**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
        10-QSB/A**


Amendment
        No. 1


(Mark
      One)





[X]
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      quarterly period ended: September 30, 2006





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





For
      the
      transition period from _______to_______





Commission
      file number: 333-122113





**STRIKEFORCE
      TECHNOLOGIES, INC.**


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






**NEW
                JERSEY**
            **22-3827597**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)







**1090
      King Georges Post Road, Suite 108**


**Edison,
      NJ 08837**


(Address
      of principal executive offices)





**(732)
      661-9641**


(Issuer’s
      telephone number)





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





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





**APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**


**PROCEEDINGS
      DURING THE PRECEDING FIVE YEARS**





Check
      whether the registrant filed all documents and reports required to be filed
      by
      Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
      under a plan confirmed by a court.    Yes
      [ ]
      No [ ]




**APPLICABLE
        ONLY TO CORPORATE ISSUERS**
 
 State
        the
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of the latest practicable date: As of October 31, 2006, the issuer had
        29,198,780 outstanding shares of Common Stock.
 
 Transitional
        Small Business Disclosure Format (Check one): Yes [_] No [X]




Purpose
        of Amendment




The
        purpose of this Amendment No. 1 to the Quarterly
        Report on Form 10-QSB is to revise the introductory language to Item
        1.




This
        amended Form 10-QSB/A does not attempt to modify
        or update any other disclosures set forth in the original Form 10-QSB.
        Additionally, this amended Form 10-QSB/A speaks as of the filing date of
        the
        original Form 10-QSB and does not update or discuss any Company developments
        after the date of the original filing. All information contained in this
        amended
        Form 10-QSB/A and the original Form 10-QSB is subject to updating and
        supplementing as provided in the periodic reports that the Company has filed
        and
        will file after the original filing date with the Securities and Exchange
        Commission.









**Item
          1. Financial Statements**
 **STRIKEFORCE
          TECHNOLOGIES, INC.**
 **TABLE
          OF CONTENTS**
 **FOR
          THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**
 **(UNAUDITED)**
 
 Page
                    NumberBalance
                  sheet at September 30, 2006 and December 31,
                  2005 (Audited)
                F-2Statement
                    of operations for the three and nine
                    months ended September 30, 2006
                F-3Statement
                    of stockholders’ deficiency for the nine months endedSeptember
                    30, 2006
                F-4Statement
                  of cash flows for the nine months ended
                  September 30, 2006 and 2005
                F-5Notes
                  to financial statements
                F-6
                    - F-37
  
 
 
 F-1


**STRIKEFORCE
      TECHNOLOGIES, INC.**


**BALANCE
      SHEETS**




**ASSETS****September
                  30,**
              
              **December
                  31,****2006**
              
              **2005****(Unaudited)**
              
              **(Audited)****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              154,299
              
              $
              77,094Accounts
                  receivable, net
              
              
              51,539
              
              
              1,883Short-term
                  portion of deferred royalties
              
              
              303,834
              
              
              475,448Prepaid
                  expenses
              
              
              186,926
              
              
              63,920**Total
                  current assets**
              
              
              696,598
              
              
              618,345Property
                  and equipment, net
              
              
              37,279
              
              
              45,099Long-term
                  portion of deferred royalties
              
              
              1,797,686
              
              
              2,087,357Intangible
                  assets, net
              
              
              4,329
              
              
              4,329Security
                  deposit
              
              
              8,684
              
              
              8,684**Total
                  Assets**
              
              $
              2,544,576
              
              $
              2,763,814**LIABILITIES
                  AND STOCKHOLDERS' DEFICIENCY****Current
                  Liabilities:**Convertible
                  notes payable
              
              $
              158,000
              
              $
              33,000Convertible
                  notes payable - related parties
              
              
              478,000
              
              
              427,500Notes
                  payable
              
              
              250,000
              
              
              -Notes
                  payable - related parties
              
              
              629,000
              
              
              189,000Capital
                  leases payable
              
              
              43,460
              
              
              25,243Accounts
                  payable
              
              
              672,727
              
              
              205,654Accrued
                  expenses
              
              
              650,055
              
              
              166,186Payroll
                  taxes payable
              
              
              54,434
              
              
              58,175Due
                  to employees
              
              
              46,276
              
              
              32,122**Total
                  current liabilities**
              
              
              2,981,952
              
              
              1,136,880Secured
                  convertible notes payable
              
              
              1,168,779
              
              
              1,013,740Derivative
                  financial instrument
              
              
              1,342,632
              
              
              1,972,288Convertible
                  notes payable
              
              
              835,000
              
              
              510,000Long-term
                  portion of capital leases payable
              
              
              5,997
              
              
              26,383**Total
                  Liabilities**
              
              
              6,334,360
              
              
              4,659,291**Commitments
                  and contingencies****Stockholders'
                  Deficiency**Preferred
                  stock, par value $0.10 - 10,000,000 shares authorized,-0-
                  issued and outstanding
              
              
              -
              
              
              -Common
                  stock, par value $0.0001 - 100,000,000 sharesauthorized,
                  26,535,803 and 18,454,250 issued and outstanding,respectively
              
              
              2,654
              
              
              1,846Additional
                  paid-in capital
              
              
              8,824,294
              
              
              7,326,491Accumulated
                  deficit
              
              
              (12,616,732
              )
              
              (9,223,814
              )**Total
                  Stockholders' Deficiency**
              
              
              (3,789,784
              )
              
              (1,895,477
              )**Total
                  Liabilities and Stockholders' Deficiency**
              
              $
              2,544,576
              
              $
              2,763,814






See
      notes
      to the financial statements.




F-2
  **STRIKEFORCE
        TECHNOLOGIES, INC.**
 **STATEMENT
        OF OPERATIONS**
 **FOR
        THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND
        2005**
 **(UNAUDITED)**
  **For
                    the three months**
                
                **For
                    the nine months****ended
                    September 30,**
                
                **ended
                    September 30,****2006**
                
                **2005**
                
                **2006**
                
                **2005**Revenues
                
                $
                99,155
                
                $
                14,620
                
                $
                244,244
                
                $
                26,373Cost
                    of sales
                
                
                31,432
                
                
                4,169
                
                
                50,721
                
                
                8,425Gross
                    profit
                
                
                67,723
                
                
                10,451
                
                
                193,523
                
                
                17,948Operating
                    expenses:Selling,
                    general and administrative expenses
                
                
                706,489
                
                
                747,581
                
                
                2,921,100
                
                
                2,594,837Research
                    and development
                
                
                111,020
                
                
                89,303
                
                
                275,995
                
                
                263,767Total
                    operating expenses
                
                
                817,509
                
                
                836,884
                
                
                3,197,095
                
                
                2,858,604Loss
                    from operations before other (income) expense
                
                
                (749,786
                )
                
                (826,433
                )
                
                (3,003,572
                )
                
                (2,840,656
                )Other 
                    (income) expense:Interest
                    and financing expense
                
                
                339,865
                
                
                142,320
                
                
                766,720
                
                
                283,719Derivative
                    instrument (income) expense, net
                
                
                42,481
                
                
                585,595
                
                
                (377,374
                )
                
                832,363Total
                    other  (income) expense
                
                
                382,346
                
                
                727,915
                
                
                389,346
                
                
                1,116,082Net
                    loss
                
                $
                (1,132,132
                )
                $
                (1,554,348
                )
                $
                (3,392,918
                )
                $
                (3,956,738
                )Basic
                    and diluted loss per common share
                
                $
                (0.05
                )
                $
                (0.09
                )
                $
                (0.15
                )
                $
                (0.23
                )Weighted
                    average number of common shares outstanding
                
                
                24,669,084
                
                
                17,547,605
                
                
                22,134,823
                
                
                17,400,272




See
      notes
      to the financial statements.




F-3




**STRIKEFORCE
      TECHNOLOGIES, INC.**


**STATEMENT
      OF STOCKHOLDERS' DEFICIENCY**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2006**


**(UNAUDITED)**


Additional
              
              
              
              
              
              TotalCommon
                  Stock
              
              
              Paid-in
              
              
              Accumulated
              
              
              Stockholders'Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              DeficiencyBalance
                  at December 31, 2005
              
              
              18,454,250
              
              $
              1,846
              
              $
              7,326,491
              
              $
              (9,223,814
              )
              $
              (1,895,477
              )Sale
                  of units containing shares and warrants for cash
              
              
              817,101
              
              
              82
              
              
              191,918
              
              
              -
              
              
              192,000Issuance
                  of shares from conversions of notes payable and interest
              
              
              3,972,023
              
              
              397
              
              
              523,495
              
              
              
              
              
              523,892Issuance
                  of shares for consulting services
              
              
              1,184,429
              
              
              118
              
              
              276,366
              
              
              
              
              
              276,484Issuance
                  of shares for financing
              
              
              2,108,000
              
              
              211
              
              
              193,889
              
              
              
              
              
              194,100Issuance
                  of warrants in connection with convertible notes payable
              
              
              -
              
              
              -
              
              
              121,224
              
              
              -
              
              
              121,224Issuance
                  of warrants in connection with consulting services
              
              
              -
              
              
              -
              
              
              116,276
              
              
              -
              
              
              116,276Repricing
                  of warrants issued in connection with consulting services
              
              
              -
              
              
              -
              
              
              186,800
              
              
              -
              
              
              186,800Revaluation
                  of stock options granted for future royalties
              
              
              -
              
              
              -
              
              
              (218,186
              )
              
              -
              
              
              (218,186
              )Employee
                  stock option compensation
              
              
              -
              
              
              -
              
              
              106,021
              
              
              -
              
              
              106,021Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,392,918
              )
              
              (3,392,918
              )Balance
                  at September 30,2006
              
              
              26,535,803
              
              $
              2,654
              
              $
              8,824,294
              
              $
              (12,616,732
              )
              $
              (3,789,784
              )






See
      notes to the financial statements.




F-4




**STRIKEFORCE
        TECHNOLOGIES, INC.**
 **STATEMENT
        OF CASH FLOWS**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**
 **(UNAUDITED)**


**2006**
              
              **2005****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (3,392,918
              )
              $
              (3,956,738
              )Adjustments
                  to reconcile net loss to netcash provided used in operating activities:Depreciation and amortization
              
              
              17,925
              
              
              19,983Amortization of deferred financing costs
              
              
              124,441
              
              
              105,950Professional fees through issuance of common stock, options and
                  warrants
              
              
              582,179
              
              
              196,410Amortization of discount on convertible notes
              
              
              426,649
              
              
              100,145Royalty expense paid through issuance of stock options
              
              
              243,099
              
              
              363,825Mark to market on derivative financial instrument expense
              
              
              (377,374
              )
              
              832,363Employee stock option compensation
              
              
              106,021
              
              
              -Financing expense paid through issuance of common stock and
                  warrants
              
              
              28,000
              
              
              136,937Changes
                  in assets and liabilities affecting operations:Accounts and other receivable, net
              
              
              (49,656
              )
              
              1,187Prepaid expenses
              
              
              857
              
              
              (378
              )Accounts payable
              
              
              467,073
              
              
              77,617Accrued expenses
              
              
              520,269
              
              
              61,502Payroll taxes payable
              
              
              (3,741
              )
              
              (7,417
              )Due to employees
              
              
              14,154
              
              
              3,601**Net
                  cash used in operating activities**
              
              
              (1,293,022
              )
              
              (2,065,013
              )**Cash
                  flows from investing activities:**Investment in website
              
              
              (4,830
              )
              
              -Purchases of property and equipment
              
              
              (5,275
              )
              
              (27,724
              )**Net
                  cash used in investing activities**
              
              
              (10,105
              )
              
              (27,724
              )**Cash
                  flows from financing activities:**Proceeds from sale of common stock and warrants
              
