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, 2006
                                       OR

[ ]   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 [ ]

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. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act. Yes [ ] No [X].

The Registrant's revenues for the fiscal year ended June 30, 2006 were
$2,399,745.

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 $1,103,270
at September 27, 2006.

The number of shares of common stock $.0001 par value, of the Registrant issued
and outstanding as of September 27, 2006 was 93,848,143.


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                       DOCUMENTS INCORPORATED BY REFERENCE

None


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                                TABLE OF CONTENTS


                                                                           Page
                                                                          Number


Part I                                                                         4

Description of Business                                                        4

Description of Properties                                                     16

Legal Proceedings                                                             16

Submission Of Matters To A Vote Of Security Holders                           17

Part II                                                                       17

Market For Registrant's Common Equity And Related Stockholder
   Matters                                                                    17

Management's Discussion And Analysis Of Financial Condition And
   Results Of Operations                                                      19

Financial Statements And Supplementary Data                                   24

Changes In And Disagreement With Accountants On
   Accounting And Financial Disclosure                                        24

Controls And Procedures                                                       24

Other Information                                                             24

Part III

Directors, Executive Officers, Promoters and Control Persons;
   Compliance with Section 16 (a) of the Exchange Act of the Registrant       24

Executive Compensation                                                        26

Security Ownership of Certain Beneficial Owners And Management                29

Certain Relationships and Related Transactions                                31


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<PAGE>

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. Our products and
services are used throughout the world 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:

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

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

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

Although 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 $640,000 for the year ended June 30, 2006 and $973,000 for the
year ended June 30, 2005. At June 30, 2006, we had five firm orders for bomb
jamming equipment, totaling $1,373,000, which are scheduled for shipment during
the second quarter of fiscal 2007.

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. All share and per share
information in this Form 10-KSB annual report retroactively reflects such stock
distribution. In connection with the stock distribution, our authorized common
stock was increased from 100 million shares shares to 300 million shares.


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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 and our London
branch. 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. Since we no longer operate any retail stores, the operations of CCS are
treated as a discontinued operation in our financial statements.

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, 2006, we had cash of approximately $27,000, no accounts receivable,
and a working capital deficit of approximately $6.4 million. Our operations
generated a negative cash flow of more than $863,000 for the fiscal year ended
June 30, 2006 and more than $1 million for the fiscal year ended June 30, 2005.
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.

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.

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


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We sustained net losses of $3.1 million, or $.04 per share (basic and diluted),
for the fiscal year ended June 30, 2006, and $9.8 million, or $.14 per share
(basic and diluted), for the fiscal year ended June 30, 2005, 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 and $110,000 during the
fiscal year ended June 30, 2005, 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 deposit.

For the year ended June 30, 2006, approximately $562,000, or 23.4% 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 particular, we believe that
our ability to generate a profit is dependent upon our ability to sell our
bomb-jamming equipment and communications monitoring equipment. 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.


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<PAGE>

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. If 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 may 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, it is possible
that CCS' creditors may seek to make a claim against us. If such claims are
brought against us, we would incur significant expense in defending the claims
with no assurance that we will prevail. In 2006 a default judgment was entered
against us with respect to obligations of CCS that resulted from an action
claiming we were responsible for the underlying obligations.

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. During the fiscal year ended June 30, 2003, we incurred
significant expense and our reputation was impaired as a result of criminal
charges against our employees, including one of our officers, even though the
charges, which were based on alleged violations of export control regulations,
were dismissed.


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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.


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<PAGE>

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:

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

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

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

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

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

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

      o     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;

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

      o     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.


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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, 2006. 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, 2006, Ben Jamil, our chairman of the board and chief executive
officer, beneficially owns 51.3% of our common stock and, as a result of
preferred stock ownership, holds 76.0% 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.


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<PAGE>

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.

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.

      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.


                                       11
<PAGE>

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
bomb 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:

      o     jam remote controlled military grade radio command detonators and;

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

      o     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.

Countermeasure Products

We manufacture professional and government-level technical surveillance
countermeasures 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.


                                       12
<PAGE>

Voice Stress Analysis Lie Detection Equipment

Much like a polygraph machine, our VSA(TM) 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, 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 domestic marketing targets the United States Government and its contractors
and focuses on our sophisticated bomb-jamming and communications monitoring
systems. Sales of these systems to the government and government contractors
were $973,000 during the year ended June 30, 2005. We did not sell any products
to United States Government or government contractors 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 and
government contractors being potential customers. In Iraq, in Afghanistan, and
around the world, American 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.

We have entered into a teaming agreement with a company which brings new
technologies to the attention of the Department of Defense and other agencies
for testing and procurement, and which has substantial manufacturing and
assembly facilities. In addition, separate branches of the United States
military are also, and less formally, seeking substantial numbers of bomb
jamming systems for nearly immediate use in Iraq and Afghanistan. However, we
have not received any orders for our product under any of these programs and we
may never receive any orders or any significant orders.

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.


                                       13
<PAGE>

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, New Rochelle, New York,
and London. 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.


                                       14
<PAGE>

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.


                                       15
<PAGE>

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.

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 27, 2006, we had 38 employees, of whom 26 were employed at our
main office and 12 were employed at our sales offices or service center. 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 $125,000, and
is subject to annual increases. We also lease approximately 12,000 square feet
for our offices in Miami, Florida, London, England, and Sofia, Bulgaria, under
leases that expire from 2005 to 2010 at a current annual rent of approximately
$270,000, 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 against the landlord of our 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 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. 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. The case has been scheduled for trial in February 2007.

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


                                       16
<PAGE>

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.

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 $1,115,000. 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, two 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.

                                     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 Bid
                  ----------------------------------------------
                  September 30, 2004          .27          .08
                  December 31, 2004           .15          .06
                  March 31, 2005              .16          .06
                  June 30, 2005               .14          .07

                  September 30, 2005          .03          .03
                  December 31, 2005           .06          .05
                  March 31, 2006              .03          .01
                  June 30, 2006               .03          .01

On September 27, 2006, the last quoted price by the OTC Bulletin Board was $.02
per share of common stock.


