 4,000,000
      shares of our series C preferred stock. Each share of Series A, B and C
      preferred stock is convertible, subject to certain performance criteria, into
      three shares of common stock. Each share of series A preferred stock is entitled
      to 15 votes, and each share of series C preferred stock is entitled to one
      vote.
      The series B preferred stock is non-voting except as required by law. As a
      result of his preferred stock ownership, Mr. Jamil holds 76.8% of the voting
      rights.




31




The
      shares beneficially owned by Mr. Decker represent 1,200,000 shares of common
      stock owned by him and 4,350,000 shares of common stock issuable upon exercise
      of options held by him. Mr. Decker owns 1,000,000 shares of our series C
      preferred stock.




The
      shares beneficially owned by Michael D. Farkas represents 600,000 shares of
      common stock owned by his IRA, 1,414,800 shares of common stock owned by his
      wife, 112,500 shares of common stock owned by him as custodian for their minor
      children, and the holdings of companies which are beneficially owned by him
      consisting of 772,488 shares of common stock owned by Atlas Equity Group, Inc.,
      660,000 shares owned by The Atlas Group of Companies, LLC, 60,000 shares of
      common stock owned by Global Investment Holdings, LLC and warrants to purchase
      1,482,000 shares of common stock held by Atlas Capital Services, LLC. Mr. Farkas
      disclaims beneficial ownership of the shares held by his family members, and
      the
      entities controlled by him. Because the convertible notes cannot be converted
      if
      such conversion would bring the ownership of the note holder and its affiliates
      to more than 4.99%, the 3,634,974 shares of common stock issuable upon exercise
      of convertible notes and the 1,050,000 shares to be issued in connection with
      the payment of the expenses for the registration statement held by Atlas Equity
      Group, which is controlled by Mr. Farkas, are not deemed to be beneficially
      owned by Mr. Farkas at September 27, 2006.




The
      shares beneficially owned by Mr. Felice represent 9,000 shares of common stock
      owned by him and 750,000 shares of common stock issuable upon exercise of
      options held by him.




In
      connection with an agreement between Mr. Ben Jamil and two financial consultants
      entered into prior to the reverse acquisition, the consultants or their
      designees were to purchase a 30% interest in five of our subsidiaries, and
      that
      30% was to have been exchanged for 1,500,000 shares of series B preferred stock.
      Mr. Jamil has advised the consultants and their designees that, as a result
      of
      their failure to pay the consideration for the shares, the agreement is
      terminated and they have no interest in the series B preferred stock or the
      stock in the five subsidiaries. It is possible that the consultants or their
      designees may claim that they own the series B preferred stock or the stock
      in
      the five subsidiaries. These subsidiaries have been sold in connection with
      the
      sale of CCS in March 2005.




**Item
      12. Certain Relationships and Related Transactions**




In
      July
      2003, we formalized consulting contracts with Michael D. Farkas relating to
      acquisition services, financial public relations and operational performance
      services. In connection therewith we granted immediately exercisable options
      to
      purchase a total of 5,100,000 options to him. The exercise price ranged from
      $.0333 per share to $.1667 per share. As of June 30, 2007 options to purchase
      5,100,000 shares were exercised for $400,000.





On
      June
      10, 2004, we entered into a convertible credit agreement with private investors,
      including Michael D. Farkas, pursuant to which we borrowed $494,000. The notes
      are convertible, at the note holder’s option, into the Company’s common stock.
      The notes matured on June 30, 2005. Effective June 30, 2005, the maturity date
      of the notes were extended for five years and the conversion price of the
      convertible notes was reduced from $.033 to $.0167 per share.




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. Mr. Cohen resigned as an
      officer and director contemporaneously with his purchase of the CCS stock.





The
      agreement relating to the April 2002 reverse merger provided, as a condition
      to
      CCS’ obligation to close, that we receive proceeds of $1,000,000 from a private
      sale of the our securities. This condition was not met at closing, and CCS
      completed the reverse merger with us having received only $75,000. At the
      closing of the reverse merger, we entered into a stock pledge agreement with
      Atlas Equity Group, Inc. a Florida corporation beneficially owned by Michael
      D.
      Farkas who is a stockholder of the Company, and who beneficially owns more
      than
      5% of our common stock, pursuant to which Atlas Equity was to have pledged
      4,500,000 shares of our common stock. Atlas Equity never delivered the shares
      to
      be held pursuant to the pledge agreement. The pledge agreement stipulated the
      pledged shares were to be returned to Atlas Equity if we sold shares of common
      stock sufficient to generate net cash proceeds of $925,000 to us prior to June
      1, 2002, which date was subsequently extended to June 14, 2002. On December
      16,
      2002, we and Atlas Equity and certain successor owners of Atlas Equity’s pledged
      shares entered into an agreement that reduced the number of pledged shares
      to
      750,000, restricted the number of pledged shares that could be sold for a period
      of one year, expanded the money raising activity to include the issuance of
      debt
      and extended the date to raise the $925,000 to July 7, 2004. As of June 30,
      2007
      we had sold shares of common stock and issued debt generating net cash proceeds
      of $993,000 and all pledged shares have been released.




32





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 ,
      pursuant to 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 a security interest
      in
      substantially all of our assets. In connection with this agreement, the chief
      executive officer has subordinated his security interest in our assets to any
      borrowings under this agreement. As of September 15, 2007, we had borrowed
      approximately $680,000 under this agreement.