              
              192,000
              
              
              175,050Proceeds from convertible notes payable
              
              
              450,000
              
              
              1,920,000Proceeds from convertible notes payable - related parties
              
              
              113,000
              
              
              -Proceeds from notes payable
              
              
              250,000
              
              
              -Proceeds from notes payable - related parties
              
              
              447,000
              
              
              -Payments on convertible notes payable
              
              
              -
              
              
              (12,500
              )Payments on convertible notes payable - related parties
              
              
              (62,500
              )
              
              -Payments on notes payable - related parties
              
              
              (7,000
              )
              
              -Principal payments for capital leases
              
              
              (2,168
              )
              
              (16,464
              )**Net
                  cash provided by financing activities**
              
              
              1,380,332
              
              
              2,066,086**Net
                  (decrease) increase in cash**
              
              
              77,205
              
              
              (26,651
              )**Cash,
                  beginning of period**
              
              
              77,094
              
              
              103,745**Cash,
                  end of period**
              
              $
              154,299
              
              $
              77,094**Supplemental
                  disclosure of cash flow information:**Interest expense
              
              $
              27,926
              
              $
              18,786Income taxes
              
              $
              -
              
              $
              -**Supplemental
                  schedule of non-cash activities:**Revaluation of stock options issued for deferred royalties
              
              $
              218,186
              
              $
              945,319Shares issued in connection with notes payable
              
              $
              166,100
              
              $
              3,958Warrants issued in connection with notes payable
              
              $
              121,222
              
              $
              -Common stock issued in connection with deferred consulting
                  fees
              
              $
              25,200
              
              $
              -Conversion of convertible promissory notes payableinto common stock
              
              $
              271,610
              
              $
              -Issuance of common stock for accrued services
              
              $
              36,400
              
              $
              -Financing cost related to beneficial conversionvalue of secured debenture
              
              $
              -
              
              $
              349,969Convertible note issued for consulting services
              
              $
              -
              
              $
              33,000Accrued interest converted into convertible note
              
              $
              -
              
              $
              24,876




See
      notes
      to the financial statements.




F-5


**STRIKEFORCE
        TECHNOLOGIES, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**




**NOTE
            1 -**  **NATURE
            OF OPERATIONS**
  StrikeForce
            Technical Services Corporation was incorporated in the state of New Jersey,
            in
            August 2001. On September 3, 2004, the shareholders approved an amendment
            to the
            Certificate of Incorporation to change the name from StrikeForce Technical
            Services Corporation to StrikeForce Technologies, Inc. (the “Company”). Prior to
            December 2002, the Company was a reseller of computer hardware, software
            products, and telecommunications equipment and services. In December
            2002, the
            Company began to acquire the rights to intangible technology, which upon
            the
            consummation changed the direction of the Company’s business. The Company is a
            software development and services company. The Company owns the exclusive
            right
            to license and develop various identification protection software products
            that
            were developed to protect computer networks from unauthorized access
            and to
            protect network owners and users from identity theft. The Company has
            developed
            a suite of products based upon the licenses and the Company is seeking
            to
            commercially exploit the products in the areas of eCommerce, corporate,
            government and consumer sectors. The technology developed by the Company
            and
            used in the Company’s ProtectIDTM and GuardedID® products is the subject of two
            pending patent applications. The Company’s firewall product, which is in the
            research and design phase, is the subject of a pending provisional patent
            application. A fourth patent application relating to the Company’s ProtectIDTM
product was combined into the first ProtectIDTM pending patent application and
            was allowed to lapse. The Company’s operations are based in Edison,
            NJ.
 
 **NOTE
            2 -**  **SUMMARY
            OF SIGNIFICANT ACCOUNTING POLICIES**
  a)
                  Interim
                      period
  The
            accompanying unaudited financial statements have been prepared in accordance
            with accounting principles generally accepted in the United States of
            America
            for interim financial information, the instructions to Form 10-QSB and
            Items 303
            and 310(B) of Regulation S-B. In the opinion of management, the unaudited
            financial statements have been prepared on the same basis as the annual
            financial statements and reflect all adjustments, which include only
            normal
            recurring adjustments, necessary to present fairly the financial position
            as of
            September 30, 2006, the results of operations for the three and nine
            months
            ended September 30, 2006, and changes in stockholders’ equity and cash flows for
            the nine months ended September 30, 2006. The results for the nine months
            ended
            September 30, 2006, are not necessarily indicative of the results to
            be expected
            for any subsequent quarter or the entire fiscal year ending December
            31,
            2006.
  Certain
            information and footnote disclosures normally included in financial statements
            prepared in accordance with accounting principles generally accepted
            in the
            United States of America have been condensed or omitted pursuant to the
            Securities and Exchange Commission’s (“SEC”) rules and regulations.
  These
            unaudited financial statements should be read in conjunction with the
            Company’s
            audited financial statements and notes thereto for the year ended December
            31,
            2005 as included in the Company’s report on Form 10-KSB/A as amended and filed
            on June 7, 2006.
  b)
                  Income
                      taxes
  The
            Company accounts for income taxes in accordance with the “liability method” of
            accounting for income taxes. Accordingly, deferred tax assets and liabilities
            are determined based on the difference between the financial statement
            and tax
            bases of assets and liabilities, using enacted tax rates in effect for
 
 F-6
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 
 **NOTE
            2 -**  **SUMMARY
            OF SIGNIFICANT ACCOUNTING POLICIES - (cont’d)**
  b)
                  Income
                      taxes - (cont’d)
  the
            year
            in which the differences are expected to reverse. Current income taxes
            are based
            on the respective periods’ taxable income for federal and state income tax
            reporting purposes.
  c)
                  Revenue
                      recognition
  The
            Company’s revenues are derived principally from the sale and installation of
            its
            various identification protection software products and related hardware
            and
            services. The Company recognizes revenue when it is realized or realizable
            and
            earned. The Company considers revenue realized or realizable and earned
            when it
            has persuasive evidence of an arrangement, that the product has been
            shipped or
            the services have been provided to the customer, that the sales price
            is fixed
            or determinable, and collectibility is reasonably assured. The Company
            reduces
            revenue for estimated customer returns. In addition to the aforementioned
            general policy, the following are the specific revenue recognition policies
            for
            each major category of revenue:
  Hardware
            - Revenue from hardware sales is recognized when the product is shipped
            to the
            customer and there are either no unfulfilled company obligations or any
            obligations that will not affect the customer's final acceptance of the
            arrangement. Any cost of these obligations is accrued when the corresponding
            revenue is recognized. For the nine months ended September 30, 2006 and
            2005,
            total hardware revenues for products shipped or delivered were $78,470
            (which
            was 32% of total revenues) and $7,929 (which was 30% of total revenues),
            respectively. There were no revenues from fixed price long-term
            contracts.
  Software
            - Revenue from delivered elements of one-time charge licensed software
            is
            recognized at the inception of the license term, provided the Company
            has
            vendor-specific objective evidence of the fair value of each delivered element.
            Revenue is deferred for undelivered elements. The
            Company recognizes revenue from the sale of software licenses when persuasive
            evidence of an arrangement exists, the product has been delivered, the
            fee is
            fixed and determinable, and collection of the resulting receivable is
            reasonably
            assured. Delivery generally occurs when the product is delivered to a
            common
            carrier. The Company assesses collection based on a number of factors,
            including
            past transaction history with the customer and the creditworthiness of
            the
            customer. The Company does not request collateral from customers. If
            the Company
            determines that collection of a fee is not reasonably assured, the Company
            defers the fee and recognizes revenue at the time collection becomes
            reasonably
            assured, which is generally upon receipt of cash.  Revenue
            from monthly software licenses is recognized on a subscription basis.
            For the
            nine months ended September 30, 2006 and 2005, total software revenues
            for
            software shipped or delivered were $17,625 (which was 7% of total revenues)
            and
            $5,500 (which was 21% of total revenues), respectively.
  Services
            - Revenue from time and service contracts is recognized as the services
            are
            provided. The Company offers an Application Service Provider hosted service
            whereby customer usage transactions are invoiced monthly on a cost per
            transaction basis. The service is sold via the execution of a Customer
            Agreement
            between the Company and the Company’s end user. Initial set-up fees are
            recognized upon completion of service. For
            the
            nine months ended September 30, 2006 and 2005, total revenues for services
            provided were $148,149 (which was 61% of total revenues) and $12,944
            (which was
            49% of total revenues), respectively.
 
 F-7
 **STRIKEFORCE
                TECHNOLOGIES, INC.**
 **NOTES
                TO FINANCIAL STATEMENTS**
 **FOR
                THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 
 **NOTE
            2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont’d)**
  c)
                  Revenue
                      recognition - (cont’d)
  Revenue
            from fixed price long-term service contracts is recognized over the contract
            term based on the percentage of services that are provided during the
            period
            compared with the total estimated services to be provided over the entire
            contract. Losses on fixed price contracts are recognized during the period
            in
            which the loss first becomes apparent. Revenue from maintenance is recognized
            over the contractual period or as the services are performed. Revenue
            in excess
            of billings on service contracts is recorded as unbilled receivables
            and is
            included in trade accounts receivable. Billings in excess of revenue
            that is
            recognized on service contracts are recorded as deferred income until
            the
            aforementioned revenue recognition criteria are met.
  d)
                  Software
                      development costs
  Statement
            of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of
            Computer Software to be Sold, Leased, or Otherwise Marketed”, requires
            capitalization of software development costs incurred subsequent to
            establishment of technological feasibility and prior to the availability
            of the
            product for general release to customers. Systematic amortization of
            capitalized
            costs begins when a product is available for general release to customers
            and is
            computed on a product-by-product basis at a rate not less than straight-line
            basis over the product’s remaining estimated economic life. To date, all costs
            have been accounted for as research and development costs and no software
            development cost has been capitalized. Total research and development
            costs for
            the nine months ended September 30, 2006 and 2005 were $275,995 and $263,767,
            respectively.
  Management
            will evaluate the net realizable value of software costs capitalized
            by
            comparing estimated future gross revenues reduced by the estimated future
            costs
            of completing, disposing of and maintaining the software. These costs
            also
            include the costs of performing maintenance and customer support required
            by the
            Company.
  e)
                  Loss
                      per common share
  Loss
            per
            common share is computed pursuant to SFAS No. 128, “Earnings Per Share”. Basic
            loss per share is computed as net income (loss) available to common shareholders
            divided by the weighted average number of common shares outstanding for
            the
            period. Diluted loss per share reflects the potential dilution that could
            occur
            from common shares issuable through stock options, warrants, and convertible
            debt. As of September 30, 2006 and 2005, options and warrants were excluded
            from
            the diluted loss per share computation, as their effect would be
            anti-dilutive.
  f)
                  New
                      accounting pronouncements
  In
            February 2006, the FASB issued SFAS 155 - "Accounting for Certain Hybrid
            Financial Instruments-- an amendment of FASB Statements No. 133 and 140."
            This
            Statement amends FASB Statements No. 133, "Accounting for Derivative
            Instruments
            and Hedging Activities", and No. 140, "Accounting for Transfers and Servicing
            of
            Financial Assets and Extinguishments of Liabilities". This Statement
            resolves
            issues addressed in Statement 133 Implementation Issue No. D1, "Application
            of
            Statement 133 to Beneficial Interests in Securitized Financial Assets."
            This
            Statement:
  a.
            Permits fair value remeasurement for any hybrid financial instrument
            that
            contains an embedded derivative that otherwise would require
            bifurcation.
  F-8
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
   **NOTE
            2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont’d)**
  f)
                  New
                      accounting pronouncements -
                      (cont’d)
  b.
            Clarifies which interest-only strips and principal-only strips are not
            subject
            to the requirements of Statement 133.
  c.
            Establishes a requirement to evaluate interests in securitized financial
            assets
            to identify interests that are freestanding derivatives or that are hybrid
            financial instruments that contain an embedded derivative requiring
            bifurcation.
  d.
            Clarifies that concentrations of credit risk in the form of subordination
            are
            not embedded derivatives.
  e.
            Amends
            Statement 140 to eliminate the prohibition on a qualifying special-purpose
            entity from holding a derivative financial instrument that pertains to
            a
            beneficial interest other than another derivative financial
            instrument.
  This
            Statement is effective for all financial instruments acquired or issued
            after
            the beginning of the Company’s first fiscal year that begins after September 15,
            2006. The fair value election provided for in paragraph 4(c) of this
            Statement
            may also be applied upon adoption of this Statement for hybrid financial
            instruments that had been bifurcated under paragraph 12 of Statement
            133 prior
            to the adoption of this Statement. Earlier adoption is permitted as of
            the
            beginning of the Company’s fiscal year, provided the Company has not yet issued
            financial statements, including financial statements for any interim
            period, for
            that fiscal year. Provisions of this Statement may be applied to instruments
            that the Company holds at the date of adoption on an instrument-by-instrument
            basis.
  The
            Company does not believe that any other of the recently issued and adopted,
            but
            not yet effective, accounting standards would have a material effect
            on the
            accompanying financial statements.
  g)
                  Reclassification
  Certain
            amounts in the prior period financial statements have been reclassified
            to
            conform to the current period presentation.
  h)
                  Discount
                      on debt
  The
            Company has allocated the proceeds received from convertible debt instruments
            between the underlying debt instruments and has recorded the conversion
            feature
            as a liability in accordance with SFAS No. 133, “Accounting for Derivative
            Instruments and Hedging Activities” (“SFAS 133”) and related interpretations.
            The conversion feature and certain other features that are considered
            embedded
            derivative instruments, such as a conversion reset provision, a penalty
            provision and redemption option, have been recorded at their fair value
            within
            the terms of SFAS No. 133 as its fair value can be separated from the
            convertible note and its conversion is independent of the underlying
            note value.
            The conversion liability is marked to market each reporting period with
            the
            resulting gains or losses shown on the Statement of Operations. The Company
            has
            also recorded the resulting discount on debt related to the warrants
            and
            conversion feature and is amortizing the discount using the effective
            interest
            rate method over the life of the debt instruments.
 