                                       17
<PAGE>

As of September 27, 2006, we had approximately 631 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, 2006 and for the year
then ended, as to equity compensation plans pursuant to which we may issue our
equity securities.

Equity Plan Compensation Information

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                                                   Number of securities
                                                                                                   remaining available for
                                               Number of securities to be   Weighted average       future issuance under
                                               issued upon exercise of      exercise price of      equity compensation plans
                                               outstanding options,         outstanding options,   (excluding securities
                                               warrants and rights          warrants and rights    reflects in columns (a))
                                               (a)                          (b)                    (c)
----------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                          <C>                      <C>
Equity compensation plans approved by
security holders                                            -0-                     --                         -0-
----------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved by
security holders                                     43,828,500                   $.12                     121,500
----------------------------------------------------------------------------------------------------------------------------
         Total                                       43,828,500                   $.12                     121,500
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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, 2006, 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.

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,
2006, 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.


                                       18
<PAGE>

Sales of Unregistered Securities

During the fiscal year ended June 30, 2006, 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 435,000 shares of common stock to employees in payment of $17,350 of
accrued wages.

We issued 2,299,597 shares of common stock to consultants in payment of
consulting fees of $113,500.

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

We issued 674,993 shares of common stock valued at $28,094 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,
2006 and June 30, 2005. Historical results and trends should not be taken as
indicative of future operations.

      We are operating under a heavy financial burden as reflected in our
substantial working capital deficiency and our continuing losses and negative
cash flow from operations. We have sought to address these problems during
fiscal 2004 by closing our retail operations, although we continue to generate
modest retail sales from our headquarters and our London branch, and by entering
into credit 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, 2006, we had borrowed approximately $614,000 under
this agreement.

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

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

      Prior to 2004, a significant portion of our revenue was derived from sales
by our retail stores which were operated by CCS, which was then our wholly-owned
subsidiary. In March 2005, we sold the stock of CCS to Menahem Cohen, who was
then our vice president and a director, for $100 and contingent consideration
consisting of 5% of CCS's and its subsidiaries' net sales through March 31,
2015. Since we no longer operate any retail stores, the operations of CCS are
treated as a discontinued operation in our financial statements.

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.


                                       19
<PAGE>

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

Critical accounting policies

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

Use of estimates

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

Inventories

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

Revenue recognition

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


                                       20
<PAGE>

Stock-based Compensation

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

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

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

Income taxes

      We use the liability method to determine income tax expense. Under this
method, deferred tax assets and liabilities are computed based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted rates and laws that will be in effect when the
differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of the available evidence, it is
more likely than not that all or some portion of the deferred tax assets will
not be realized. The ultimate realization of the deferred tax asset depends on
our ability to generate sufficient taxable income in the future. Because of our
losses we did not incur any income tax expense during the years ended June 30,
2006 and June 30, 2005. Financial guarantees

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

Fair Value of Financial Instruments

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

Foreign Currency Translation

      The functional currency of our United Kingdom subsidiary is pound
sterling. Accordingly, we translate all assets and liabilities into United
States dollars at current rates. Revenues, costs, and expenses are translated at
average rates during each reporting period. Gains and losses resulting from the
translation of the consolidated financial statements are excluded from results
of operations and are reflected as a translation adjustment and a separate
component of stockholders' deficit. Translation adjustments were $5,454 as of
June 30, 2006. Gains and losses resulting from foreign currency transactions are
recognized in the consolidated statement of operations in the period they occur.


                                       21
<PAGE>

Discontinued Operations

On March 22, 2005, we sold all of the stock of CCS to Menahem Cohen for $100 and
contingent consideration consisting of 5% of CCS's and its subsidiaries' net
sales through March 31, 2015. Our balance sheet at June 30, 2006 does not
reflect any liabilities of CCS, since we were not an obligor or guarantor with
respect to any of the liabilities except as set forth in Note 3 of Notes to
Consolidated Financial Statements. Prior to the disposition of CCS we issued
shares of common stock to settle debt obligations of CCS or its subsidiaries.
These agreements contain a price guarantee that requires CCS to settle in cash
any difference between the original face amounts of the debt and proceeds from
the creditor's subsequent sale of the shares. Since the obligation to make the
payment is an obligation of CCS, and not us, the amount by which the target
prices exceeded the value of the stock on June 30, 2006, which was approximately
$738,000, is not reflected as our liability at June 30, 2006. Although we have
no contractual obligation with respect to any of the obligations of CCS, and we
believe we have a valid defense to any claim that we have any liability with
respect to any liabilities or obligations of CCS, it is possible that a creditor
of CCS or its subsidiaries may make a claim against us and that they may
prevail. One CCS creditor has obtained a default judgment against us based on
the claim that we are responsible for CCS's obligation to that creditor.

RESULTS OF OPERATIONS - Years Ended June 30, 2006 and 2005

Revenues. Revenues for the year ended June 30, 2006 ("fiscal 2006") were
$2,399,745, a decrease of $336,351 or 12.3%, from revenues of $2,736,096 for the
year ended June 30, 2005 ("fiscal 2005") primarily as a consequence of decreased
sales from our bomb jamming systems, partially offset by an increase of $463,299
in revenues recognized from the termination of distribution agreements with non
refundable deposit balances to $562,463 in fiscal 2006 from $99,164 in fiscal
2005.

Cost of Revenue. Cost of sales decreased by $311,176 or 27.6%, to $818,522 in
the fiscal 2006 from $1,129,698 in fiscal 2005 as a consequence of decreased
sales. Cost of sales as a percentage of product sales increased to 44.6% in
fiscal 2006 from 42.8% in fiscal 2005 primarily as a consequence of selling
lower margin products in the fiscal 2006.

Compensation and benefits. Compensation and benefits decreased by $21,875, or
1.1% to $1,988,271 in fiscal 2006 from $2,010,146 in fiscal 2005 primarily due
to outsourcing certain marketing and sales functions to outside consultants.