**Item
      13. Exhibits**





Exhibit
              Number
            
            Exhibit
                Description2.1
            
            Agreement
                and Plan of Merger dated as of February 28, 2002 among the Registrant,
                CCS
                International, Ltd., and CCS Merger Corp.(1)2.2
            
            Stock
                Sale Agreement dated March 22, 2005, by and between the Registrant
                and
                Menahem Cohen (2)3.1
            
            Articles
                of Incorporation(3)3.2
            
            Articles
                of Amendment to Articles of Incorporation(4)3.3
            
            Articles
                of Amendment to Articles of Incorporation (5)3.4
            
            By-laws(3)4.1
            
            Revolving
                Convertible Credit Agreement, dated June 10, 2004, between the Registrant
                and private investors (6)4.2
            
            Extension
                and amendment dated August 4, 2005 to Revolving Convertible Credit
                Agreement (7)4.3
            
            Revolving
                Credit Agreement dated August 30, 2005, between Registrant and GCOM
                Consultants, Inc. (7)10.1
            
            Employment
                agreement dated March 20, 2005 between the Company and Ben Jamil
                (5)10.2
            
            Employment
                agreement dated March 20, 2005 between the Company and Chris R. Decker
                (5)10.3
            
            2002
                Stock Plan (3)10.4
            
            2005
                Stock Plan (8)10.5
            
            Lease
                dated June 1, 2000 between Rotterdam Ventures, Inc. d/b/a Galesi
                Enterprises and the Registrant (3)10.6
            
            Consulting
                agreement dated as of July 2, 2003 between the Company and Michael
                D.
                Farkas (9)14.1
            
            Code
                of Ethics (6)21.1
            
            Subsidiaries
                (10)31.1
            
            Certification
                of chief executive officer (10)31.2
            
            Certification
                of chief financial officer (10)32.1
            
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                (10)


(1)
            Filed
                as an exhibit to the Registrant’s Form 8-K with a report date of April 17,
                2002 and which was filed with the Commission on April 25, 2002, and
                incorporated herein by reference.




(2)
            Filed
                as an exhibit to the Registrant’s Form 8-K with a report date of March 22,
                2005 and which was filed with the Commission on March 24,
                2005.




(3)
            Filed
                as an exhibit to the Registrant’s Form 10-KSB for the fiscal year ended
                June 30, 2002, and incorporated herein by
                reference.




(4)
            Filed
                as an exhibit to the Registrant’s Form S-8 filed with the commission on
                July 22, 2004, and incorporated herein by
                reference.




33




(5)
            Filed
                as an exhibit to the Registrant’s Form 8-K with a report date of March 20,
                2005 and which was filed with the Commission on March 22,
                2005.




(6)
            Filed
                as an exhibit to the Registrant’s Form 10-KSB for the year ended June 30,
                2004, and incorporated herein by reference.




(7)
            Filed
                as an exhibit to the Registrant’s Form 10-KSB for the year ended June 30,
                2004, and incorporated herein by reference.




(8)
            Filed
                as an exhibit on the Registrant’s registration statement on Form S-8, file
                No. 333-122990, which became effective on February 25, 2005, and
                incorporated herein by reference.




(9)
            Filed
                as an exhibit to the Registrant’s registration statement on Form S-8, file
                No. 333-107226, which became effective on July 22, 2003, and incorporated
                herein by reference.




(10)
            Filed
                herewith.




**Item
      14. Principal Accountant Fees and Services**





Demetrius
      & Company, L.L.C. was our independent auditor for the years ended June 30,
      2007 and 2006.




We
      paid
      and accrued audit fees to Demetrius & Company, L.L.C. of $46,400 during the
      year ended
      June 30, 2007 and $42,100
      for the year ended June 30, 2006. We did not pay to
      Demetrius & Company, L.L.C . any
      audit-related, tax or other fees during either of those years.





*Audit
      Fees* :
      Audit
      fees represent fees for professional services performed by the independent
      registered accounting firm for the audit of our annual financial statements
      and
      the review of our quarterly financial statements, as well as services that
      are
      normally provided in connection with statutory and regulatory filings or
      engagements.





*Audit
      Related Fees:* Audit-related fees represent fees for assurance and related services performed
      by the independent registered accounting firm that are related to a registration
      statement. We did not incur any audit-related fees for the year ended June
      30,
      2007 or 2006.





*Tax
      Fees:* Tax
      fees
      represent fees for services rendered by the independent registered accounting
      firm for tax compliance, tax advice and tax planning services. We did not incur
      any tax fees for the year ended June 30, 2007 or 2006.





*All
      other fees* :
      Our
      independent registered accounting firm did not perform any services other than
      the services described above for the year ended June 30, 2007 or
      2006.





Our
      audit
      committee approves the engagement of accountants to render all audit and
      non-audit services prior to the engagement of the accountant based upon a
      proposal by the accountant of estimated fees and scope of the engagement. Our
      audit committee has received the written disclosure and the letter from
      Demetrius & Company, L.L.C. required by Independence Standards Board
      Standard No. 1, as currently in effect, and has discussed with Demetrius &
Company, L.L.C. its independence.




34




SIGNATURES





Pursuant
      to the requirements of Section 13 or 15(d) 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.Dated:
                October 5, 2007
            By:
            /s/ Ben
              JamilBen
              JamilChairman of the Board of Directors,
              President and Chief Executive
                Officer




Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, the
      report has been signed by the following persons on behalf of the Registrant
      and
      in the capacities and on the dates indicated. Each person whose signature
      appears below hereby authorizes Ben Jamil and Chris R. Decker or either of
      them
      acting in the absence of the others, as his true and lawful attorney-in-fact
      and
      agent, with full power of substitution and re-substitution for him and in his
      name, place and stead, in any and all capacities to sign any and all amendments
      to this report, and to file the same, with all exhibits thereto and other
      documents in connection therewith, with the Securities and Exchange
      Commission.


Signature
              
              Title
              
              Date/s/
                  Ben Jamil
              
              Chairman
                  of the Board, President
              
              October
                  5, 2007Ben
                  Jamil
              
              Chief
                  executive officer and Director(Principal
                    Executive Officer)/s/
                  Chris R. Decker
              
              Chief
                  financial officer and Director
              
              October
                  5, 2007Chris
                  R. Decker
              
              (Principal
                  Financial and Accounting Officer)/s/
                  Tom Felice
              
              Director
              
              October
                  5, 2007Tom
                  Felice/s/
                  Sylvain Naar
              
              Director
              
              October
                  5, 2007Sylvain
                  Naar


35





INDEX
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


Report
                  of Independent Registered Public Accounting Firm
              
              
              F
                  - 2Consolidated
                  Balance Sheet as of June 30, 2007
              
              
              F
                  - 3Consolidated
                  Statements of Operations for the years ended June 30, 2007and
                  June 30, 2006
              