 F-9
  **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 
 **NOTE
            2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont’d)**
  i)
                  Derivatives
  The
            Company accounts for derivatives in accordance with SFAS No. 133, “Accounting
            for Derivative Instruments and Hedging Activities” (“SFAS 133”) and the related
            interpretations. SFAS 133, as amended, requires companies to recognize
            all
            derivative instruments as either assets or liabilities in the balance
            sheet at
            fair value. The accounting for changes in the fair value of a derivative
            instrument depends on: (i) whether the derivative has been designated
            and
            qualifies as part of a hedging relationship, and (ii) the type of hedging
            relationship. For those derivative instruments that are designated and
            qualify
            as hedging instruments, a company must designate the hedging instrument
            based
            upon the exposure being hedged as either a fair value hedge, cash flow
            hedge or
            hedge of a net investment in a foreign operation. At December 31, 2005,
            the
            Company had not entered into any transactions which were considered hedges
            under
            SFAS 133.
  j)
                  Financial
                      instruments
  The
            Company evaluates its convertible debt, options, warrants or other contracts
            to
            determine if those contracts or embedded components of those contracts
            qualify
            as derivatives to be separately accounted for under Statement of Financial
            Accounting Standards 133 "Accounting for Derivative Instruments and Hedging
            Activities" and related interpretations including EITF 00-19 "Accounting
            for
            Derivative Financial Instruments Indexed to, and Potentially Settled
            in, a
            Company's Own Stock". The result of this accounting treatment is that
            the fair
            value of the embedded derivative is marked-to-market each balance sheet
            date and
            recorded as a liability. In the event that the fair value is recorded
            as a
            liability, the change in fair value is recorded in the statement of operations
            as other income or expense. Upon conversion or exercise of a derivative
            instrument, the instrument is marked to fair value at the conversion
            date and
            then that fair value is reclassified to equity.
  In
            circumstances where the embedded conversion option in a convertible instrument
            is required to be bifurcated and there are also other embedded derivative
            instruments in the convertible instrument that are required to be bifurcated,
            the bifurcated derivative instruments are accounted for as a single,
            compound
            derivative instrument.
  The
            classification of derivative instruments, including whether such instruments
            should be recorded as liabilities or as equity, is re-assessed at the
            end of
            each reporting period. Equity instruments that are initially classified
            as
            equity that become subject to reclassification under SFAS 133 are reclassified
            to liability at the fair value of the instrument on the reclassification
            date.
            Derivative instrument liabilities are classified in the balance sheet
            as current
            or non-current based on whether or not net-cash settlement of the derivative
            instrument is expected within 12 months of the balance sheet date.
  The
            fair
            value model utilized to value the various compound embedded derivatives
            in the
            secured convertible notes comprises multiple probability-weighted scenarios
            under various assumptions reflecting the economics of the secured convertible
            notes, such as the risk-free interest rate, expected Company stock price
            and
            volatility, likelihood of conversion and or redemption, and likelihood
            of
            default status and timely registration. At inception, the fair value
            of the
            single compound embedded derivative was bifurcated from the host debt
            contract
            and recorded as a derivative liability which resulted in a reduction
            of the
            initial notional carrying amount of the secured convertible notes (as
            unamortized discount which will be amortized over the term of the notes
            under
            the effective interest method).
 
 F-10
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 
 **NOTE
            3 -**  **STOCK
            BASED COMPENSATION**
  The
            Company has one equity compensation plan for employees. The plan authorizes
            the
            granting of stock options consistent with the purpose of the plan (see
            Note 21
            to the Company’s consolidated financial statements included in the 2005 Annual
            Report). The number of shares authorized for issuance under the Company’s plan
            as of September 30, 2006 was increased to 10,000,000 in September 2006
            by
            unanimous board consent. Of the total authorized for issuance at September
            30,
            2006, 3,655,447 shares were available for future issuance. Stock options
            granted
            under the plan are typically granted with an exercise price equal to
            the market
            price of the Company’s stock at the date of grant. Options also generally vest
            over a period of three years with respect to grants made to employees.
            Options
            typically expire ten years from the date of grant.
  Prior
            to
            January 1, 2006, the Company accounted for its stock based compensation
            under
            the recognition and measurement principles of Accounting Principles Board
            (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related
            interpretations, the disclosure-only provisions of SFAS No. 123, “Accounting for
            Stock-Based Compensation” and the disclosures required by SFAS No. 148,
“Accounting for Stock-Based Compensation-Transition and Disclosure.” In
            accordance with APB Opinion No. 25, no stock-based compensation cost
            was
            reflected in the Company’s prior year net income for grants of stock options to
            employees because the Company granted stock options with an exercise
            price equal
            to the market value of the stock on the date of grant.
  Had
            the
            Company used the fair value based accounting method for stock compensation
            expense prescribed by SFAS Nos. 123 and 148 for the period ended September
            30,
            2005, the Company’s consolidated net loss and net loss per share would have
            been reduced to the pro-forma amounts illustrated as follows:
 
 ******2005**Net
                      loss, as reported
                  
                  $
                  (3,956,738
                  )Stock
                      based compensation (benefits) cost included in the determination
                      of net
                      income as reported
                  
                  
                  196,410Stock-based
                      compensation cost determined under the fair value method
                  
                  
                  (327,467
                  )Pro
                      forma net loss
                  
                  $
                  (4,087,795
                  )Net
                      loss per share:Basic
                    and diluted - as reported
                  
                  $
                  (0.23
                  )Basic
                      and diluted - pro forma
                  
                  $
                  (0.23
                  )
  Effective
            January 1, 2006, the Company adopted the fair value recognition provisions
            of
            SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) using the
            modified prospective method. Under this method, compensation cost in
            the first
            quarter of 2006 includes the portion vesting in the period for (1) all
            share-based payments granted prior to, but not vested as of January 1,
            2006,
            based on the grant date fair value estimated in accordance with the original
            provisions of SFAS No. 123 and (2) all share-based payments granted subsequent
            to January 1, 2006, based on the grant date fair value estimated in accordance
            with the revised provisions of SFAS 123R. Before adoption of SFAS No.
            123R, pro
            forma
 
 F-11
  **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 
 **NOTE
            3 - STOCK BASED COMPENSATION - (cont’d)**
  disclosures
            reflected the fair value of each option grant estimated on the date of
            grant
            using the Black-Scholes option-pricing model with the following weighted-average
            assumptions:
   **2006**
                  **2005**Risk-free
                      interest rate
                  3.1%
                      - 5.2%
                  3.1%
                      - 4.7%Dividend
                      yield
                  0.00%
                  0.00%Expected
                      volatility
                  6%
                      - 169%
                  6%
                      - 17%Expected
                      option life
                  5
                      -
                      10 years
                  5
                      - 10
                      years
 
  The
            expected life of the options has been determined using the simplified
            method as
            prescribed in SEC Staff Accounting Bulletin No. 107 (“SAB 107”). Results of
            prior periods do not reflect any restated amounts and the Company had
            no
            cumulative effect adjustment upon adoption of SFAS No. 123R under the
            modified
            prospective method. The Company’s policy is to recognize compensation cost for
            awards with only service conditions and a graded vesting schedule on
            a
            straight-line basis over the requisite service period for the entire
            award.
            Additionally, the Company’s policy is to issue new shares of common stock to
            satisfy stock option exercises.
  The
            adoption of SFAS No. 123R decreased the Company’s third quarter and nine months
            ended 2006 reported operating income and net income by $35,979 and $106,021,
            respectively. The
            expense is classified as selling, general and administrative expense
            on the
            statement of operations.
  The
            fair
            value of each option award is estimated on the date of grant using a
            Black-Scholes option-pricing valuation model. The ranges of assumptions
            for
            inputs shown in the table above for 2006 are as follows:
 
 ·
                  The
                      expected volatility is based on a combination of the historical
                      volatility
                      of the Company’s and comparable companies’ stock over the contractual life
                      of the options.
 
 ·
                  The
                      Company uses historical data to estimate employee termination
                      behavior.
                      The expected life of options granted is derived from SAB 107
                      and
                      represents the period of time the options are expected to be
                      outstanding.
 
 ·
                  The
                      risk-free interest rate is based on the U.S. Treasury yield
                      curve in
                      effect at the time of grant for periods within the contractual
                      life of the
                      option.
 