Professional fees and legal matters. Professional fees and legal matters
increased by $592,833, or 303.7% to $788,014 in fiscal 2006 from $195,181 in
fiscal 2005. 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 and warrants to consultants and common stock which we issued to
employees in payment of accrued wages at a discount from the market price. These
items were valued at $160,957 using the Black-Scholes option-pricing model and
were expensed during fiscal 2005. There were no comparable expenses in fiscal
2006.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased by $2,693,740, or 62.6% to $1,610,762 in
fiscal 2006 from $4,304,502 in fiscal 2005. The decrease was primarily due to a
decrease of $2,897,921 in allowances for doubtful accounts related to a full
reserve for receivables from CCS International, Ltd. in fiscal 2005 partially
offset by (i) an increase in consulting fees of $27,089 as a consequence of
increasing resource allocation to outside consultants to market and sell the
company's products and (ii) an increase in rent expense of $44,913 resulting
from the opening of a new service center in Sofia Bulgaria.


                                       22
<PAGE>

Depreciation and amortization. Depreciation and amortization increased by
$4,000, or 100.0% to $8,000 in fiscal 2006 from $4,000 in fiscal 2005 as the
depreciable assets were acquired in fiscal 2005.

Debt issuance expense. Debt issuance expense is attributable to debt we incurred
during June, August and September of 2004 that is convertible into shares of
common stock at prices below the market price of our common stock on the date we
incurred the debt. The conversion feature was valued at $3,549,499 using the
Black-Scholes option-pricing model and was expensed during fiscal 2005. There
were no similar transactions in fiscal 2006.

Interest expense. Interest expense increased by $88,296, or 58.9% to $238,119 in
fiscal 2006 from $149,823 in fiscal 2005 primarily as a result of (i) closing
costs of $37,921 associated with the revolving line of credit we entered into in
August 2005 and (ii) a continued increase in the Company's other interest
bearing outstanding debt obligations.

Loss from discontinued operations. Loss from discontinued operations includes
CCS's operating loss of $270,476 in fiscal 2005 and a loss on the disposal of
CCS of $743,000 in fiscal 2005. Included in the loss on disposal of CCS is a
charge for $738,000 that represents the Company's guarantee of the obligations
to Mr. Jamil of its previous subsidiary, CCS.

As a result of the factors described above, our net loss decreased by
$6,729,243, or 68.8% to $3,051,943, $.04 per share (basis and diluted), in
fiscal 2006 from $9,781,186, $.14 per share (basis and diluted), in fiscal 2005.

Liquidity and Capital Resources

At June 30, 2006 we had cash of $27,126, no accounts receivable and a working
capital deficit of $6,394,792 and long term debt of $494,000. During fiscal
2006, we had a negative cash flow from operations of $863,494. Our accounts
payable and accrued expenses at June 30, 2006 were $2,468,121. 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.

Our accounts payable and accrued expenses increased from $1,465,635 at June 30,
2005 to $2,468,121 at June 30, 2006 an increase of $1,002,486 reflecting our
inability to pay creditors currently. We also had customer deposits and deferred
revenue of $1,935,625 which relate to payments on orders which had not been
filled at that date. We have used our advance payments to fund our operations.
If our vendors do not extend us necessary credit we may not be able to fill
current or new orders, which may affect the willingness of our clients to
continue to place orders with us.

During the past three years we have sought, and been unsuccessful, in our
efforts to obtain adequate funding for our business. Because of our losses and
our working capital deficiency, we are not able to increase our borrowing. Our
bank facility terminated on November 1, 2002 and since that date we have not
been able to arrange financing with a replacement bank or institutional lender.
In June 2004, we entered into a convertible credit agreement with certain
stockholders pursuant to which we borrowed $494,000. Our obligations to these
lenders matured on June 30, 2005, and were extended until June 30, 2010. In
August, 2005, we entered into a revolving credit agreement with GCOM
Consultants, Inc., a company owned by the wife of our chief executive officer,
under which we may borrow up to $680,000. We borrowed approximately $614,000
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.


                                       23
<PAGE>

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

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


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

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

Item 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      Position
----                     ---      --------
Ben Jamil                73       Chairman of the board, chief executive officer
Chris R. Decker          58       Chief financial officer and director
Tom Felice               48       Director
Sylvain Naar             64       Director


                                       24
<PAGE>

      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 has been a director of CCS since March 2002 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.


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, 2006, 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 four times during the fiscal year ended June
30, 2006. The board of directors has an Audit Committee comprised of two
directors, Chris R. Decker, our chief financial officer, and Sylvain Naar. The
audit committee did not hold any formal meetings during the fiscal year ending
June 30, 2006, 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.


                                       25
<PAGE>

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

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

            o     the independence and performance of our independent public
                  accountants.

            o     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.

      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, 2006, and 2005 to our chief
executive officer and to the only other officer who received compensation of
$100,000 during either of those fiscal years.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                         Long-Term
                                                                                  Compensation (Adwards)
                                              Fiscal                                  Options, SARs
Name and Principal Position                    Year        Salary         Bonus          (Number)
----------------------------------------      ------     ---------      --------- ----------------------
<S>                                            <C>       <C>            <C>            <C>
Ben Jamil, chief executive officer             2006      $ 250,000      $      --      30,000,000
                                               2005        250,000             --       1,200,000
                                               2004        250,000             --       3,000,000
Chris R. Decker, chief financial officer       2006        120,000         12,000       3,000,000
                                               2005        121,523         12,000         450,000
                                               2004         88,768             --         900,000
</TABLE>

      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 11 of Notes to Consolidated Financial Statements. No
value was given to the series C preferred stock in the Summary Compensation
Table.


                                       26
<PAGE>

      In January 2004, we issued 35,000 shares of common stock to Mr. Decker in
payment of accrued wages.

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 its 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.

      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. The rights of the holders of the series C preferred stock are
described under "Description of Capital Stock - Series C Preferred Stock."

      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, 2006, 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.


                                       27
<PAGE>

      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 27, 2006, 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.

      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, 2006, 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, 2006 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.


                                       28
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                             Value of
                                                                                             Unexercised
                                                            Number of Securities             In-the-Money
                                                            Underlying Unexercised           Options at Fiscal
                                                            Options at Fiscal Year End       Year End
                                                            --------------------------       --------

                       Shares Acquired          Value              Exercisable/              Exercisable/
Name                   Upon Exercise            Realized           Unexercisable             Unexercisable
----                   -------------            --------           -------------             -------------
<S>                         <C>                   <C>         <C>                            <C>
Ben Jamil                    --                    --         30,600,000/3,000,000            $  --/$  --
Chris R. Decker              --                    --                4,350,000/ --             $990/$  --
</TABLE>

The closing price of our common stock on June 30, 2006, was $.03 per share.