              
              F
                  - 4Consolidated
                  Statements of Changes in Stockholders’ Deficit for the yearsended
                  June 30, 2007 and June 30, 2006
              
              
              F
                  - 5Consolidated
                  Statements of Cash Flows for the years ended June 30, 2007and
                  June 30, 2006
              
              
              F
                  - 6Notes
                  to Consolidated Financial Statements
              
              
              F
                  - 7 - F - 23


F-1


REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







To
      the
      Board of Directors and Stockholders of


Security
      Intelligence Technologies, Inc. and Subsidiaries




We
      have
      audited the accompanying consolidated balance sheet of Security Intelligence
      Technologies, Inc. and Subsidiaries as of June 30, 2007, and the related
      consolidated statements of operations, changes in stockholders’ deficit, and
      cash flows for each of the two years in the period ended June 30, 2007. These
      consolidated financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





As
      disclosed in Note 1 to the consolidated financial statements, the Company
      adopted the provisions of Statement of Financial Accounting Standards No.
      123(R), “Share-Based Payments” effective July 1, 2006.




In
      our
      opinion the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Security
      Intelligence Technologies, Inc. and its Subsidiaries as of June 30, 2007, and
      the consolidated results of their operations and cash flows for each of the
      two
      years in the period ended June 30, 2007, in conformity with accounting
      principles generally accepted in the United States of America.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As more fully described in Note
      1,
      the Company has suffered recurring operating losses and has a net capital
      deficiency that raise substantial doubt about its ability to continue as a
      going
      concern. Management’s plans concerning these matters are also discussed in
      Note 1. The consolidated financial statements do not include any adjustments
      that might result from the outcome of these uncertainties.







DEMETRIUS
      & COMPANY, L.L.C.







Wayne,
      New Jersey


October
      2, 2007




F-2




SECURITY
                INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED
                BALANCE SHEETJune
                30, 2007ASSETSCurrent
                Assets:Cash
            
            $
            6,823Inventory
            
            
            557,133Other
                current assets
            
            
            111,784Total
                current assets
            
            
            675,740Property
                and Equipment, at cost less accumulated depreciationand
                amortization of $20,000
            
            
            5,000Receivables
                from CCS International, Ltd. and subsidiaries lessallowance
                for uncollectible amounts of $2,936,511
            
            
            -Other
                assets
            
            
            18,199Total
                assets
            
            $
            698,939LIABILITIES
                AND STOCKHOLDERS' DEFICITCurrent
                liabilities:Accounts
                payable and accrued expenses
            
            $
            3,373,233Note
                payable - CEO/stockholder
            
            
            2,086,784Note
                payable affiliate - revolving credit agreement
            
            
            680,000Notes
                payable - other
            
            
            389,750Customer
                deposits
            
            
            2,167,489Deferred
                revenue
            
            
            556,783Total
                current liabilities
            
            
            9,254,039Long
                term debt - convertible notes payable
            
            
            494,000Total
                liabilities
            
            
            9,748,039Commitments
                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 sharesauthorized,
                issued and outstanding
            
            
            350Series
                B Convertible-$1.00 per share liquidation preference, 1,500,000
                sharesauthorized,
                issued and outstanding
            
            
            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
                shares issued and outstanding
            
            
            9,358Additional
                paid in capital
            
            
            8,828,941Accumulated
                deficit
            
            
            (17,929,828
            )Accumulated
                other comprehensive loss
            
            
            41,929Total
                stockholders' deficit
            
            
            (9,049,100
            )Total
                liabilities and stockholders' deficit
            
            $
            698,939





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


F-3




SECURITY
                  INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF OPERATIONSYear
                  EndedJune
                  30,2007
              
              2006Revenues
              
              $
              1,834,930
              
              $
              2,399,745Costs
                  and expenses:Cost
                  of sales
              
              
              774,825
              
              
              818,522Compensation
                  and benefits
              
              
              1,453,842
              
              
              1,988,271Professional
                  fees
              
              
              337,017
              
              
              788,014Stock
                  based compensation
              
              
              48,664
              
              
              -Selling,
                  general and administrative expenses
              
              
              1,197,069
              
              
              1,610,762Depreciation
                  and amortization
              
              
              8,000
              
              
              8,0003,819,417
              
              
              5,213,569Operating
                  loss
              
              
              (1,984,487
              )
              
              (2,813,824
              )Interest
                  expense
              
              
              302,457
              
              
              238,119Net
                  loss
              
              $
              (2,286,944
              )
              $
              (3,051,943
              )Net
                  loss per above
              
              $
              (2,286,944
              )
              $
              (3,051,943
              )Other
                  comprehensive gain - translation adjustment
              
              
              36,475
              
              
              15,811Total
                  comprehensive loss
              
              $
              (2,250,469
              )
              $
              (3,036,132
              )Loss
                  per share, basic and diluted
              
              $
              (0.02
              )
              $
              (0.04
              )Weighted
                  average number of shares
              
              
              93,424,278
              
              
              85,258,064




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





F-4




SECURITY
                  INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICITYEARS
                  ENDED JUNE 30, 2007 AND 2006
  Retained
              
              AccumulatedConvertiblePreferred
              
              Common
              
              Additional
              
              Earnings
              
              Other
              
              TotalSeries
                  A
              
              Series
                  B
              
              Series
                  C
              
              Stock
              
              Paid-in
              
              (Accumulated
              
              Comprehensive
              
              Stockholders'Shares
              
              Amount
              
              Shares
              
              Amount
              
              Shares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              Deficit)
              
              Loss
              
              DeficitBalances,
                  June 30, 2004
              
              
              3,500,000
              
              $
              350
              
              
              1,500,000
              
              $
              150
              
              
              -
              
              $
              -
              
              
              71,855,499
              
              
              2,395
              
              $
              7,775,448
              
              $
              (12,590,941
              )
              $
              (10,357
              )
              $
              (4,822,955
              )Sale
                  of common stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,000,003
              
              
              600
              
              
              342,400
              
              
              -
              
              
              -
              
              
              343,000Issuance
                  of common stockto
                  401K Plan
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              674,993
              