 ·
                  The
                      expected dividend yield is based on the Company’s current dividend yield
                      as the best estimate of projected dividend yield for periods
                      within the
                      contractual life of the option.
  2004
            Equity Incentive Plan
  The
            shareholders approved the 2004 Equity Incentive Plan (“Incentive Plan”) in
            September 2004. The Incentive Plan is effective April 1, 2004. Officers
            and key
            employees, who in the judgment of the Company render significant service
            to the
            Company, are eligible to participate. The Incentive Plan provides for
            the award
            of a broad variety of stock-based compensation alternatives such as
            non-qualified stock options, incentive stock options, restricted stock,
            performance awards and stock appreciation rights. The Incentive Plan
            provides
            10,000,000 shares of common stock to be offered from either authorized
            and
  F-12
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
   **NOTE
            3 - STOCK BASED COMPENSATION - (cont’d)**
  2004
            Equity Incentive Plan - (cont’d)
  unissued
            shares or issued shares, which have been reacquired by the Company. Option
            shares totaling 4,605,000 vest equally over a three year period beginning
            one-year from the grant and option shares totaling 1,739,553 vest over
            a
            one-year period from the grant date.
  As
            of
            September 30, 2006, an aggregate of 6,344,553 options were outstanding
            under the
            Incentive Plan. The exercise price for 1,830,000 options is $1.00, for
            2,775,000
            options is $0.10, for 348,096 options is $0.099, for 405,432 options
            is $0.085,
            for 492,309 options is $0.07 and for 493,716 options is $0.0698. As of
            December
            31, 2005, an aggregate of 1,830,000 options were outstanding under the
            Incentive
            Plan. The exercise price for all these options is $1.00.
  Non-Incentive
            Plan Stock Option Grants
  As
            of
            September 30, 2006 and December 31, 2005, the Company had outstanding
            an
            aggregate of 7,618,889 non-plan, non-qualified options for non-employees
            and no
            outstanding incentive options outside of the Plan.
  The
            table
            below summaries the Company’s stock option activity for the quarter ended
            September 30, 2006:
   Non-PlanIncentive
                  
                  Non-Qualified
                  
                  Non-QualifiedOptions
                  
                  Options
                  
                  Options
                  
                  TotalOutstanding
                      at December 31, 2005
                  
                  
                  -
                  
                  
                  6,344,553
                  
                  
                  7,618,889
                  
                  
                  13,963,442Granted
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Forfeited
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Outstanding
                      at September 30, 2006
                  
                  
                  -
                  
                  
                  6,344,553
                  
                  
                  7,618,889
                  
                  
                  13,963,442Vesting
                      Schedule:Vested
                      at December 31, 2005
                  
                  
                  -
                  
                  
                  1,382,083
                  
                  
                  6,651,270
                  
                  
                  8,033,353September
                      30, 2006
                  
                  
                  -
                  
                  
                  603,019
                  
                  
                  967,619
                  
                  
                  1,570,638
  At
            September 30, 2006, there were 13,963,442 stock options outstanding of
            which
            1,830,000 options were exercisable at an exercise price of $1.00, 2,775,000
            options were exercisable at an exercise price of $0.10, 348,096 options
            were
            exercisable at an exercise price of $0.099, 405,432 options were exercisable
            at
            an exercise price of $0.085, 492,309 options were exercisable at an exercise
            price of $0.07 and 493,716 options were exercisable at an exercise price
            of
            $0.0698, 7,600,000 options were exercisable at $0.36 and 18,889 options
            were
            exercisable at $0.90. At December 31, 2005, there were 9,448,889 stock
            options
            outstanding of which 1,830,000 options were exercisable at an exercise
            price of
            $1.00, 7,600,000 options were exercisable at $0.36 and 18,889 options
            were
            exercisable at $0.90. At December 31, 2005, there were 8,033,353 vested
            options
            outstanding of which 1,382,083 options are exercisable at an exercise
            price of
            $1.00, 6,632,381 options are exercisable at $0.36 and 18,889 options
            are
            exercisable at $0.90. At September 30, 2006, there were 9,603,991 vested
            options
            outstanding of which 1,651,528 options are exercisable at an exercise
            price of
            $1.00, 189,582 options are exercisable at $0.10, 28,037 options are exercisable
            at $0.099, 33,786 options are exercisable at $0.085, 41,026 options are
  F-13
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
            3 - STOCK BASED COMPENSATION - (cont’d)**
  Non-Incentive
            Plan Stock Option Grants - (cont’d)
  exercisable
            at $0.07, 41,143 options are exercisable at $0.0698, 7,600,000 options
            are
            exercisable at $0.36 and 18,889 options are exercisable at $0.90.
  As
            of
            September 30, 2006, there was $393,769 of total unrecognized compensation
            cost
            related to unvested share-based compensation arrangements that is expected
            to be
            recognized over a weighted-average period of 16 months.
 
 **NOTE
            4 -**  **GOING
            CONCERN**
  The
            accompanying financial statements have been prepared assuming that the
            Company
            will continue as a going concern, which contemplates continuity of operations,
            realization of assets, and liquidation of liabilities in the normal course
            of
            business. At September 30, 2006, the Company's accumulated deficit was
            $12,616,732, its working capital deficiency was $2,285,354 and approximately
            83%
            of its assets consist of
            deferred royalties. In addition, the Company had net losses of $3,392,918
            and
            $3,956,738 for the nine months ended September 30, 2006 and 2005,
            respectively.
  The
            Company has
            issued three-year and two-year secured debentures in 2004 and 2005 that
            are
            convertible into shares of the Company’s common stock to Cornell and Highgate,
            respectively. Under the terms of the secured debentures, we are restricted
            in
            our ability to issue additional securities as long as any portion of
            the
            principal or interest on the secured debentures remains outstanding.
  Currently,
            the Company is aggressively attempting to increase revenues and improve
            profit
            margins by implementing a revised sales strategy. In principle, the Company
            is
            redirecting its sales focus from direct sales to companies using an internal
            sales force, to selling through a distribution channel of Value Added
            Resellers
            and Original Equipment Manufacturers. The profit margin for this approach
            is
            more lucrative than selling direct due to the increase in sales volume.
            This
            revised sales approach should increase the Company’s sales and revenues in order
            to mitigate future losses. In addition, management has raised funds through
            convertible debt instruments and the sale of equity in order to alleviate
            the
            working capital deficiency. Through the utilization of the public capital
            markets, the Company plans to raise the funds necessary to continue,
            expand and
            enhance its growth, however, there can be no assurance that this will
            be able to
            increase revenues or raise additional capital. In
            December 2005 and March 2006 (see Note 15), the Company engaged the services
            of
            two consulting firms in order for the Company to obtain additional funding.
  The
            Company intends to utilize the funding obtained in order to cover the
            monthly
            burn and maintain operations. In May 2006, the Company has executed a
            term sheet
            with an investor in the amount of $1 million which shall enable the Company
            to
            sustain operations. As of September 30, 2006 the Company did not conclude
            the
            transaction with the investor. The Company is currently in negotiations
            with
            other investors to conclude the necessary working capital needs of the
            Company.
  These
            factors raise substantial doubt about the Company’s ability to continue as a
            going concern. The financial statements do not include adjustments relating
            to
            the recoverability and realization of assets and classification of liabilities
            that might be necessary should the Company be unable to continue in
            operation.
 
 
 F-14
 
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
   **NOTE
            5 -** **DEFERRED
            ROYALTIES**
  Deferred
            royalties were derived from a royalty agreement with NetLabs.Com, Inc.
            (“NetLabs”).
  On
            September 11, 2003, the Company signed an Agreement with NetLabs. The
            Agreement
            required the Company to pay NetLabs a royalty of 10% of the net revenues
            received by the Company on sales of the software products, as defined
            in the
            Agreement. The royalties would apply to net revenues received during
            a period of
            five years beginning September 11, 2003 and continuing through August
            31, 2008.
            The Agreement was amended on September 2, 2004 and made effective as
            of its
            original effective date to extend the royalty period from five years
            to ten
            years, through August 31, 2013. In February 2006, the Agreement was further
            amended in order to provide clarity to the original Agreement by revising
            its
            title to “Royalty Agreement” whereby NetLabs has taken all measures required to
            provide the Company with the exclusive rights to the intellectual property
            related to the patents pending for its “Out-of-Band” technology and firewall
            solutions, while clarifying that NetLabs still retains ownership.
  On
            December 2, 2004, as a condition to the Company obtaining additional
            financing,
            the Company and NetLabs agreed to replace the cash royalty provisions
            of the
            Agreement. The Company and NetLabs agreed, that NetLabs would instead
            be issued,
            as advance royalties, options to purchase 7,600,000 shares of the Company’s
            common stock at a price of $0.36 per share to vest as follows: 2,530,000
            shares
            at September 11, 2004, 2,530,000 shares at September 11, 2005 and 2,540,000
            shares at September 11, 2006. The fair values for these options are measured
            at
            the end of each reporting period and are fixed at each vesting date using
            the
            Black-Scholes Option Pricing Model. The fair value of the unvested options
            (as
            of September 30, 2006) were measured using the same assumptions as used
            in the
            first quarter of 2006, since those assumptions are considered indicative
            of a
            non-temporary change in the market value of the Company’s common
            stock.
  As
            of
            September 30, 2006 the options to purchase 2,530,000 shares that vested
            at
            September 11, 2004 are valued (as fixed) at $1,066,395, the options to
            purchase
            2,530,000 shares that vested at September 11, 2005 are valued (as fixed)
            at
            $1,529,132, and the options to purchase the final 2,540,000 shares (which
            vested
            on September 11, 2006) are valued at September 30, 2006 at $264,160.
            The total
            value of the deferred royalties, net of accumulated amortization of $758,166,
            is
            $2,101,521. The deferred royalties are being amortized over the term
            of the
            original NetLabs Agreement (10 years) which will terminate on August
            31, 2013.
            For the nine months ended September 30, 2006 and 2005, $243,098 and $363,825
            of
            royalties were expensed, respectively, $303,834 was classified as short-term
            deferred royalties and the remainder of $1,797,686 was classified as
            long-term
            deferred royalties on the balance sheet at September 30, 2006. Measurement
            is
            based upon the Black-Scholes Model using the following assumptions:
 
  December
                      31, 2005
                  September
                      30, 2006Market
                      share price
                  $0.90
                  $0.12Expected
                      volatility
                  29.00%
                  152.00%Risk-free
                      interest rate
                  4.35%
                  4.96%Expected
                      life
                  5
                      years
                  5
                      years
 
 
 
 F-15
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 
 **NOTE
            6 - ACCRUED EXPENSES**
  Accrued
            expenses consist of the following at September 30, 2006:
 
 Interest
                  
                  $
                  197,554Commitment
                      fees
                  
                  
                  32,697Professional
                      Fees
                  
                  
                  153,146Other
                  
                  
                  266,658Total
                      accrued expenses
                  
                  $
                  650,055
 
 **NOTE
            7 -**  **SECURED
            CONVERTIBLE NOTES PAYABLE**
  On
            April
            27, 2005, the Company entered into an amended and restated 8% secured
            convertible debenture with Cornell (“Amended Cornell Debenture”) in the amount
            of $1,024,876, which terminated the two $500,000 debentures entered into
            with
            Cornell in December 2004 and January 2005. The new debenture entitles
            Cornell,
            at its option, to convert, and sell on the same day, at any time and
            from time
            to time, until payment in full of this debenture, all or any part of
            the
            principal amount of the debenture, plus accrued interest, convertible
            into
            shares of the Company’s common stock at the price per share equal to the lesser
            of (i) the greater of $0.25 or an amount equal to 120% of the initial
            bid price
            or (ii) an amount equal to 80% of the lowest volume weighted average
            price of
            the Company’s common stock for the last five trading days immediately preceding
            the conversion date. If not converted at Cornell’s option, the entire
            principal amount and all accrued interest shall be due to Cornell on
            the second
            year anniversary of the debenture.  The Company, at its option, may redeem,
            with fifteen days advance written notice, a portion or all of the outstanding
            convertible debenture. The redemption shall be 110% of the amount redeemed
            plus
            accrued interest remaining for the first six months of the executed debenture
            and after that time the redemption is 120% of the amount redeemed plus
            accrued
            interest remaining. The conversion feature and the Company’s optional early
            redemption right have been bundled together as a single compound embedded
            derivative liability, and fair valued using a layered probability-weighted
            cash
            flow approach.
  On
            April
            27, 2005, the Company entered into a Securities Purchase Agreement with
            Highgate
            pursuant to which the Company is to receive $750,000 in exchange for
            two 7%
            secured convertible debentures amounting to $750,000 that mature in 2
            years, and
            the issuance of 150,000 shares of the Company’s common stock. The Securities
            Purchase Agreement provides for the execution of funding under two secured
            convertible debentures. The first debenture funding occurred upon the
            signing of
            the aforementioned Securities Purchase Agreement and the second debenture
            and
            funding occurred upon the filing of the Form SB-2. The Company issued
            the
            aforementioned securities to the investor pursuant to Rule 506 of Regulation
            D
            as promulgated under the Securities Act of 1933, as amended (the “Act”), and/or
            Section 4 (2) of the Act. In addition, the Company has agreed to reserve
            for
            issuance an aggregate of 2,000,000 shares of the Company’s common stock, which
            may be adjusted from time to time as agreed upon by the parties, to be
            issued to
            the debenture holder upon conversion of accrued interest and liquidated
            damages
            into common stock and additional shares of common stock required to be
            issued to
            the debenture holder in accordance with the Securities Purchase Agreement.
            The
            2,000,000 shares were not registered in the Form SB-2. Additionally,
            in
            accordance with the Securities Purchase Agreement, the Company is required
            to
            maintain in escrow and register with the SEC five times the number of
            shares of
            common stock that would be needed to satisfy the full conversion of all
            such
            Convertible Debentures outstanding (currently 2,537,977 shares in reserve)
            and
            to issue additional shares as needed if the number of shares in escrow
            becomes
            less than that required. Further, following a notice of conversion, the
            investors may sell escrowed shares in the registered distribution before
            they
            are actually delivered, but,
 