                Option Grants in Fiscal Year Ended June 30, 2006

<TABLE>
<CAPTION>
                                                                               Potential Realizable Value an
                                                                               Annual Rates of Stock Price
                                 Percent of                                    Appreciation for Option Term
                                 Total Options                                 ----------------------------
              Number of Shares   Granted to        Exercise
              Underlying         Employees in      Price Per    Expiration
Name          Options Granted    Fiscal Year       Share        Date           5%             10%
----          ---------------    -----------       -----        ----           --             ---
<S>           <C>
              None
</TABLE>

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 27, 2006 by:

      o     each director;

      o     each officer named in the summary compensation table;

      o     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

      o     all directors and executive officers as a group.


                                       29
<PAGE>

<TABLE>
<CAPTION>
                                                     Shares of Common   Percentage of
                                                     Stock Benefically   Outstanding
Name                                                       Owned         Common Stock
-----------------------------------------------      -----------------  -------------
<S>                                                      <C>                 <C>
Ben Jamil                                                63,243,000          51.3%
145 Huguenot Street
New Rochelle, NY 10801
Chris R. Decker                                           5,500,000           5.7%
145 Huguenot Street
New Rochelle, NY 10801
Michael D. Farkas                                         5,101,788           5.4%
1691 Michigan Avenue, Suite 425
Miami, FL 33139

Tom Felice                                                  759,000           1.0%
Sylvain Naar                                                     --             *
All directors and executive officers as a group
   (four individuals)                                    69,552,000          54.2%
</TABLE>

-------------------
*     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 30, 2006. 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 76.0% of the voting
rights.

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.


                                       30
<PAGE>

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, 2006 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.

      During fiscal year 2004 we paid commissions of $35,000 related to
financing activities to Atlas Capital Services, LLC which is beneficially owned
by Michael D. Farkas.

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, 2006 we had sold shares of common stock and issued debt
generating net cash proceeds of $993,000 and all pledged shares have been
released.

      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 27, 2006, we had borrowed approximately $625,000
under this agreement.


                                       31
<PAGE>

Item 13. Exhibits

Exhibit
Number      Exhibit Description
--------------------------------------------------------------------------------
2.1         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.

(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.


                                       32
<PAGE>

Item 14. Principal Accountant Fees and Services

Demetrius & Company, L.L.C. was our independent auditor for the years ended June
30, 2006 and 2005.

We paid audit fees to Demetrius & Company, L.L.C. of $60,000 during the year
ended June 30, 2006 and $60,073 for the year ended June 30, 2005. 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
reasonably related to the performance of the audit or review of our financial
statements. We did not incur any audit-related fees for the year ended June 30,
2006 or 2005.

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, 2006 or
2005.

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,
2006 or 2005.

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.


                                       33
<PAGE>

                                   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 12, 2006
                                       /s/ Ben Jamil
                                       ----------------------------------------
                                       Ben Jamil
                                       Chairman 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 resubstitution
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 12, 2006
-------------------   Chief executive officer and Director
    Ben Jamil         (Principal Executive Officer)


/s/ Chris R. Decker   Chief financial officer and Director      October 12, 2006
-------------------   (Principal Financial and Accounting
    Chris R. Decker   Officer)


/s/ Tom Felice        Director                                  October 12, 2006
-------------------
    Tom  Felice

/s/ Sylvain Naar      Director                                  October 12, 2006
-------------------
    Sylvain Naar


                                       34
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm                F - 1

Consolidated Balance Sheet as of June 30, 2006                         F - 2

Consolidated Statements of Operations for the years
   ended June 30, 2006 and June 30, 2005                               F - 3

Consolidated Statements of Changes in Stockholders' Deficit
   for the years ended June 30, 2006 and June 30, 2005                 F - 4

Consolidated Statements of Cash Flows for the years ended
   June 30, 2006 and June 30, 2005                                     F - 5

Notes to Consolidated Financial Statements                        F - 6 - F - 22


                                       F-1
<PAGE>

             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, 2006, 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, 2006.
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.

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,
2006, and the consolidated results of their operations and cash flows for each
of the two years in the period ended June 30, 2006, 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 incurred operating losses in fiscal 2006 and 2005,
negative cash flows from operations, and has limited cash and other resources to
fund future operations. 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
September 27, 2006


                                       F-2
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                  June 30, 2006

<TABLE>
<CAPTION>

<S>                                                                                       <C>
ASSETS
Current Assets:
      Cash                                                                                $     27,126
     Inventory                                                                                 662,424
     Other current assets                                                                      186,946
                                                                                          ------------
        Total current assets                                                                   876,496
Property and Equipment, at cost less accumulated depreciation
   and amortization of $12,000                                                                  13,000
Receivables from CCS International, Ltd. and subsidiaries less
     allowance for uncollectible amounts of $2,936,511                                              --

Other assets                                                                                    18,199
                                                                                          ------------

 Total assets                                                                             $    907,695
                                                                                          ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Accounts payable and accrued expenses                                                $  2,468,121
     Note payable - CEO/stockholder                                                          1,981,744
     Note payable affiliate - revolving credit agreement                                       614,298
     Notes payable - other                                                                     271,500
     Customer deposits                                                                       1,510,452
     Deferred revenue                                                                          425,173
                                                                                          ------------
         Total current liabilities                                                           7,271,288
Long term debt - convertible notes payable                                                     494,000
                                                                                          ------------
     Total liabilities                                                                       7,765,288
                                                                                          ------------