              
              67
              
              
              28,027
              
              
              -
              
              
              -
              
              
              28,094Stock
                  issued to employees
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -and
                  consultants for services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              14,104,800
              
              
              1,410
              
              
              628,990
              
              
              -
              
              
              -
              
              
              630,400Adjustment
                for
                  stockdistribution
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4,792
              
              
              (4,792
              )
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,051,943
              )
              
              -
              
              
              (3,051,943
              )Other
                  comphrehensive gain
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              15,811
              
              
              15,811Balances,
                June
                  30, 2006
              
              
              3,500,000
              
              
              350
              
              
              1,500,000
              
              
              150
              
              
              -
              
              
              -
              
              
              92,635,295
              
              
              9,264
              
              
              8,770,073
              
              
              (15,642,884
              )
              
              5,454
              
              
              (6,857,593
              )Sale
                  of common stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Issuance
                  of common stockto
                  401K
                Plan
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              49,373
              
              
              4
              
              
              1,294
              
              
              
              
              
              
              
              
              1,298Stock
                  issued to employeesand
                consultants
                for
                  services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              900,000
              
              
              90
              
              
              8,910
              
              
              -
              
              
              -
              
              
              9,000Amortization
                  of deferred
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              48,664
              
              
              
              
              
              
              
              
              48,664Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,286,944
              )
              
              -
              
              
              (2,286,944
              )Other
                  comphrehensive gain
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              36,475
              
              
              36,475Balances,
                  June 30, 2007
              
              
              3,500,000
              
              $
              350
              
              
              1,500,000
              
              $
              150
              
              
              -
              
              $
              -
              
              
              93,584,668
              
              $
              9,358
              
              $
              8,828,941
              
              $
              (17,929,828
              )
              $
              41,929
              
              $
              (9,049,100
              )




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


F-5


SECURITY
                  INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF CASH FLOWSYears
                  EndedJune
                  30,2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Loss
                  from continuing operations
              
              $
              (2,286,944
              )
              $
              (3,051,943
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              8,000
              
              
              8,000Amortization
                  of deferred compensation
              
              
              48,664
              
              
              -Stock
                  issued to consultants and officers for services
              
              
              9,000
              
              
              608,689Stock
                  issued to 401K Plan
              
              
              1,298
              
              
              28,093Decrease
                  in other comprehensive loss
              
              
              36,475
              
              
              15,811Noncash
                  compensation - CEO/stockholder
              
              
              250,000
              
              
              114,632Noncash
                  interest expense - CEO/stockholder
              
              
              85,382
              
              
              62,544CHANGES
                  IN OPERATING ASSETS AND LIABILITIES:Decrease
                  (increase) in inventory
              
              
              105,291
              
              
              (96,291
              )Decrease
                  (increase) decrease in other current assets
              
              
              75,162
              
              
              (83,661
              )Increase
                  in accounts payable and accrued expenses
              
              
              905,112
              
              
              1,024,198Increase
                  in customer deposits
              
              
              657,037
              
              
              931,651Increase
                  (decrease) in deferred revenue
              
              
              131,610
              
              
              (425,217
              )Net
                  cash provided by (used in) operating activities
              
              
              26,087
              
              
              (863,494
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Repayments
                  of note payable - CEO/Stockholder
              
              
              (230,342
              )
              
              (93,096
              )Borrowings
                  under note payable affiliate - revolving credit agreement
              
              
              65,702
              
              
              614,298Borrowings
                  under notes payable - others
              
              
              118,250
              
              
              25,175Proceeds
                  from issuance of common stock
              
              
              -
              
              
              343,000Net
                  cash (used in) provided by financing activities
              
              
              (46,390
              )
              
              889,377Net
                  (decrease) increase in cash
              
              
              (20,303
              )
              
              25,883Cash,
                  beginning of year
              
              
              27,126
              
              
              1,243Cash,
                  end of year
              
              $
              6,823
              
              $
              27,126




The
        accompanying notes are an integral part of these financial
        statements.
  F-6


Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006




1.
      Nature
      of Business and Summary of Significant Accounting Policies





Organization
      and Nature of Business





Security
      Intelligence Technologies, Inc. (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 and its executive offices located in New Rochelle,
      New
      York.





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,
      Homeland Security Strategies (UK), Ltd. (formerly Counter Spy Shop of Mayfair
      Limited), a United Kingdom corporation that operated a retail store/service
      center that ceased operations on December 31, 2006 and HSS Express Funds, Inc.,
      that commenced operations on January 8, 2007 to provide administrative services
      to all of the consolidated companies. 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 $2,286,944 and $3,051,943 for years ended June 30, 2007
      and June 30, 2006, respectively. In addition, at June 30, 2007, the Company
      had
      a working capital deficit of $8,578,299, long term debt of $494,000, and a
      deficiency in stockholders’ equity of $9,049,100. The Company's bank facility
      has terminated, 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 5, 6, 7, 8 and 11). These factors raise substantial doubt about
      the
      Company's ability to continue as a going concern. 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 $405,000 during the fiscal year ended June 30, 2007 and
      approximately $640,000 during the year ended June 30, 2006. At June 30, 2007,
      the Company had outstanding purchase orders for an additional amount of
      approximately $1,627,000 for these systems however; customers representing
      $1,072,000 of these orders have instituted litigation against the Company for
      failure to deliver. As part of this marketing 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 either equity or debt
      financing, and, there can be no assurances that additional financing which
      is
      necessary for the Company to continue in business, 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




F-7


Security
          Intelligence Technologies, Inc. and Subsidiaries
 Notes
          to
          Consolidated Financial Statements
 For
          the
          Years Ended June 30, 2007 and 2006
 1.
        Nature
        of Business and Summary of Significant Accounting Policies -
        continued:





Going
      Concern and Liquidity - continued:





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





Prior
      to
      2004, a significant portion of the Company’s revenue was derived from sales by
      retail stores which were operated by the Company’s wholly-owned subsidiary, CCS
      International, Inc. (“CCS”). Commencing in mid 2003 and continuing through March
      2004, the Company closed all of its retail stores, although the Company
      continues to make modest retail sales from its headquarters. On March 22, 2005,
      the Company sold the stock of CCS for $100 and contingent consideration
      consisting of 5% of CCS’s and its subsidiaries’ net sales through March 31,
      2015. Because of CCS’s financial condition the Company has established a full
      reserve for uncollectible amounts due from them of $2,936,511. The Company’s
      balance sheet at June 30, 2007 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 Notes 5 and 9. 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 creditors 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 June 30, 2007, which was approximately $824,000, is not
      reflected as a liability of the Company at June 30, 2007. In addition at June
      30, 2007, 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 $1,400,000. 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 two other CCS creditors have
      initiated actions against the Company claiming that the Company is responsible
      for CCS’s obligations. (See Note 17).