 F-16
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
  **NOTE
            7 - SECURED CONVERTIBLE NOTES PAYABLE - (cont’d)**
  the
            investors will not engage in short sales. The terms of the secured debentures
            contain a limitation that precludes conversion when the amount of shares
            already
            owned by Cornell and Highgate, plus the amount of shares still outstanding
            to be
            converted, would exceed 4.99%. The limitation may be waived by Cornell
            upon 61
            days advance written notification to the Company.  In
            addition, on the third anniversary of the issuance date of the Cornell
            debenture
            and second anniversary of the issuance dates of the Highgate debentures,
            any
            outstanding principal or interest owed on the secured debentures will
            be
            converted into stock without any applicable limitation on the number
            of shares
            that may be converted.
  The
            aforementioned debentures bear interest at a rate of 7% per annum, compounded
            monthly, and expire 2 years after the date of issuance. The debentures
            are
            convertible into shares of our common stock at a conversion price equal
            to the
            lesser of (i) 120% of the average closing bid price for the 5 trading
            days
            immediately preceding the closing date; or (ii) 80% of the lowest closing
            bid
            price for the 5 trading days immediately preceding the date of conversion.
            In
            addition, the Company has the right to redeem the debentures, at any
            time prior
            to its maturity, upon 3 business day’s prior written notice to the holder. The
            redemption price is equal to 120% of the face amount redeemed plus accrued
            interest. In the event that the Company redeems the debentures within
            180 days
            after the date of issuance, the redemption price shall be 110% of the
            face
            amount redeemed plus accrued interest. Interest expense for the three
            secured
            convertible debentures for the nine months ended September 30, 2006 was
            approximately $86,608. The conversion feature and the Company’s optional early
            redemption right have been bundled together as a single compound embedded
            derivative liability, and fair valued using a layered probability-weighted
            cash
            flow approach.
  In
            July
            2006, the Company agreed to an anti-dilution adjustment with Cornell
            and
            Highgate whereby the conversion price that the secured convertible debentures
            are convertible into the Company’s common stock was reduced to a fixed per share
            price equal to the lower of $0.085 or 80% of the lowest closing bid price
            during the five days preceding the conversion date.
  The
            Security Agreement contains certain negative covenants that will remain
            in
            effect until the repayment obligations pursuant to the convertible debenture
            have been satisfied. In accordance with the agreement, the Company may
            not,
            without Highgate’s written consent, directly or indirectly permit to exist any
            assignment, transfer, pledge, mortgage, security interest or other lien
            or
            encumbrance in or against any part of the pledged property, assign, pledge
            or in
            any way transfer or encumber Highgate’s right to receive any income or other
            distribution from any part of the pledged property, enter into any
            sale-leaseback financing respecting any part of the pledged property,
            materially
            change our ownership, executive staff or management, including the CEO
            and CFO;
            declare or pay any dividend of any kind, in cash or in property, on any
            class of
            our capital stock, or make any distribution of any kind in respect thereof,
            or
            make any payments in respect of any pension, profit sharing, retirement,
            stock
            option, stock bonus, incentive compensation or similar plan, without
            the prior
            written consent of Highgate. In addition, the
            Company may not guarantee or be liable in any manner, whether directly
            or
            indirectly, or become contingently liable after the date of the Security
            Agreement in connection with the indebtedness of any person, except for
            (i) the
            indebtedness currently secured by the liens identified on the pledged
            property
            and (ii) the endorsement of negotiable instruments payable to us for
            deposit or
            collection in the ordinary course of business. Further, the Company may
            not:
            make any loan, advance or extension of credit to any person other than
            in the
            normal course of our business, and create, incur, or assume any additional
            indebtedness of any description whatsoever in an aggregate amount in
            excess of
            $25,000, excluding trade accounts payable and accrued expenses incurred
            in the
            ordinary course of business. In addition, the Company may continue to
            accept
            debt and/or convertible debt investments from accredited investors for
            a maximum
            total of up to $2,000,000, providing no terms are better than the Cornell
            and
            Highgate
  F-17
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
            7 - SECURED CONVERTIBLE NOTES PAYABLE - (cont’d)**
  convertible
            debenture terms. The Company has paid $75,000 for structuring fees and
            expenses
            and $5,000 for commitment fees related to this Securities Purchase
            Agreement.
  The
            notes
            are presently stated on a net to fair value basis. At September 30, 2006,
            the
            fair value of the notes was $885,270 for Cornell and $283,509 for Highgate,
            respectively.
  Conversions
            to Common Stock
  For
            the
            nine months ended September 30, 2006, Highgate converted the entire April
            27,
            2005 debenture of $375,000 into 3,525,594 shares of the Company’s common stock,
            pursuant to the terms of the Securities Purchase Agreement. For the nine
            months
            ended September 30, 2006, Highgate converted $25,000 of the May 6, 2005
            debenture into 446,429 shares of the Company’s common stock, pursuant to the
            terms of the Securities Purchase Agreement. The conversion price ranged
            from
            $0.056 to $0.48 per share.
 
 **NOTE
            8 - FINANCIAL INSTRUMENTS**
  The
            secured convertible notes payable are hybrid instruments which contain
            an
            embedded derivative feature which would individually warrant separate
            accounting
            as a derivative instrument under SFAS No. 133. The embedded derivative
            feature
            has been bifurcated from the debt host contract, referred to as the "Compound
            Embedded Derivative Liability". The embedded derivative feature includes
            the
            conversion feature within the note and an early redemption option. The
            value of
            the embedded derivative liability was bifurcated from the debt host contract
            and
            recorded as a derivative liability, which resulted in a reduction of
            the initial
            carrying amount (as unamortized discount) of the notes. The unamortized
            discount
            is amortized to interest expense using the effective interest method
            over the
            life of the notes, or 12 months.
  The
            secured convertible debentures issued to Cornell and Highgate have been
            accounted for in accordance with SFAS 133 and EITF No. 00-19, “Accounting for
            Derivative Financial Instruments Indexed to, and Potentially Settled
            in, a
            Company’s Own Stock”. The Company has identified the above instruments having
            derivatives that require evaluation and accounting under the relevant
            guidance
            applicable to financial derivatives. These compound embedded derivatives
            have
            been bifurcated from their respective host debt contracts and accounted
            for as
            derivative liabilities in accordance with EITF No. 00-19. When multiple
            derivatives exist within Convertible Notes, they have been bundled together
            as a
            single hybrid compound instrument in accordance with SFAS No. 133 Derivatives
            Implementation Group Implementation Issue No. B-15, “Embedded Derivatives:
            Separate Accounting for Multiple Derivative Features Embedded in a Single
            Hybrid
            Instrument”. The compound embedded derivatives within the secured convertible
            notes have been recorded at fair value at the date of issuance; and are
            marked-to-market each reporting period with changes in fair value recorded
            to
            the Company’s statement of operations as “Derivative instrument expense, net”.
            The Company has utilized a third party valuation consultant to fair value
            the
            compound embedded derivatives using a layered discounted probability-weighted
            cash flow approach. The fair value of the derivative liabilities are
            subject to
            the changes in the trading value of the Company’s common stock, as well as other
            factors. As a result, the Company’s financial statements may fluctuate from
            quarter-to-quarter based on factors, such as the price of the Company’s stock at
            the balance sheet date and the amount of shares converted by note holders.
            Consequently, our financial position and results of operations may vary
            from
            quarter-to-quarter based on conditions other than our operating revenues
            and
            expenses.
 