Commitments and contingencies - See Notes

Stockholders' deficit:
     Preferred stock, $.0001 par value, 10,000,000 shares authorized:
         Series A Convertible-$1.00 per share liquidation preference, 3,500,000 shares
            authorized, issued and outstanding                                                     350
         Series B Convertible-$1.00 per share liquidation preference, 1,500,000 shares
            authorized, issued and outstanding                                                     150
         Series C Convertible-$.01 per share liquidation preference,
            5,000,000 shares authorized, issued and outstanding                                     --
     Common stock, $.0001 par value, 300,000,000 shares authorized,
         92,635,295 shares issued and outstanding                                                9,264
     Additional paid in capital                                                              8,770,073
     Accumulated deficit                                                                   (15,642,884)
     Accumulated other comprehensive loss                                                        5,454
                                                                                          ------------
       Total stockholders' deficit                                                          (6,857,593)
                                                                                          ------------

Total liabilities and stockholders' deficit                                               $    907,695
                                                                                          ============
</TABLE>

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


                                       F-3
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  Year Ended
                                                        -----------------------------
                                                                   June 30,
                                                        -----------------------------
                                                             2006             2005
                                                        ------------     ------------
<S>                                                     <C>              <C>
Revenues                                                $  2,399,745     $  2,736,096
                                                        ------------     ------------

Costs and expenses:
     Cost of sales                                           818,522        1,129,698
     Compensation and benefits                             1,988,271        2,010,146
     Professional fees                                       788,014          195,181
     Stock based compensation                                     --          160,957
     Selling, general and administrative expenses          1,610,762        4,304,502
     Depreciation and amortization                             8,000            4,000
                                                        ------------     ------------
                                                           5,213,569        7,804,484
                                                        ------------     ------------
Operating loss from continuing operations
      before other items                                  (2,813,824)      (5,068,388)
                                                        ------------     ------------
Debt issuance and interest expense:
     Debt issuance expense                                        --        3,549,499
     Interest expense                                        238,119          149,823
                                                        ------------     ------------
                                                             238,119        3,699,322
                                                        ------------     ------------
Loss from continuing operations                           (3,051,943)      (8,767,710)
                                                        ------------     ------------
Discontinued operations:
     Loss from operations of discontinued subsidiary
        CCS International, Ltd.                                   --         (270,476)
     Loss on disposal of CCS International, Ltd.                  --         (743,000)
                                                        ------------     ------------
                                                                  --       (1,013,476)
                                                        ------------     ------------
Net loss                                                $ (3,051,943)    $ (9,781,186)
                                                        ============     ============

Net loss per above                                      $ (3,051,943)    $ (9,781,186)
Other comprehensive gain - translation adjustment             15,811            7,238
                                                        ------------     ------------
Total comprehensive loss                                $ (3,036,132)    $ (9,773,948)
                                                        ============     ============

Loss per share, basic and diluted:
     From continuing operations                         $      (0.04)    $      (0.13)
                                                        ============     ============
     From discontinued operations                       $         --     $      (0.01)
                                                        ============     ============
     Total                                              $      (0.04)    $      (0.14)
                                                        ============     ============

Weighted average number of shares                         85,258,064       68,394,930
                                                        ============     ============
</TABLE>

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


                                       F-4
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                       YEARS ENDED JUNE 30, 2006 AND 2005

<TABLE>
<CAPTION>

                                                                    Convertible Preferred
                                             Series A                      Series B                Series C             Common Stock
                                             --------                      --------                --------             ------------
                                       Shares       Amount           Shares       Amount     Shares       Amount            Shares
                                       ------       ------           ------       ------     ------       ------            ------
<S>                                  <C>         <C>               <C>         <C>            <C>         <C>            <C>
Balances, June 30, 2004              3,500,000   $        350      1,500,000   $        150    --          $--           66,920,448

Sale of common stock                        --             --             --             --    --           --            1,938,270
Issuance of common stock
   to settle debt                           --             --             --             --    --           --              784,500
Stock issued to employees                   --             --             --             --
   and consultants for services             --             --             --             --    --           --            1,852,281
Stock issued to lenders                     --             --             --             --    --           --              300,000
Amortization of debt issuance
   expense                                  --             --             --             --    --           --                   --
Stock issued in settlement of
   lawsuit                                  --             --             --             --    --           --               60,000
Amortization of deferred
   compensation                             --             --             --             --    --           --                   --
Adjustment to record discount
   given on stock issued for
     services                               --             --             --             --    --           --                   --
Net loss                                    --             --             --             --    --           --                   --
Other comphrehensive gain                   --             --             --             --    --           --                   --
Disposal of CCS, Ltd. and subs              --             --             --             --    --           --                   --
                                     ----------------------------------------------------------------------------------------------
Balances, June 30, 2005              3,500,000            350      1,500,000            150    --           --           71,855,499

Sale of common stock                        --             --             --             --    --           --            6,000,003
Issuance of common stock
   to 401K Plan                             --             --             --             --    --           --              674,993
Stock issued to employees
   and consultants for services             --             --             --             --    --           --           14,104,800
Adjustment for stock
   distribution                             --             --             --             --    --           --                   --
Net loss                                    --             --             --             --    --           --                   --
Other comphrehensive gain                   --             --             --             --    --           --                   --
                                     ----------------------------------------------------------------------------------------------

Balances, June 30, 2006              3,500,000   $        350      1,500,000   $        150    --          $--           92,635,295
                                     ==============================================================================================


                                                                     Retained         Accumulated
                                                     Additional      Earnings         Other Comp-          Total
                                                      Paid-in         (Accum-         rehensive        Stockholders'
                                          Amount      Capital      ulated Deficit)       Loss             Deficit
                                          ------      -------      ---------------       ----             -------
Balances, June 30, 2004                   2,231    $  3,808,283     $(11,136,871)    $    (17,595)    $ (7,343,452)

Sale of common stock                         64         109,936               --               --          110,000
Issuance of common stock
   to settle debt                            26          87,002               --               --           87,028
Stock issued to employees                    --              --
   and consultants for services              62          96,938               --               --           97,000
Stock issued to lenders                      10          16,990               --               --           17,000
Amortization of debt issuance
   expense                                   --       3,532,499               --               --        3,532,499
Stock issued in settlement of
   lawsuit                                    2           5,398               --               --            5,400
Amortization of deferred
   compensation                              --         107,957               --               --          107,957
Adjustment to record discount
   given on stock issued for
     services                                --          53,000               --               --           53,000
Net loss                                     --              --       (9,781,186)              --       (9,781,186)
Other comphrehensive gain                    --              --               --            7,238            7,238
Disposal of CCS, Ltd. and subs               --         (42,555)       8,327,116               --        8,284,561
                                   -------------------------------------------------------------------------------
Balances, June 30, 2005                   2,395       7,775,448      (12,590,941)         (10,357)      (4,822,955)