F-8


Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006





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





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





Effective
      July 1, 2006, The Company adopted Statement of Financial Accounting Standards
      Statement 123(R) “Share Based Payment” (“SFAS123(R)”) utilizing the “modified
      prospective” method as described in SFAS 123(R). In the “modified prospective”
method, compensation cost is recognized for all share-based payments granted
      after the effective date and for all unvested awards granted prior to the
      effective date. In accordance with SFAS 123(R) prior period amounts were not
      restated. SFAS 123(R) also requires the tax benefit associated with these
      share-based payments to be classified as financing activities in the Statement
      of Cash Flows, rather than operating cash flows as required under previous
      regulations.





FASB
      Statement 123, “Accounting for Stock-Based Compensation,” requires 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 2006, 2005,
      2004, 2003 and 2002: dividend yield of 0%, risk-free interest rates ranging
      from
      of 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 year ended June
      30, 2006 would have been the pro forma amounts indicated below:


Net
                  loss:As
                  reported
              
              $
              (3,051,943
              )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
              
              
              (867,605
              )$
              (3,919,548
              )Loss
                  per share, basic and diluted:As
                  reported
              
              $
              (0.04
              )Proforma
              
              $
              (0.05
              )





F-9




Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


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





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 year ended June 30, 2007 and June 30, 2006 is as
      follows:


Year
                  EndedJune
                  30,2007
              
              2006Balance
                  July 1,
              
              $
              35,000
              
              $
              35,000Charges
                  for warranty work
              
              
              -
              
              
              -Accrual
                  for product warranties issuedduring
                  the period
              
              
              -
              
              
              -Balance
                  at June 30,
              
              $
              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.





F-10




Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


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





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.





Advertising





Advertising
      costs are expensed as incurred. The Company incurred advertising expenses of
      approximately $34,000 and $47,000 during the years ended June 30, 2007 and
      2006
      respectively.





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.





Concentration
      of credit risk





Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist principally of cash balances. The Company limits the amount of
      credit exposure to any one financial institution. The Company generally does
      not
      grant credit to domestic or foreign customers.





Research
      and development costs





Research
      and development costs are charged to expense as incurred.





F-11


Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


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





Stock
      Distribution





On
      November 17, 2005, the Company effected a three-for-one stock distribution,
      pursuant to which the Company issued two shares of common stock for each share
      of common stock outstanding on November 28, 2005, the record date. All share
      and
      per share information in these financial statements retroactively reflects
      such
      stock distribution. In
      connection with the stock distribution, the Company’s authorized common stock
      was increased from 100 million shares to 300 million shares.





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
      fiscal 2007 and 2006 because they are contingently issuable and/or
      antidilutive:


Year
                  Ended June 30,2007
              
              2006Series
                  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
              
              
              43,825,800
              
              
              43,825,800Warrants
              
              
              —
              
              
              1,500,000




2.
      Inventory


Inventories
                  consist of the following at June 30, 2007:Small
                  components and supplies
              
              $
              163,059Finished
                  goods
              
              
              394,074$
              557,133




3.
      Property and Equipment





Property
      and equipment consists of the following at June 30, 2007:


Office
                  furniture and equipment
              
              $
              23,000Leasehold
                  improvements
              
              
              2,00025,000Accumulated
                  depreciation and amortization
              
              
              (20,000
              )$
              5,000




Depreciation
      and amortization expense was $8,000 for the years ended June 30, 2007 and June
      30, 2006.




F-12




Security
      Intelligence Technologies, Inc. and Subsidiaries


Notes
      to
      Consolidated Financial Statements


For
      the
      Years Ended June 30, 2007 and 2006




4.
      Accounts Payable and Accrued Expenses





Accounts
      payable and accrued expenses at June 30, 2007 consisted of the
      following:


Accounts
                  payable - trade
              
              $
              707,888Professional
                  fees and legal matters
              
              
              696,537Payroll
                  liabilities (includes delinquent payroll taxes and
                  associatedinterest
                  and penalties of $1,444,635)
              
              
              1,750,494Accrued
                  interest
              
              
              119,371Deferred
                  rent payable
              
              
              45,143Other
              
              
              53,800$
              3,373,233




5.
      Note
      Payable - CEO/stockholder





This
      amount represents a note payable to the Company's chief executive officer and
      includes deferred salary of $659,903 and accrued interest of $233,315 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 subordinated to outstanding
      borrowings under the Notes Payable Affiliate - revolving credit agreement (See
      Note 6). Prior to the sale of CCS (See Note 9), 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 .
      (See
      Note 10) Because of CCS’ financial condition, the guaranteed obligations have
      been reflected as a liability of the Company’s balance sheet.





6.
      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 5). As of
      June 30, 2007, the Company had borrowed approximately $680,000 under this
      agreement.




7.
      Note
      Payable - Others





This
      amount represents notes payable to four different entities, including Menahem
      Cohen, which the Company issued in January and May 2005 and a note payable
      issued to a customer of the Company in January 2006. The notes to the two
      individuals are payable on demand, bears interest at the rate of 5% and 11%
      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.





F-13




Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


8.
      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 and was expensed during the years ended
      June
      30, 2005 and June 30, 2004. There
      were no similar expenses during the years ended June 30, 2007 and June 30,
      2006.





9.
      Disposition of Assets - Sale of CCS International, Ltd.





On
      March
      22, 2005, the Company 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. 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. 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 5 and
      10). 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”.