 
 F-18
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
  **NOTE
            9 - CONVERTIBLE NOTES PAYABLE**
  In
            January 2005, the Company executed an 8% convertible debenture in the
            amount of
            $125,000 with an investor. Now that the Form SB-2 has been declared effective,
            the holder is entitled, at its option, to convert, and sell on the same
            day, at
            any time and from time to time, until payment in full of the debenture,
            all or
            any part of the principal amount of the debenture, plus accrued interest,
            into
            shares of the Company’s common stock at the price of $0.90 per share. If not
            converted at the holder’s option, the entire principal amount and all accrued
            interest shall be due to the holder on the first year anniversary of
            the
            debenture. In March 2006, the Company extended the maturity date of the
            convertible debenture to January 26, 2007. This note is included in current
            liabilities on the balance sheet at September 30, 2006. In connection with
            the extension, the Company issued to the investor an aggregate of 45,000
            warrants with an exercise price of $0.20 per share and an expiration
            date of
            January 26, 2009. The fair value of all the warrants issued using the
            Black-Scholes Option Pricing Model was $4,878. For the nine months ended
            September 30, 2006 and 2005, the Company recorded $3,415 and $0, respectively,
            in financing expense related to the issuance of these warrants.
  In
            March
            2005, the Company executed an 8% convertible debenture in the amount
            of $235,000
            with an investor group. Now that the Form SB-2 has been declared effective,
            the
            holder is entitled, at its option, to convert, and sell on the same day,
            at any
            time and from time to time, until payment in full of the debenture, all
            or any
            part of the principal amount of the debenture, plus accrued interest,
            into
            shares of the Company’s common stock at the price of $0.90 per share. If not
            converted at the holder’s option, the entire principal amount and all accrued
            interest shall be due to the holder on the third year anniversary of
            the
            debenture.
  In
            June
            2005, the Company executed a non-interest bearing convertible note in
            the amount
            of $33,000 with a public relations firm for services rendered. At any
            time prior
            to repayment of all outstanding principal, the holder is entitled, at
            its
            option, to convert, and sell on the same day, at any time and from time
            to time,
            until payment in full of the debenture, all or any part of the principal
            amount
            of the debenture into shares of the Company’s common stock at the price of $0.90
            per share. If not converted at the holder’s option, the entire principal amount
            shall be due to the holder on the first year anniversary of the note.
            This note
            is included in current liabilities on the balance sheet at September
            30, 2006.
            In August 2006, the Company and the public relations firm reached an
            informal
            agreement whereby the Company has agreed to make periodic payments in
            order to
            repay the note in full by December 31, 2006.
  In
            June
            2005, the Company executed an 8% convertible debenture in the amount of $10,000
            with an individual. Now that the Form SB-2 has been declared effective,
            the
            holder is entitled, at its option, to convert, and sell on the same day,
            at any
            time and from time to time, until payment in full of the debenture, all
            or any
            part of the principal amount of the debenture, plus accrued interest,
            into
            shares of the Company’s common stock at the price of $0.90 per share. If not
            converted at the holder’s option, the entire principal amount and all accrued
            interest shall be due to the holder on the third year anniversary of
            the
            debenture.
  In
            July
            2005, the Company executed 8% convertible debentures aggregating $140,000
            with
            four individuals. Now that the Form SB-2 has been declared effective,
            each
            holder is entitled, at its option, to convert, and sell on the same day,
            at any
            time and from time to time, until payment in full of the debenture, all
            or any
            part of the principal amount of the debenture, plus accrued interest,
            into
            shares of the Company’s common stock at the price of $0.90 per share. If not
            converted at the holder’s option, the entire principal amount and all accrued
            interest shall be due to the holder on the third year anniversary of
            the
            debentures, July 2008.
  F-19
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
   **NOTE
            9 - CONVERTIBLE NOTES PAYABLE - (cont’d)**
  In
            March
            2006, the Company executed an 8% convertible promissory note in the amount
            of
            $100,000 with an individual. At any time, the holder is entitled, at
            its option,
            to convert, and sell on the same day, at any time and from time to time,
            until
            payment in full of the debenture, all or any part of the principal amount
            of the
            debenture, plus accrued interest, into shares of the Company’s common stock at
            the price of $0.90 per share. If not converted at the holder’s option, the
            entire principal amount and all accrued interest shall be due to the
            holder on
            the second year anniversary of the debenture. In connection with the
            convertible
            promissory note payable, the Company issued to the individual an aggregate
            of
            66,667 warrants with an exercise price of $0.55 per share. These warrants
            are
            exercisable for a period of two years from issuance. The fair value of
            all the
            warrants issued using the Black-Scholes Option Pricing Model was $12,300.
            For
            the nine months ended September 30, 2006 and 2005, the Company recorded
            $3,588
            and $0, respectively, in financing expense related to the issuance of
            these
            warrants.
  In
            June
            2006, the Company executed a 9% convertible promissory note in the amount
            of
            $200,000 with an individual. At any time, the holder is entitled, at
            its option,
            to convert, and sell on the same day, at any time and from time to time,
            until
            payment in full of the debenture, all or any part of the principal amount
            of the
            debenture, plus accrued interest, into shares of the Company’s common stock at
            the price of $0.14 per share. If not converted at the holder’s option, the
            entire principal amount and all accrued interest shall be due to the
            holder on
            the third year anniversary of the debenture. In connection with the convertible
            promissory note payable, the Company issued to the individual an aggregate
            of
            400,000 warrants with an exercise price of $0.25 per share. These warrants
            are
            exercisable for a period of five years from issuance. The fair value
            of all the
            warrants issued using the Black-Scholes Option Pricing Model was $36,960.
            For
            the nine months ended September 30, 2006 and 2005, the Company recorded
            $4,107
            and $0, respectively, in financing expense related to the issuance of
            these
            warrants.
  In
            September 2006, the Company executed a 9% convertible promissory note
            in the
            amount of $150,000 with an individual. At any time, the holder is entitled,
            at
            its option, to convert, and sell on the same day, at any time and from
            time to
            time, until payment in full of the debenture, all or any part of the
            principal
            amount of the debenture, plus accrued interest, into shares of the Company’s
            common stock at the price of $0.10 per share. If not converted at the
            holder’s
            option, the entire principal amount and all accrued interest shall be
            due to the
            holder on the third year anniversary of debenture. In connection with
            the
            convertible promissory note payable, the Company issued to the individual
            an
            aggregate of 562,500 warrants with an exercise price of $0.16 per share.
            These
            warrants are exercisable for a period of five years from issuance. The
            fair
            value of all the warrants issued using the Black-Scholes Option Pricing
            Model
            was $39,600. For the nine months ended September 30, 2006 and 2005, the
            Company
            recorded $1,100 and $0, respectively, in financing expense related to
            the
            issuance of these warrants.
  Interest
            expense for the convertible notes payable for the nine months ended September
            30, 2006 and 2005 was approximately $40,574 and $18,799,
            respectively.
 
 **NOTE
            10 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES**
  Convertible
            notes payable - related parties at September 30, 2006, consist of convertible
            promissory notes that the Company executed with the Chief Executive Officer
            (“CEO”), the Vice President of Technical Services (“VPTS”), relatives of a
            former officer of the Company, a relative of the Chief Financial Officer,
            the
            President, a Software Developer who is also a relative of the Chief Technology
            Officer and the Office Manager.
  The
            terms
            of the convertible promissory notes state that principal is payable in
            full in
            immediately
 F-20
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
  **NOTE
            10 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES -
            (cont’d)**
  available
            funds of $1,000,000 or more through any sales or investment by the end
            of
            December 31, 2004 or later if agreed upon by each individual and the
            Company, as
            was agreed upon. With the exception of the notes issued to the CEO, all
            of the
            notes bear interest at a rate of prime plus 2%, prime plus 4%, a straight
            8% per
            year or a straight 21.90% per year. The notes issued to the CEO bear
            interest
            equal to the CEO’s private banking account monthly lending rate. Interest is
            payable at such time as the principal on the note is due. At any time
            prior to
            repayment of all outstanding principal and accrued interest hereunder,
            at the
            election of each individual, the individual shall have the right to convert
            the
            then outstanding principal amount of this note, and all outstanding accrued
            interest thereon, into that number of shares of the common stock of the
            Company,
            determined by dividing the amount of principal and interest then outstanding
            hereon by a conversion price of either $0.72, $0.75 or $1.00, depending
            on the
            note.
  In
            November 2004, the Company received $50,000 from three separate individuals
            who
            are relatives of a former officer for convertible promissory notes. The
            notes
            were due on April 30, 2006 and bear interest at prime plus 2% per year.
            The
            notes for $15,000, $10,000 and $25,000 were repaid in full plus interest
            in May
            2006, June 2006 and June through September 2006, respectively.
  In
            August, September and December 2005, the Company executed 8% convertible
            promissory notes in the amounts of $10,000, $5,000 and $10,000 with a
            relative
            of the Chief Technology Officer. The principal due hereunder shall be
            payable in
            full in immediately available funds of one million dollars or more through
            any
            sales or investment by the end of December 31, 2005 or later if agreed
            upon by
            the individual and the Company. On October 17, 2005, the related party
            became an
            employee of the Company. The maturity dates of the notes were extended
            to March
            31, 2007.
  In
            August
            and December 2005, the Company executed 8% convertible promissory notes
            in the
            amounts of $50,000 and $34,000 with its President. The convertible promissory
            note for $34,000 was paid in full in December 2005. The principal of
            the August
            2005 note shall be payable in full in immediately available funds of
            one million
            dollars or more through any sales or investment by the end of December
            31, 2005
            or later if agreed upon by the President and the Company. The maturity
            date of
            the $50,000 note was extended to March 31, 2007.
  In
            September 2005, the Company executed an 8% convertible promissory note
            in the
            amount of $5,000 with a relative of the Chief Financial Officer. The
            principal
            shall be payable in full in immediately available funds of one million
            dollars
            or more through any sales or investment by the end of December 31, 2005
            or later
            if agreed upon by the individual and the Company. The maturity date of
            the note
            was extended to March 31, 2007.
  In
            December 2005, the Company executed an 8% convertible promissory note
            in the
            amount of $10,000 with its Office Manager. The principal shall be payable
            in
            full in immediately available funds of one million dollars or more through
            any
            sales or investment by the end of December 31, 2006 or later if agreed
            upon by
            the Office Manager and the Company.
  In
            January 2006, the Company executed an 8% convertible promissory note
            in the
            amount of $70,000 with its Office Manager. The principal due hereunder
            shall be
            payable in full in immediately available funds of one million dollars
            or more
            through any sales or investment by the end of June 30, 2006 or later
            if agreed
            upon by the Office Manager and the Company. The note was partially repaid
            in the
            amounts of $10,000 in June 2006 and $2,500 in August 2006. In September
            2006,
            the maturity date of the balance of the note was extended to December
            31,
            2006.
   F-21
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
            10 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES -
            (cont’d)**
  In
            March
            2006, the Company executed an 8% convertible promissory note in the amount
            of
            $5,000 with one of its Software Developers and the wife of the CTO. The
            principal due shall be payable in full in immediately available funds
            of one
            million dollars or more through any sales or investment by the end of
            December
            31, 2006 or later if agreed upon by the Software Developer and the Company.
  At
            September 30, 2006, the Company has two convertible notes with its VPTS
            that had
            maturity dates of December 31, 2005. The first note is for $50,000 and
            bears
            interest at prime plus 2% per annum. The second note is for $7,500 and
            bears
            interest at prime plus 4% per annum. In September 2006, the maturity
            date of
            both notes was extended to March 31, 2007.
  At
            September 30, 2006, the Company has six convertible notes payable aggregating
            $268,000 with its CEO. All the convertible notes payable bear interest
            equal to
            the CEO’s private banking account monthly lending rate and are convertible into
            the Company’s common stock at a price of $0.75 or $1.00 per share. The maturity
            date of four of the notes payable, aggregating $230,000, was December
            31, 2005.
            The maturity date of the notes was extended to March 31, 2007. The remaining
            two
            notes in the amounts of $10,000, with a conversion price of $1.00 per
            share, and
            $28,000, with a conversion price of $0.75 per share, were executed in
            January
            2006 and February 2006, respectively and had a maturity date of December
            31,
            2006. In September 2006, the maturity date of both notes was extended
            to March
            31, 2007. For the seven months ended July 31, 2006, the interest ranged
            between
            8.625% and 11.000% per annum. In September 2006, the interest rate of
            the six
            notes was revised to a fixed rate of 8%, effective August 1, 2006.
  In
            connection with several of the convertible notes payable, the Company
            issued
            warrants exercisable in the aggregate into 80,500 shares of the Company’s common
            stock at an exercise price of $1.00 per share to the note holders. The
            warrants
            were issued at the ratio of one warrant for each $10 of convertible notes
            payable. These warrants are exercisable for a period of ten years from
            issuance.
            The fair value of all the warrants issued using the Black-Scholes Option
            Pricing
            Model was $21,339. For the nine months ended September 30, 2006 and 2005,
            the
            Company recorded $4,883 and $1,937, respectively, in financing expense
            related
            to the issuance of these warrants.
  At
            September 30, 2006, accrued interest due for the convertible notes -
            related
            parties was $34,972 and is included in accrued expenses in the accompanying
            balance sheet. Interest expense for convertible notes payable - related
            parties
            for the nine months ended September 30, 2006 and 2005 was approximately
            $34,211
            and $15,368, respectively.
 
 **NOTE
            11 -**  **NOTES
            PAYABLE**
  In
            May
            2006, the Company sold a unit to Cornell consisting of a 9% promissory
            note
            payable in the amount of $100,000 and 200,000 shares of the Company’s common
            stock. The principal due shall be payable in full in immediately available
            funds
            of $200,000 or more through any funding transaction, even if the funding
            is with
            Cornell, or by August 28, 2006. If the note is not fully repaid within
            a twenty
            (20) day grace period after the maturity date, then the remaining outstanding
            principal and accrued and unpaid interest under the note shall be convertible
            into shares of common stock of the Company at the sole option of Cornell,
            in
            whole or in part at any time and from time to time at a conversion price
            equal
            to the lesser of (a) $0.22 or (b) ninety percent (90%) of the lowest Volume
            Weighted Average Price of the common stock during the thirty trading
            days
            immediately preceding the date of conversion as quoted by Bloomberg,
            LP. The
            Company paid a placement agent fee of $7,000 relating to the promissory
            note.
 F-22
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
  **NOTE
            11 -**  **NOTES
            PAYABLE - (cont’d)**
  In
            July
            2006, the Company sold a total of six units to six individuals, each
            unit
            consisting of a 12% promissory note payable in the amount of $25,000
            and 250,000
            shares of the Company’s common stock for a total of $150,000 and 1,500,000
            shares of common stock. The principal due shall be payable in full by
            January
            10, 2007. If any of the notes are deemed unenforceable, then the remaining
            outstanding principal and accrued and unpaid interest under that note
            shall be
            convertible into shares of common stock of the Company at the sole option
            of the
            note holder, in whole or in part at any time and from time to time at
            a
            conversion price equal to $0.085 per share, **** in
            addition to any other remedies or enforcement actions that the note holder
            may
            take to enforce collection of the note. Six months of prepaid interest,
            for a
            total of $9,000, was due at closing, of which $6,750 was withheld by
            the escrow
            agent and $2,250 was paid directly to the note holder by the Company.
            The
            Company paid a placement agent fee of $15,000 and issued 150,000 shares
            of the
            Company’s common stock, in August 2006, relating to the promissory notes. The
            Company also paid an escrow agent fee of $3,000 relating to the promissory
            notes, of which $1,500 was paid in March 2006 (see Note 15). The Company
            also
            paid the $7,500 due diligence fee in March 2006. The Company issued 50,000
            shares of the Company’s common stock to the placement agent in July 2006 as a
            part of the due diligence fee. All of the Company’s shares of common stock
            issued in relation to the promissory notes have Rule 144 piggyback registration
            rights.
  Interest
            and financing expense for notes payable for the nine months ended September
            30,
            2006 was approximately $217,362.
 