Sale of common stock                        600         342,400               --               --          343,000
Issuance of common stock
   to 401K Plan                              67          28,027               --               --           28,094
Stock issued to employees
   and consultants for services           1,410         628,990               --               --          630,400
Adjustment for stock
   distribution                           4,792          (4,792)              --               --               --
Net loss                                     --              --       (3,051,943)              --       (3,051,943)
Other comphrehensive gain                    --              --               --           15,811           15,811
                                   -------------------------------------------------------------------------------

Balances, June 30, 2006            $      9,264    $  8,770,073     $(15,642,884)    $      5,454     $ (6,857,593)
                                   ===============================================================================
</TABLE>

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


                                       F-5
<PAGE>

            SECURITY INTELLIGENCE TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                           Years Ended
                                                                                   ---------------------------
                                                                                             June 30,
                                                                                   ---------------------------
                                                                                       2006            2005
                                                                                   -----------     -----------
<S>                                                                                <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Loss from continuing operations                                                $(3,051,943)    $(8,767,710)
    Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                                      8,000           4,000
      Debt issuance expense                                                                 --       3,549,499
      Amortization of deferred compensation                                                 --         107,957
      Allowance for doubtful accounts - CCS International, Ltd.                             --       2,917,216
      Stock issued to consultants and officers for services                            608,689          97,000
      Stock issued to 401K Plan                                                         28,093              --
      Discount on common stock sold and issued for services                                 --          53,000
      Decrease in other comprehensive loss                                              15,811           7,238
      Noncash compensation - CEO/stockholder                                           114,632          99,000
      Noncash interest expense - CEO/stockholder                                        62,544          37,882
      CHANGES IN OPERATING ASSETS AND LIABILITIES:
        (Increase) decrease in inventory                                               (96,291)        156,932
        (Increase) decrease in other current assets                                    (83,661)        101,877
        (Decrease) in other assets                                                          --          (9,740)
        Increase in accounts payable and accrued expenses                            1,024,198         912,400
        Increase (decrease) in customer deposits                                       931,651        (323,608)
         (Decrease) increase in deferred revenue                                      (425,217)        224,025
        Discontinued operations                                                             --        (197,448)
                                                                                   -----------     -----------
Net cash used in operating activities                                                 (863,494)     (1,030,480)
                                                                                   -----------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment                                                      --         (25,000)
                                                                                   -----------     -----------
Net cash used in investing activities                                                       --         (25,000)
                                                                                   -----------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Repayments of note payable - CEO/Stockholder                                       (93,096)             --
    Borrowings under note payable - CEO/stockholder                                         --         234,003
    Borrowings under note payable affiliate - revolving credit agreement               614,298              --
    Borrowings under notes payable - others                                             25,175         246,325
    Borrowings under convertible credit facility                                            --         294,000
    Proceeds from issuance of common stock                                             343,000         110,000
                                                                                   -----------     -----------
Net cash provided by financing activities                                              889,377         884,328
                                                                                   -----------     -----------
Net increase (decrease) in cash                                                         25,883        (171,152)

Cash, beginning of year                                                                  1,243         172,395
                                                                                   -----------     -----------
Cash, end of year                                                                  $    27,126     $     1,243
                                                                                   ===========     ===========
</TABLE>

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


                                       F-6
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


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 and through its retail store/service center in London,
England.

Principles of Consolidation

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

Discontinued Operations

      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
and its London branch. On March 22, 2005, the Company sold the stock of CCS to
Menahem Cohen, who was then a vice president and a director of the Company, for
$100 and contingent consideration consisting of 5% of CCS's and its
subsidiaries' net sales through March 31, 2015. Since the Company no longer
operates any retail stores, the operations of CCS and its subsidiaries are
treated as a discontinued operation in our financial statements. The
subsidiaries disposed of were, in addition to CCS, Spy Shop, Ltd. d/b/a Counter
Spy Shop of Delaware (formerly a retail store closed on January 31, 2004);
Security Design Group, Inc. (formerly a manufacturing operation and inactive on
the date of sale); Counter Spy Shop of Mayfair London, Ltd. (formerly a retail
store closed on July 1, 2003); CCS Counter Spy Shop of Mayfair London, Ltd.
(formerly a retail store closed on January 1, 2004); Counter Spy Shop of
Mayfair, Ltd. (formerly a sales office/retail store that ceased operations on
March 31, 2004). The operations of CCS International, Ltd. and its subsidiaries
have been included in loss from discontinued operations for all periods
presented.

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 $3,051,943 and $9,781,186 for years ended June
30, 2006 and June 30, 2005, respectively. In addition, at June 30, 2006, the
Company had a working capital deficit of $6,394,792, long term debt of


                                       F-7
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


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

Going Concern and Liquidity - continued:

$494,000, and a deficiency in stockholders' equity of $6,857,593. 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 $640,000 during the fiscal year ended June 30, 2006 and
approximately $973,000 during the year ended June 30, 2005. At June 30, 2006,
the Company had outstanding purchase orders for an additional amount of
approximately $1,373,000 for these systems. As part of this effort, the Company
has re-focused its staff, and is actively pursuing additional equity and debt
financing to supplement cash flow from operations. However, the Company's low
stock price and its continuing losses make it difficult to obtain equity and
debt funding, and, there can be no assurances that additional financing will be
available to the Company on acceptable terms, or at all, or that the Company
will generate the necessary cash flow from operations. The Company and its
management believe that its bomb jamming and cellular monitoring systems and the
United States and friendly international governments marketplace are viable
products and markets in which to compete, and ultimately achieve profitability.
The Company's ability to continue its operations is dependent upon its ability
to generate sufficient cash flow either from operations or from financing, to
meet its obligations on a timely basis and to further develop and market its
products. However, the Company's financial condition and continuing losses may
inhibit potential customers from purchasing the Company's products. The
accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties.