In
      connection with the sale of the stock of CCS Mr. Cohen resigned as vice
      president and director of the Company,


and
      the
      Company entered into a consulting agreement with Mr. Cohen through December
      31,
      2007, pursuant to which the Company will pay Mr. Cohen compensation at the
      annual rate of $108,000.





10.
      Employment Agreements





On
      March
      20, 2005, the Company entered into a five-year employment agreement with Mr.
      Ben
      Jamil pursuant to which he agreed to serve as the Company's president and chief
      executive officer. The agreement calls for an annual base compensation of
      $250,000 and may be increased on each anniversary date commencing July 1, 2005
      by 10% if the Company achieves certain performance criteria. In addition to
      the
      base salary, the chief executive officer is eligible to receive an annual
      discretionary bonus commencing June 30, 2005, at the sole discretion of the
      board of directors. Pursuant to the agreement, the Company granted the chief
      executive officer a non-qualified stock option to purchase 30,000,000 shares
      of
      common stock at an exercise price of $.067 per share. These options vest
      cumulatively as to 5,000,000 shares immediately and as to the remaining
      5,000,000 shares one year from the date of the agreement. In addition the
      Company issued to Mr. Jamil 4,000,000 shares of series C preferred stock, a
      newly created series of preferred stock. Pursuant to the agreement, the Company
      guaranteed the obligations to Mr. Jamil of CCS for advances made by Mr. Jamil
      to
      CCS, to the maximum amount of $738,000. At June 30, 2006, CCS owed Mr. Jamil
      $750,741. Payment of the Company’s obligations pursuant to this guaranty can
      only be made from cash flow from operations not required for the Company’s
      business.





On
      March
      20, 2005, the Company entered into a five-year employment agreement with Mr.
      Chris R. Decker pursuant to which he agreed to serve as the Company's executive
      vice president and chief financial officer. The agreement
      calls for an annual base compensation of $120,000 and may be increased on each
      anniversary date commencing
      July 1, 2005 by 10% if the Company achieves certain performance criteria. In
      addition to the base




F-14




Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


10.
      Employment Agreements - continued:





salary,
      the chief financial officer is eligible to receive an annual discretionary
      bonus
      commencing June 30, 2005, at the sole discretion of the board of directors
      however, the bonus will not be less than 10%. Pursuant to the agreement, the
      Company granted the chief financial officer a non-qualified stock option to
      purchase 3,000,000 shares of common stock at an exercise price of $.067 per
      share. These options vest cumulatively as to 500,000 shares immediately and
      as
      to the remaining 500,000 shares one year from the date of the Agreement. In
      addition the Company issued to Mr. Decker 1,000,000 shares of series C preferred
      stock, a newly created series of preferred stock.





11.
      Issuance of Securities





During
      the year ended June 30, 2007, the Company issued the following
      securities:





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




The
      Company issued 300,000 shares of its common stock to consultants in payment
      of
      consulting fees of $3,600.




The
      Company issued 49,373 shares of common stock valued at $1,298 to its 401K plan
      as its discretionary match of its employee’s contributions.





During
      the year ended June 30, 2006, the Company issued the following
      securities:





The
      Company issued 5,838,000 shares of common stock to employees in payment of
      $248,185 of accrued wages.




The
      Company issued 8,266,800 shares of its common stock to consultants in payment
      of
      consulting fees of $360,503.




The
      Company sold 6,000,003 shares of its common stock to two accredited investors
      for $343,000.




The
      Company issued 674,993 shares of common stock valued at $28,094 to its 401K
      plan
      as its discretionary match of its employee’s contributions.





12.
      Stock
      Option Plans





On
      June
      30, 2007 the Company has three share-based compensation plans and has granted
      options to purchase shares of common stock pursuant to employments agreements
      with its chief executive officer and chief financial officer which are described
      below. The compensation cost that has been charged against income for those
      plans was $48,664 for the year ended June 30, 2007. In accordance with SFAS
      no.
      123R for small business issuers the Company began recording stock based
      compensation for stock issued to employees on July 1, 2006. Accordingly, there
      was no similar expense for the year ended June 30, 2006.





The
      fair
      value of each option award or stock grant is estimated on the date of grant
      using the Black-Scholes option-pricing model that uses assumptions for expected
      volatility, expected dividends, expected term and risk-free rate. Because
      Black-Scholes option valuation models incorporate ranges of assumptions for
      inputs, those ranges are disclosed. Expected volatilities are based on
      historical volatility of the Company’s stock, and other factors. The Company
      uses historical data to estimate option exercise and employee termination within
      the valuation model. The expected term of options granted is derived from the
      output of the option valuation model and represents the period of time that
      options granted are expected to be outstanding. The risk-free rate for periods
      within the contractual life of the option is based on the U.S. Treasure yield
      curve in effect at the time of grant.





The
      Company did not grant any options to purchase shares of common stock nor did
      it
      grant shares of common stock during the years ended June 30, 2007 and June
      30,
      2006.





F-15




Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


12.
      Stock
      Option Plans - continued:





2002
      Stock Plan





As
      of
      January 21, 2002, the board of directors of the Company adopted the 2002 Stock
      Plan (the “2002 Plan”), which provided for the grant of non-qualified stock
      options to purchase a maximum of 6,000,000 shares of common stock to directors,
      employees, officers, agents, consultants and independent contractors who perform
      services for the Company. Option awards are generally granted with an exercise
      price equal to the market price of the Company’s stock at the date of grant;
      those option awards generally vest based on two to three years of continuous
      service and have 10 year contractual terms. As of June 30, 2007, options to
      purchase 5,878,500 shares of common stock are outstanding under the 2002
      Plan.