 **NOTE
            12 -**  **NOTES
            PAYABLE - RELATED PARTIES**
  Notes
            payable - related parties at September 30, 2006 consist of the
            following:
  At
            September 30, 2006, the Company had executed nine notes payable with
            its CEO
            aggregating $604,000:
 
 ·
                Three
                    of the notes, aggregating $189,000, had maturity dates of December
                    31,
                    2005 with interest at a per annum rate equal to the CEO’s private account
                    monthly lending rate. In December 2005, the maturity dates of
                    the notes
                    were extended to March 31, 2006. In September 2006, the maturity
                    dates of
                    the notes were extended to March 31, 2007 and the interest rate
                    was
                    revised to a fixed rate of 8%, effective August 1, 2006. ·
                Two
                    of the notes, aggregating $160,000 have maturity dates of May
                    13, 2006 for
                    the $150,000 note and September 30, 2006 for the $10,000 note.
                    Both notes
                    bear interest at a rate equal to 8% per annum. In September 2006,
                    the
                    maturity dates of the notes were extended to March 31,
                    2007. ·
                Three
                    of the notes, in the amounts of $7,000, $5,000 and $150,000,
                    were executed
                    in April 2006 and bear interest at a per annum rate equal to
                    the CEO’s
                    private account monthly lending rate. The $7,000 note was repaid
                    in April
                    2006. The $5,000 note has a maturity date of September 30, 2006.
                    The
                    $150,000 note has a maturity date of June 30, 2006. In September
                    2006, the
                    maturity dates of the notes were extended to March 31, 2007 and
                    the
                    interest rate was revised to a fixed rate of 8%, effective August
                    1, 2006. ·
                The
                    remaining note in the amount of $100,000 was executed in May
                    2006 and
                    bears interest at a rate equal to 9% per annum with a maturity
                    date of
                    July 31, 2006. In September 2006, the maturity date of the $100,000
                    note
                    was extended to March 31, 2007.  For
            the
            seven months ended July 31, 2006, the interest ranged between 8.625%
            and 11% per
            annum. In
 
 F-23
  **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
   **NOTE
            12 -**  **NOTES
            PAYABLE - RELATED PARTIES - (cont’d)**
  connection
            with the $100,000 note executed in May 2006, the Company issued warrants
            exercisable in the aggregate into 200,000 shares of the Company’s common stock
            at an exercise price of $0.13 per share to the CEO. The warrants were
            issued at
            the ratio of one warrant for each $0.50 of note payable. These warrants
            are
            exercisable for a period of five years from issuance. The fair value
            of the
            warrants issued using the Black-Scholes Option Pricing Model was $24,300.
            For
            the nine months ended September 30, 2006 and 2005, the Company recorded
            $24,300
            and $0, respectively, in financing expense related to the issuance of
            these
            warrants.
  At
            September 30, 2006, the Company had executed four notes payable with
            its
            President aggregating $25,000. Notes totaling $10,000 are non-interest
            bearing.
            Notes totaling $15,000 bear interest at a rate equal to 8% percent per
            annum. In
            September 2006, the maturity date of the notes was extended to March
            31, 2007.
  Interest
            expense for notes payable - related parties for the nine months ended
            September
            30, 2006 and 2005 was approximately $31,040 and $10,191,
            respectively.
 
 **NOTE
            13 -**  **OBLIGATIONS
            UNDER CAPITAL LEASES**
  In
            May
            2004, the Company and a lessor signed an amended agreement consolidating
            six of
            the Company’s capital leases into one monthly payment and restructuring the term
            of the agreement. This amended agreement cured a prior default for non-payment.
            The terms of the agreement called for one payment upon signing of $8,052
            and
            subsequently 43 monthly payments of $2,020. The balance at September
            30, 2006,
            reflects the amended changes to these capital leases.
  At
            September 30, 2006, the aggregate future minimum remaining lease payments
            under
            capital leases are as follows:
 
 **Period
                      Ending****December
                      31,**2006
                  
                  $
                  45,7202007
                  
                  
                  6,061Total
                  
                  
                  51,781Less:
                      amount representing interest
                  
                  
                  (2,324
                  )Net
                      present value of capital lease obligations
                  
                  
                  49,457Current
                      portion
                  
                  
                  (43,460
                  )Long-term
                      portion
                  
                  $
                  5,997
   The
            capital leases listed above relate to property and equipment with a book
            value
            of $11,830.
 
 **NOTE
            14 - COMMITMENTS AND CONTINGENCIES**
  Lease
            Commitments
  The
            Company has a non-cancelable operating lease for office space that expires
            in
            February 2008. The lease does not contain a renewal option and requires
            the
            Company to pay
            all
            executory costs such as maintenance and insurance. Additionally, the
            Company
            leases equipment under non-cancelable operating leases.
 
 F-24
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
            14 - COMMITMENTS AND CONTINGENCIES - (cont’d)**
  Lease
            Commitments - (cont’d)
  In
            January 2005, the Company became a third party beneficiary of a settlement
            in a
            bankruptcy suit between the lessor and supplier of the Company’s telephony
            equipment and carrier services. The settlement between the lessor and
            supplier
            reduced the remaining lease commitment of approximately $43,000 by 85%,
            to a
            balance of $6,467. This balance is to be paid in 24 installments of $270
            per
            month effective March 30, 2005. The balance has been paid in full as
            of October
            2006. The settlement has been reflected in the following lease commitment
            schedule.
  The
            approximate future annual minimum rentals under non-cancelable operating
            leases
            in effect on September 30, 2006 are as follows:
 
 
 **Office****Space**
                  
                  **Equipment**2006
                  
                  $
                  18,773
                  
                  $
                  3,3362007
                  
                  
                  74,483
                  
                  
                  3,9102008
                  
                  
                  6,207
                  
                  
                  1,966$
                  99,463
                  
                  $
                  9,212
  Rent
            expense charged to operations for office space for the nine months ended
            September 30, 2006 and 2005 amounted to approximately $51,715 and $51,759,
            respectively. The expense charged to operations for equipment rental
            for the
            nine months ended September 30, 2006 and 2005 amounted to approximately
            $4,953
            and $4,414, respectively.
  Payroll
            Taxes
  As
            of
            September 30, 2006, the Company owes $54,434 of payroll taxes, of which
            approximately $45,000 are delinquent from the year ended December 31,
            2003. The
            Company has also recorded $30,362 of related estimated penalties and
            interest on
            the delinquent payroll taxes, which are included in accrued expenses
            on the
            balance sheet. Although the Company has not entered into any formal repayment
            agreements with the respective tax authorities, management plans to make
            payment
            as funds become available.
  Nature
            of Business
  The
            Company is subject to risks and uncertainties common to growing technology
            companies, including rapid technological developments, reliance on continued
            development and acceptance of the Internet, intense competition and a
            limited
            operating history.
 Significant
              Customers
  Financial
              instruments, which may expose the Company to concentrations of credit
              risk,
              consist primarily of accounts receivable. As of September 30, 2006
              and 2005, six
              customers represented 96% and two customers represented 96% of the
              total
              accounts receivable, respectively. For the nine months ended  September
              30, 2006, the Company had four unrelated customers, which accounted
              for 7%, 16%,
              24% and 27%, respectively, of total revenue. For the nine months ended
              September
              30, 2005, the
              Company had two unrelated customers, which accounted for 51% total
              revenue .
  F-25
  **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 
 **NOTE
            14 - COMMITMENTS AND CONTINGENCIES - (cont’d)**
  Employment
            Agreements
  In
            May
            2003, the Company entered into an employment agreement with its CEO.
            The term of
            the agreement is from May 20, 2003 through June 1, 2006. As part of the
            agreement, the CEO committed to making a $300,000 capital investment
            in the
            Company. The Company is required to pay the CEO a salary of $75,000 per
            year
            until the closing date of the first $2,000,000 in funding, and $150,000
            per year
            thereafter. In April 2004, the agreement was amended to pay the CEO $111,000
            per
            year as of April 2004. The agreement also granted the CEO options to
            purchase
            1,000,000 shares of the Company’s common stock on a fully converted, fully
            diluted basis after the completion of the funding round. The options
            have an
            exercise price of $1.00, a term of 10 years from the vesting date, and
            shall
            vest over a three year period beginning June 1, 2004. The agreement also
            provides the CEO with severance payments in the event the Company terminates
            his
            employment for any reason other than for cause, as defined in the agreement,
            or
            other than as a result of the CEO’s death or disability, or if the CEO
            terminates his employment with the Company for good reason, as defined
            in the
            agreement.
  During
            2003, the Company entered into various three-year employment agreements
            with
            employees of the Company, commencing June 16, 2003, and expiring at various
            dates through October 14, 2006. The Company is required to pay salaries
            and
            severance payments, as defined in the individual employment agreements.
            In
            addition, two of the agreements each provide options to purchase 100,000
            shares
            of the Company’s common stock on a fully converted, fully diluted basis after
            the completion of the funding round. The options have an exercise price
            of
            $1.00, a term of 10 years from the vesting date, and shall vest over
            a three
            year period, beginning one year from the anniversary date. One agreement
            provides options to purchase 130,000 shares of the Company’s common stock on a
            fully converted, fully diluted basis after the completion of the funding
            round.
            The options have an exercise price of $1.00, a term of 10 years from
            the vesting
            date, and shall vest over a three year period, beginning one year from
            the
            anniversary date.
  As
              of
              September 30, 2006, the written employment agreements have not been
              renewed. For
              the three months ended September 30, 2006 and 2005, there were no additional
              formal employment agreements entered into by the Company.
  Panasonic
  In
              August
              2003, the Company entered into a five year agreement with Panasonic
              in which
              Panasonic is an Authorized Service Provider (“ASP”) for the Company’s products.
              As an ASP, Panasonic operates the Company’s products in their data center for
              the benefit of clients who contract with the Company for their security
              products. The relationship can be terminated by either party on six
              months
              notice. Panasonic is compensated by the Company based on contracted
              percentages
              of the client’s fees to the Company as to be documented in each client contract.
  In
              May
              2005, the Company and Panasonic revised the ASP agreement to state
              that the
              Company has fulfilled its contractual requirements for the years prior
              to
              2005.
 