Revenue recognition

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

Contingent Liabilities of CCS

      The Company's balance sheet at June 30, 2006 does not reflect any
liabilities of CCS, since the Company was not an obligor or guarantor with
respect to any of the liabilities except as set forth in 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


                                       F-8
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


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

Contingent Liabilities of CCS - continued:

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,
2006, which was approximately $738,000, is not reflected as a liability of the
Company at June 30, 2006. In addition at June 30, 2006, CCS's creditors had
initiated lawsuits against CCS for nonpayment of accrued liabilities and its
distributors has initiated litigation for breeches of their agreements in the
total amount of approximately $1,115,000. 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 another CCS creditor has initiated an action against the
Company claiming that the Company is responsible for CCS's obligations. (See
Note 17).

Financial Guarantees

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

Stock-based Compensation

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

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


                                       F-9
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


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

Stock-based Compensation - continued:

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

      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 years ended
June 30, 2006 and June 30, 2005 would have been the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                                    Year Ended
                                                         -------------------------------
                                                                     June 30,
                                                         -------------------------------
Net loss:                                                     2006              2005
                                                         ------------     --------------
<S>                                                      <C>              <C>
     As reported                                         $ (3,051,943)    $   (9,781,186)
     Add: Stock based employee compensation expense
        included in reported net loss                              --                 --
     Deduct: Total stock based employee compensation
        expense determined under the fair value based
          method for all awards                              (867,605)        (1,488,395)
                                                         ------------     --------------
                                                         $ (3,919,548)    $  (11,269,581)
                                                         ============     ==============

Loss per share, basic and diluted:
     As reported                                         $      (0.04)    $        (0.14)
     Proforma                                            $      (0.05)    $        (0.16)
</TABLE>

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.


                                      F-10
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


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

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, 2006 and June 30, 2005 is as follows:

                                              Year Ended
                                               June 30,
                                         ------------------
                                           2006       2005
                                         -------    -------
Balance July 1,                          $35,000    $15,000

Charges for warranty work                     --         --

Accrual for product warranties issued
   during the period                          --     20,000
                                         -------    -------
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.

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.


                                      F-11
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


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

Advertising

      Advertising costs are expensed as incurred. The Company incurred
advertising expenses of approximately $47,000 and $79,000 during the years ended
June 30, 2006 and 2005 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.

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 2006 and 2005 because they are contingently issuable and/or antidilutive:


                                      F-12
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


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

Loss Per Share - continued:

                                              Year Ended June 30,
                                          --------------------------
                                             2006             2005
                                          ----------      ----------

Series A Convertible Preferred Stock      10,500,000      10,500,000
Series B Convertible Preferred Stock       4,500,000       4,500,000
Series C Convertible Preferred Stock       1,500,000      15,000,000
Stock options                             43,825,800      43,825,800
Warrants                                   1,500,000       1,500,000

Reclassifications

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

2. Inventory

Inventories consist of the following at June 30, 2006:

Small components and supplies                    $250,344
Finished goods                                    412,080
                                                 --------
                                                 $662,424
                                                 ========

3. Property and Equipment

Property and equipment consists of the following at June 30, 2006:

Office furniture and equipment                   $ 23,000
Leasehold improvements                              2,000
                                                 --------
                                                   25,000
Accumulated depreciation and amortization         (12,000)
                                                 --------
                                                 $ 13,000
                                                 ========

Depreciation and amortization expense was $8,000 and $4,000 for the years ended
June 30, 2006 and June 30, 2005 respectively.


                                      F-13
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


4. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at June 30, 2006 consisted of the
following:

Accounts payable - trade                                      $  478,719
Professional fees and legal matters                              471,346
Payroll liabilities (includes delinquent payroll taxes and
   associated interest and penalties of $1,038,339)            1,353,632
Accrued interest                                                  74,640
Deferred rent payable                                             49,784
Other                                                             40,000
                                                              ----------
                                                              $2,468,121
                                                              ==========

5. Note Payable - CEO/stockholder

This amount represents a note payable to the Company's chief executive officer
and includes deferred salary of $409,903 and accrued interest of $147,933 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, 2006, the Company had borrowed approximately $614,000 under this
agreement.

7. Note Payable - Others

This amount represents notes payable to two individuals, 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-14
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


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 year ended
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 (See Note 12). 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


                                      F-15
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


10. Employment Agreements - continued:

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 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 (See Note 12).

11. Issuance of Securities

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.

During the year ended June 30, 2005, the Company issued the following
securities: The Company issued 1,364,781 shares of common stock to employees in
payment of $71,000 of accrued wages. The Company issued 727,500 shares of its
common stock to consultants in payment of consulting fees of $49,303. The
Company issued 544,500 shares of common stock to CCS's consultants in payment of
CCS's consulting fees of $63,725. The Company issued 300,000 shares of common
stock valued at $17,000 in connection with its borrowings of $175,000 from two
individuals. The Company issued 60,000 shares of its common stock valued at
$5,400 in connection with the settlement of a lawsuit against CCS. The Company
sold 1,938,270 shares of its common stock to an accredited investor for
$110,000.

12. Series C Preferred Stock

On March 18, 2005, the board of directors authorized a new series of preferred
stock, the series C preferred stock, consisting of 5,000,000 shares. Each share
of series C preferred stock is convertible into common stock on a share for
share basis 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.


                                      F-16
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


13. Stock Options

Stock Option Plans

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.

As of June 30, 2006, options to purchase 5,878,500 shares of common stock are
outstanding under the 2002 Plan.

As of July 3, 2003, the board of directors adopted the 2003 Stock Incentive Plan
(the "2003 Plan") which provided for the grant of non-qualified stock options to
purchase a maximum of 960,000 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, 2006, all 960,000 shares of
common stock covered have been issued under the 2003 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. As of June 30, 2006, options
to purchase 1,950,000 shares of common stock have been issued under this plan.

As of February 7, 2005, the board of directors adopted the 2005 Stock Incentive
Plan (the "2005 Plan") which provided for the grant of non-qualified stock
options to purchase a maximum of 4,500,000 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, 2006, 4,500,000
shares of common stock have been issued under the 2005 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. As of June 30, 2006, 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.