A
      summary
      of option activity under the 2002 Plan as of June 30, 2007, and changes during
      the year then ended is presented below:


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              IntrinsicOptions
              
              Shares
              
              Price
              
              Term
              
              ValueOutstanding
                  atJuly
                  1, 2006
              
              
              5,878,500
              
              $
              0.15Granted
              
              
              -Exercised
              
              
              -Forfieted
                  orexpired
              
              
              -Outstanding
                  atJune
                  30, 2007
              
              
              5,878,500
              
              $
              0.15
              
              
              4.7
              
              $
              742,745Exercisable
                  atJune
                  30, 2007
              
              
              5,878,500
              
              $
              0.15
              
              
              4.7
              
              $
              742,745


2004
      Plan





As
      of
      January 23, 2004, the board of directors adopted the 2004 Stock Incentive Plan
      (the “2004 Plan”) which provided for the grant of non-qualified stock options to
      purchase a maximum of 1,950,000 shares of common stock or the grant of shares
      to
      directors, employees, officers, agents, consultants and independent contractors
      who perform services for the Company. Option awards are generally granted with
      an exercise price equal to the market price of the Company’s stock at the date
      of grant; those option awards generally vest based on two to three years of
      continuous service and have 10 year contractual terms. As of June 30, 2007,
      options to purchase 1,950,000 shares of common stock have been issued under
      this
      plan.





F-16




Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


12.
      Stock
      Option Plans - continued:





A
      summary
      of option activity under the 2004 Plan as of June 30, 2007, and changes during
      the year then ended is presented below:


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              IntrinsicOptions
              
              Shares
              
              Price
              
              Term
              
              ValueOutstanding
                  atJuly
                  1, 2006
              
              
              650,000
              
              $
              0.08Granted
              
              
              -Exercised
              
              
              -Forfieted
                  orexpired
              
              
              -Outstanding
                  atJune
                  30, 2007
              
              
              650,000
              
              $
              0.08
              
              
              6.6
              
              $
              160,880Exercisable
                  atJune
                  30, 2007
              
              
              650,000
              
              $
              0.08
              
              
              6.6
              
              $
              160,880





2006
      Plan





As
      of
      October 25, 2005, the board of directors adopted the 2006 Stock Incentive Plan
      (the “2006 Plan”) which provided for the grant of non-qualified stock options to
      purchase a maximum of 8,250,000 shares of common stock or the grant of shares
      to
      directors, employees, officers, agents, consultants and independent contractors
      who perform services for the Company. Share grants are generally granted with
      an
      exercise price equal to the market price of the Company’s stock at the date of
      grant; and vest immediately. As of June 30, 2007, there were no grants of
      options to purchase shares of common stock however; 6,586,917 shares of common
      stock have been issued under the 2006 Plan.





Options
      Issued Pursuant to Employment Agreements





2005
      Employment Agreements





In
      March
      2005, pursuant to employment agreements with its chief executive and chief
      financial officers, the company granted options to purchase 33,000,000 shares
      of
      common stock at an exercise price of $.0667 per share. These option awards
      were
      granted with an exercise price equal to the market price of the Company’s stock
      at the date of grant; vest based on two years of continuous service and has
      10
      year contractual terms.





F-17




Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


12.
      Stock
      Option Plans - continued:





A
      summary
      of option activity under these employment agreements as of June 30, 2007 and
      changes during the year then ended is presented below:


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              IntrinsicOptions
              
              Shares
              
              Price
              
              Term
              
              ValueOutstanding
                  atJuly
                  1, 2006
              
              
              33,000,000
              
              $
              0.07Granted
              
              
              -Exercised
              
              
              -Forfieted
                  orexpired
              
              
              -Outstanding
                  atJune
                  30, 2007
              
              
              33,000,000
              
              $
              0.15
              
              
              7.8
              
              $
              2,178,073Exercisable
                  atJune
                  30, 2007
              
              
              33,000,000
              
              $
              0.15
              
              
              7.8
              
              $
              2,178,073





2002
      Employment Agreement





In
      April
      2002, pursuant to the chief executive officer's employment agreement, the
      Company granted him a non-qualified stock option to purchase 3,000,000 shares
      of
      common stock at an exercise price of $.667 per share.


This
      option awards was granted with an exercise price equal to the market price
      of
      the Company’s stock at the date of grant; vested based on five years of
      continuous service and has a 10 year contractual term.





A
      summary
      of option activity under this employment agreement as of June 30, 2007 and
      changes during the year then ended is presented below:


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contractual
              
              IntrinsicOptions
              
              Shares
              
              Price
              
              Term
              
              ValueOutstanding
                  atJuly
                  1, 2006
              
              
              3,000,000
              
              $
              0.67Granted
              
              
              -Exercised
              
              
              -Forfieted
                  orexpired
              
              
              -Outstanding
                  atJune
                  30, 2007
              
              
              3,000,000
              
              $
              0.67
              
              
              4.8
              
              $
              198,007Exercisable
                  atJune
                  30, 2007
              
              
              3,000,000
              
              $
              0.67
              
              
              4.8
              
              $
              198,007





F-18




Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


13.
      Preferred Stock




In
      April,
      2002 the Company issued two series of preferred stock, the Series A Preferred
      stock, consisting of 3,500,000 shares, and the Series B Preferred stock,
      consisting of 1,500,000 shares. Both Series A and Series B preferred shares
      have
      a liquidation preference of $1.00 per share and are each convertible into three
      shares of common stock if the Company has either consolidated annual net revenue
      of at least $10,000,000 or annual consolidated net income of at least $1,000,000
      prior to October 15, 2008. If neither of such targets is met by October 15,
      2008, the rights of the holders of the preferred stock terminate and the holders
      are required to transfer the shares of series A and Series B preferred stock
      to
      the Company for no consideration. Each share of Series A Preferred stock has
      45
      votes per share; Series B Preferred stock is nonvoting except as required by
      law.




In
      March,
      2005, the Company issued the series C preferred stock, consisting of 5,000,000
      shares. Each share of series C preferred stock is convertible into three shares
      of common stock if, prior to February 28, 2010, the Company generates either
      revenue of $6,000,000 or net income before taxes and before deduction of any
      non-cash expenses incurred in connection with the issuance of equity securities
      in connection with the private placement or public offering of the Company’s
      debt or equity securities of $250,000. If neither of such targets is met by
      February 28, 2010, the rights of the holders of the preferred stock terminate
      and the holders are required to transfer the shares of series C preferred stock
      to the Company for no consideration. The holders of the series C preferred
      stock
      vote with the holder of the common stock on an as-if converted basis, even
      if
      the event which triggers the conversion right has not occurred. If dividends
      are
      declared on the common stock, the holders of the series C preferred stock
      receive dividends on an as-if converted basis. The preferred stock has a
      liquidation preference of $.01 per share, and after payment of the liquidation
      preference, the holders of the preferred stock share with the holders of the
      common stock on an as-if converted basis.