In addition, pursuant to employment agreements which the Company entered into
with its chief executive and chief financial officers, in March 2005, the
company granted options to purchase 33,000,000 shares of common stock at an
exercise price of $.0667 per share of common stock.

A summary of changes in common stock options during fiscal 2006 and 2005
follows:


                                      F-17
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


13. Stock Options - continued

Stock Option Plans - continued:

                                      Number of      Weighted Average
                                        Shares        Exercise Price
                                      ----------      --------------
Outstanding at June 30, 2004          10,828,500          $0.28
      Granted                         33,000,000           0.07
      Cancelled                               --             --
      Exercised                               --             --
                                      ----------          -----
Outstanding at June 30, 2005          43,828,500           0.12
      Granted                                 --             --
      Cancelled                               --             --
      Exercised                               --             --
                                      ----------          -----
Outstanding at June 30, 2006          43,828,500          $0.12
                                      ==========          =====

The following table summarizes information about stock options outstanding at
June 30, 2006:

                                   Weighted
                                    Average
                      Number       Remaining      Number
   Exercise        Outstanding    Contractual  Exercisable
    Price           6/30/2006    Life (Months)  6/30/2006
---------------    ----------    ------------- ----------
$         0.027       900,000            73       900,000
$         0.067    33,000,000           105    33,000,000
$         0.083     1,950,000            91     1,950,000
$         0.167     4,816,500            67     4,798,500
$         0.333       147,000            67       147,000
$         0.633        15,000            69        15,000
$         0.667     3,000,000            67            --
                   ----------    ----------    ----------
                   43,828,500            97    40,810,500
                   ==========    ==========    ==========

At June 30, 2006, there were 121,500 shares of common stock available under the
2002 Stock Plan. In addition, if outstanding options under either of the plans
are terminated or expire unexercised, the underlying shares are available under
the plan.

Other Option Grant

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. These options
vest upon achievement by the Company of $10,000,000 of annual revenues. Due to
the uncertainty of reaching the stipulated performance target, the Company has
not established a measurement date for the option. Upon determination that the
achievement of the revenue threshold is probable, the Company will value the
option on the measurement date using the intrinsic value method, and will record
the resulting charge, if any, over the remaining vesting period.


                                      F-18
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


14. Income Taxes

There was no income tax expense or benefit in fiscal 2006 and 2005 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,
                                                ---------------------------
                                                    2006            2005
                                                -----------     -----------
Federal tax at statutory rate                   $(1,037,000)    $(3,340,000)
State and local taxes, net of federal effect       (181,000)       (584,000)
Nondeductible items                                 214,000       1,617,000
Change in valuation allowance                     1,004,000       2,307,000
                                                -----------     -----------
Income taxes (tax benefit)                      $        --     $        --
                                                ===========     ===========


Components of deferred taxes are as follows:

                                        June 30,
                               ---------------------------
Deferred tax assets:               2006            2005
                               -----------     -----------
   Net operating losses        $ 3,768,000     $ 2,180,000
   Deferred rent payable            20,000          20,000
   Reserves and allowances         140,000          19,000
   Stock based compensation             --         395,000
   Deferred revenue                170,000         340,000
                               -----------     -----------
                                 4,098,000       2,954,000

Deferred tax liability                  --              --
                               -----------     -----------
                                 4,098,000       2,954,000
Less valuation allowance        (4,098,000)     (2,954,000)
                               -----------     -----------
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 $10,200,000 available
to offset future federal taxable income. These losses expire in 2022, 2023,
2024, 2025 and 2026.


                                      F-19
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


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 year ended June 30, 2006 the Company matched employees
contributions of $28,094 by issuing 674,933 shares if its common stock to the
plan. The Company did not make any contributions to the plan for the year ended
June 30, 2005.

16. Supplemental Disclosure of Cash Flow Information

                                                           Year Ended
                                                       --------------------
                                                             June 30,
                                                       --------------------
                                                         2006        2005
                                                       --------    --------

Cash paid during the period for:
     Interest                                          $141,749    $ 30,014
                                                       ========    ========
     Income taxes                                      $  1,487    $  2,774
                                                       ========    ========


Non-cash financing and investing activities:
     Common stock issued to settle accounts payable    $ 21,712    $ 23,303
                                                       ========    ========
     Accrued interest and deferred salary credited
        to loan payable - CEO/stockholder              $177,176    $136,882
                                                       ========    ========

17. Commitments and Contingencies

Litigation

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

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


                                      F-20
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


17. Commitments and Contingencies - continued:

Litigation - continued:


In March 2006, the District of Columbia filed a wage and hour claim on the
Company on behalf of a former employee alleging he is owed commissions on the
sales of equipment. The Company has denied the material allegations of the claim
and has raised affirmative defenses thereto and believes that it has valid
defenses to the claim. The case has been scheduled for trial to commence on
February 7, 2007.

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

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

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.

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 $1,115,000. Judgments have been rendered against CCS in these
matters in the approximate amount of $770,000. Although the Company is not a
party to any agreement with the plaintiff in any of these actions and has not
taken any action to guarantee these obligations, it is possible that the
plaintiffs may seek to make a claim against it. The Company believes that it has
no liability in any of these actions, and will vigorously defend any action
which seeks to impose liability upon it.

Although the Company has no contractual obligation with respect to any of the
obligations of CCS, and it believes that it has a valid defense to any claim
that it has any liability with respect to any potential liabilities or
obligations of CCS, two of CCS's creditors have made claims against it claiming
that it is a successor in interest to CCS and as


                                      F-21
<PAGE>

            Security Intelligence Technologies, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                   For the Years Ended June 30, 2006 and 2005


17. Commitments and Contingencies - continued:

Litigation - continued:

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.

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 of $49,784. Total rent expense for the years
ended June 30, 2006 and 2005 was approximately $369,586 and $320,118
respectively.

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

 Year ending
   June 30,    Amount
------------  --------

      2007    $282,000
      2008     276,000
      2009     218,000
      2010     153,000
      2011      60,000
Thereafter          --
              --------
              $989,000
              ========


                                      F-22