14.
      Income Taxes





There
      was
      no income tax expense or benefit in fiscal 2007 and 2006 due to operating
      losses.





Following
                is a reconciliation of the provision for incometaxes (tax benefit)with
                income taxes on the federal statutory rate:




June
                30,2007
            
            2006Federal
                tax at statutory rate
            
            $
            (777,000
            )
            $
            (1,037,000
            )State
                and local taxes, net of federal effect
            
            
            (135,000
            )
            
            (181,000
            )Nondeductible
                items
            
            
            148,000
            
            
            214,000Change
                in valuation allowance
            
            
            764,000
            
            
            1,004,000Income
                taxes (tax benefit)
            
            $
            -
            
            $
            -




F-19




Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


14.
      Income Taxes - continued:


Components
                  of deferred taxes are as follows:
  June
                  30,Deferred
                  tax assets:
              
              2007
              
              2006Net
                  operating losses
              
              $
              3,525,000
              
              $
              3,661,000Deferred
                  rent payable
              
              
              18,000
              
              
              18,000Reserves
                  and allowances
              
              
              531,000
              
              
              531,000Deferred
                  revenue
              
              
              222,000
              
              
              222,0004,296,000
              
              
              4,432,000Deferred
                  tax liability
              
              
              -
              
              
              -4,296,000
              
              
              4,432,000Less
                  valuation allowance
              
              
              (4,296,000
              )
              
              (4,432,000
              )Net
                  deferred taxes
              
              $
              -
              
              $
              -




The
      Company files a consolidated federal return with its U.S. subsidiaries and
      combined state tax returns where permitted.





The
      Company has recorded valuation allowances to offset tax benefits arising from
      deferred tax items because their realization is uncertain. The Company has
      federal net operating loss carry-forwards of approximately $9,500,000 available
      to offset future federal taxable income. These losses expire in 2022, 2023,
      2024, 2025, 2026 and 2027.





15.
      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 years ended June 30, 2007 and June 30, 2006 the Company matched employee’s
      contributions of $1,298 and $28,094 respectively by issuing 49,373 and 674,933
      shares respectively of its common stock to the plan.





16.
      Supplemental Disclosure of Cash Flow Information


Year
                  EndedJune
                  30,2007
              
              2006Cash
                  paid during the period for:Interest
              
              $
              112,679
              
              $
              141,749Income
                  taxes
              
              $
              1,165
              
              $
              1,487Non-cash
                  financing and investing activities:Common
                  stock issued to settle accounts payable
              
              $
              -
              
              $
              21,712Accrued
                  interest and deferred salary creditedto
                  loan payable - CEO/stockholder
              
              $
              335,382
              
              $
              177,176




F-20


Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


17.
      Commitments and Contingencies





Litigation





On
      or
      about February 10, 2005 the Company commenced an action in the Supreme Court
      of
      New York, Westchester County, 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. On March 26, 2007 a judgment was entered against the Company in
      the
      amount of $161,377. The Company plans to seek to negotiate a settlement of
      the
      judgment but can give no assurances that it will be successful in negotiating
      any reduction in the amount of the judgment.





On
      or
      about May 19, 2006, an action was commenced against the Company in the Supreme
      Court of New York, Westchester County, 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.





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.





F-21


Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


17.
      Commitments and Contingencies - Continued





Litigation
      - continued:





On
      or
      about January 19, 2006, an action was commenced against CCS and the Company
      in
      the Supreme Court of the State of New York, Westchester County, captioned El
      Mundo Co., Ltd. v. CCS International Ltd. and Security Intelligence
      Technologies, Inc. claiming that CCS breached the distribution agreement it
      had
      entered into with CCS in 1997 and demanding the return of $433,284 it had paid
      to CCS and that the Company should be held liable as a successor in interest
      to
      CCS. The case is currently in discovery. 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 that it is a successor in
      interest to CCS International Ltd.





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.
      On or about December 15, 2006 the Company filed a motion to dismiss the action
      for lack of jurisdiction or in the alternative to transfer the venue from
      Arizona to the Southern District of New York. On April 10, 2007 the Arizona
      Court dismissed the action for lack of jurisdiction. The plaintiff has not
      yet
      brought an action against the Company in the State of New York. If the plaintiff
      institutes a claim against the Company in the State of New York the Company
      plans to deny the material allegations of the claim and raise affirmative
      defenses thereto as it believes that it has valid defenses to any such
      claim.





On
      or
      about January 2, 2007, an action was commenced against the Company’s subsidiary
      Homeland Security Strategies, Inc. in the Supreme Court of the State of New
      York, Westchester County, captioned Formosa Forensic Analysis Technology, Inc.
      v. Homeland Security Strategies, Inc. claiming the Company failed to deliver
      certain equipment and demanding a refund of the $64,800 deposit it had paid
      and
      additional damages in an amount to be determined by the Court. 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 $1,400,000. 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,
      three
      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.





F-22


Security
        Intelligence Technologies, Inc. and Subsidiaries
 Notes
        to
        Consolidated Financial Statements
 For
        the
        Years Ended June 30, 2007 and 2006


17.
      Commitments and Contingencies - Continued





Operating
      Leases





The
      Company leases office space, retail stores and sales offices and office
      equipment under non-cancelable operating leases that expire over various periods
      through 2010. Rent expense is being recognized on a straight-line basis to
      account for rent concessions and graduated charges during the lease term,
      resulting in deferred rent payable at June 30, 2007 of $45,142. Total rent
      expense for the years ended June 30, 2007 and 2006 was approximately $305,503
      and $359,092 respectively.





The
      approximate future minimum rental commitments for all long-term non-cancelable
      operating leases are as follows:


Year
                  endingJune
                  30,
              
              Amount2008
              
              $
              208,0002009
              
              
              157,0002010
              
              
              153,0002011
              
              
              60,000$
              578,000




F-23