  F-26
 
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 
 **NOTE
            14 - COMMITMENTS AND CONTINGENCIES - (cont’d)**
  Panasonic
            - (cont’d)
  As
            of
            September 30, 2006, the contract required yearly minimum commitment fees
            from
            the Company as follows:
   **Quarter
                      ending****September
                      30,**2007
                  
                  $
                  50,0002008
                  
                  
                  50,0002009
                  
                  
                  37,500Total
                  
                  $
                  137,500
 
 ****
 As
            of
            September 30, 2006 the Company has accrued $32,697 against the balance
            due for
            the September 30, 2006 period. In October 2005, the Company and Panasonic
            agreed
            to amend the Network Services Agreement dated August 2003 and revised
            in May
            2005. The October 2005 amendment clarifies the Minimum Payment Guarantee
            terms,
            beginning in 2006, from annual remittances due by the last day of each
            calendar
            year to quarterly payments due on a net 30 days basis from the date of
            the
            Panasonic invoice issued for each previous calendar quarter, as adjusted
            for
            payments made to Panasonic for client activity during the quarter. In
            August
            2006, the Company and Panasonic reached an informal agreement whereby
            the
            Company has agreed to make periodic payments in order to repay any past
            due
            balance in full by December 31, 2006.
  Investor
            Relations Consulting Agreement
  In
            March
            2006, the Company retained the services of an investor relations consulting
            firm
            and both parties mutually executed three agreements: a Financial Consulting
            Agreement, a Business Introduction Agreement and an Investor Relations
            Consulting Agreement. Per the terms of the Financial Consulting Agreement,
            the
            firm will provide services in order to assist the Company in developing
            a
            strategy and structure for obtaining financing. As compensation for the
            financial consulting services, the firm will receive, on a prorated basis
            400,000 shares of the Company’s common stock at a value of $0.18 per share upon
            the closing of up to $500,000 in financing. The shares are to be placed
            in
            escrow with the Company’s law firm. The firm will also receive, on a prorated
            basis, up to $40,000 in cash upon the closing of a second $500,000 in
            financing.
            The term of the financing agreement is for ten months. Per the terms
            of the
            Business Introduction Agreement, the firm will provide potential sales
            opportunities to the Company. The firm commenced the introduction process
            in
            February 2006. As compensation for the introduction services, the firm
            will
            receive a $5,000 cash payment for each of February 2006 and March 2006.
            Also,
            upon the Company receiving $1,000,000 or more in purchase contracts for
            its
            products and services, the firm will receive 100,000 shares of the Company’s
            common stock at a value of $0.18 per share and warrants to purchase 100,000
            shares of the Company’s common stock with an exercise price of $0.25 per share.
            The warrants will have a five year term, piggyback registration rights
            for one
            year and demand registration rights after April 1, 2007. The term of
            the
            introduction agreement is for ten months. Per the terms of the Investor
            Relations Consulting Agreement, the firm will assist the Company in developing
            a
            comprehensive financial relations strategy. As compensation for the services,
            the Company will make cash payments to the firm of $5,000 for each of
            the first
            two term months, $9,000 for each of the second two term months and $10,000
            for
            each of the remaining six term months. The Company issued warrants to
            purchase
            300,000 shares of the Company’s common stock with an exercise price of $0.18 per
            share related to the agreement. The warrants have a five year term, piggyback
            registration
 
 F-27
  **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 
 **NOTE
            14 - COMMITMENTS AND CONTINGENCIES - (cont’d)**
  Investor
            Relations Consulting Agreement - (cont’d)
  rights
            for one year and demand registration rights after April 1, 2007. The
            term of the
            investor relations agreement is for ten months.
  Consulting
            Agreement
  In
            October 2005, the Company engaged the investment banking services of
            a
            consulting firm as placement agent on a best-efforts basis to arrange
            the sale
            of senior debt and or equity-linked securities including convertible
            debt on
            behalf of the Company in an amount of $5,000,000. To date, no funds have
            been
            raised pursuant to this agreement. The terms of the agreement provide
            for the
            placement agent to act on behalf of the Company as its exclusive placement
            agent
            with an authorization period of one year, subject to termination upon
            ten days’
notice by the Company. The Agreement required the Company to pay to the
            placement agent a non-refundable retainer fee in the form of common stock
            warrants to purchase 400,000 shares of the Company’s common stock at an exercise
            price of $0.75 per share, the value of which (based on Black-Scholes)
            was
            $149,200 and expensed as consulting expense in 2005. The retainer Warrants
            shall
            be exercisable after the date of issuance and shall expire five (5) years
            after
            the date of issuance, unless extended by the Company. In April 2006,
            the Company
            and the placement agent amended the agreement in order to waive the exclusivity
            clause. In exchange for the waiver, the Company has agreed to reduce
            the
            exercise price of the 400,000 warrants to $0.50 per share (see Note 15).
            The
            placement agent is also entitled to receive certain cash compensation
            and
            warrants in connection with the closing of any financings arranged by
            the
            placement agent.
  In
            January 2006, the Company executed an independent consultant agreement
            with an
            individual consultant whereby the consultant will provide financing
            introductions, customer introductions and sales leads. The agreement
            supersedes
            a similar expired agreement executed in April 2005 with the consultant.
            Under
            the terms of the new agreement, the consultant will receive a 5% commission
            on
            closed financing deals, a 10% commission on sales resulting from direct
            introduction and a 5% commission on sales resulting from third party
            introduction. The term of the agreement is for six months and it can
            be renewed
            within thirty days of expiration provided the Company and the consultant
            both
            agree in writing. The consulting agreement was not renewed upon the termination
            date.
  In
            January 2006, the Company executed a consultant agreement with a consulting
            firm
            whereby the firm will introduce to the Company potential purchasers of
            the
            Company’s equity or debt. The Company shall pay a placement fee to the
            consultant in the amount of 6% of the gross subscription proceeds of
            an equity
            and/or debt offering by the Company from purchasers introduced directly
            by the
            consultant. Either the Company or the consultant may terminate the agreement
            upon thirty day’s prior written notice. The Company also executed a
            representation agreement with the firm in February 2006 (see Note 15
            below).
  In
            May
            2006, the Company executed a consultant agreement with a sales consulting
            firm
            whereby the firm shall act as a global sales consultant and shall also
            provide
            an individual to serve as the manager of the Company’s sales department. Upon
            signing the agreement, the firm received warrants to purchase 200,000
            shares of
            the Company’s common stock at an exercise price of $0.20 per share and a term of
            three years. As of September 30, 2006, the fair value of the warrants
            issued
            using the Black-Scholes Option Pricing Model was $23,120. For the nine
            months
            ended September 30, 2006, the Company recorded $23,120 in consulting
            expense
            related to the issuance of these warrants. Under the terms of the agreement,
            the
            firm will receive a 10% commission on net revenues of sales resulting
            from
            direct introduction, a 5% commission on net revenues of introduced sales
            involving integrators, resellers or
   F-28
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
            14 - COMMITMENTS AND CONTINGENCIES - (cont’d)**
  Consulting
            Agreement - (cont’d)
  distributors
            and a 2% commission on net revenues of sales made by the Company’s internal
            sales representatives if the firm was instrumental in closing the sale.
            Additionally, for the direct sales whereby the firm receives a 10% commission,
            the firm shall receive 200,000 warrants for each $1,000,000 in sales
            booked by
            the Company up to a maximum of 1,000,000 warrants. The warrants shall
            have an
            exercise price of $0.25 per share, $0.30 per share, $0.35 per share,
            $0.40 per
            share and $0.45 per share, respectively, for each $1,000,000 in direct
            sales
            earned. All of the warrants shall have a term of three years. The firm
            shall
            also receive a bonus if the Company’s total sales in 2006 reach $4,000,000 in
            the form of warrants to purchase 100,000 shares of the Company’s common stock
            with an exercise price of $0.20 and a term of three years.
  In
            May
            2006, the Company executed an independent consultant agreement with an
            individual consultant whereby the consultant will provide financing
            introductions, customer introductions and sales leads. Under the terms
            of the
            agreement, the consultant will receive a 10% commission on closed financing
            deals, an 8% commission on sales resulting from direct introduction and
            a 4%
            commission on sales resulting from third party introduction. The term
            of the
            agreement is for two years and will automatically renew for one year
            terms
            unless either party elects to terminate by notifying the other party
            in writing.
  Term
            Sheet with Investment Firm
  In
            March
            2006, the Company executed a term sheet with an investment firm whereby
            the firm
            and the Company agreed to pursue further agreements on an ongoing best
            efforts
            basis in order for the Company to obtain financing from the investment
            firm. In
            order to proceed with further negotiations, the Company was obligated
            per the
            term sheet to compensate the investment firm in the form of a due diligence
            retainer. The Company paid the retainer in two cash payments in the amounts
            of
            $7,500 to the investment firm and $1,500 to the investment firm’s attorney. If
            the Company elected to continue to pursue further agreements via the
            ongoing
            efforts of the investment firm, the term sheet also required the Company
            to
            issue 50,000 restricted shares of the Company’s common stock as directed by the
            investment firm. The Company elected to suspend the continuation of the
            investment firm’s ongoing efforts at that time, therefore, the 50,000 shares of
            common stock were not issued. The Company executed a new term sheet with
            the
            investment firm in July 2006 (see Note 16).
  In
            May
            2006, the Company executed a term sheet with an investor in the amount
            of $1
            million which shall enable the Company to sustain operations. As
            of
            September 30, 2006 the Company did not conclude the transaction with
            the
            investor.
  Factoring
            Agent
  In
            July
            2006, the Company entered into a purchase and sale agreement with a factoring
            agent whereby the Company sold its rights to four June 2006 invoices
            totaling
            $96,087 to the agent. Upon signing the agreement and providing the required
            disclosures, the factoring agent remitted 75% of the factored balance
            to the
            Company, net of a $750 set-up fee (the down payment date). Per the terms
            of the
            agreement, once the Company’s client remits the invoice amount to the factoring
            agent, the agent deducts a discount fee from the remaining balance of
            the
            factored invoices and forwards the net proceeds to the Company. The discount
            fee
            is computed as a percentage of the face amount of the invoice as follows:
            4% fee
            for invoices paid within 30 days of the down payment date, 5% for invoices
            paid
            within 45 days of the down payment date, 6% for invoices paid within
            60 days of
            the down payment date, 7% for
 
 F-29
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
    **NOTE
            14 - COMMITMENTS AND CONTINGENCIES - (cont’d)**
  Factoring
            Agent - (cont’d)
  invoices
            paid within 75 days of the down payment date and an additional 1% for
            each 15
            day period thereafter. Two of the invoices were paid in July and two
            were paid
            in August, all within 30 days of the down payment date. The Company paid
            a total
            discount fee of $3,843 and wire transfer fees of $120 in July and August
            2006
            related to the factoring of the four invoices.
  Litigation
  In
            November 2005, a former vendor filed suit against the Company in the
            U.S
            District Court for the Southern District of Florida alleging trademark
            infringement, unfair competition and false designation of origin relating
            to the
            Company’s use of the product name “VerifyID”. In February 2006, the Company and
            the former vendor executed a settlement agreement which will result in
            a
            Stipulation of Dismissal of the suit. The Company retained the services
            of a
            Florida law firm in order to facilitate the settlement process and file
            the
            appropriate legal documentation in the State of Florida. In June 2006,
            the
            Company received and executed the Declaration of Compliance with the
            terms of
            the settlement from the U.S District Court for the Southern District
            of Florida.
 
 **NOTE
            15 -**  **STOCKHOLDERS’
            EQUITY**
  Issuance
            of Stock for Services
  In
            August
            2005, the Company entered into a retainer agreement with an attorney,
            whereas
            the attorney will act as in house counsel for the Company with respect
            to all
            general corporate matters. The agreement is at will and requires a payment
            of
            10,000 shares of common stock, valued at $0.90 per share, due upon execution.
            The certificate for the 10,000 shares of common stock was issued in October
            2005. Commencing on September 1, 2005, the fee structure also includes
            a monthly
            cash fee of $1,000 and the monthly issuance of 2,500 shares of common
            stock,
            valued at market. For the nine months ended September 30, 2006, the Company
            recorded 28,500 shares of common stock, valued at $10,800, related to
            the
            agreement. For the nine months ended September 30, 2006, the Company
            expensed
            $10,800 of fees related to this agreement which are included in legal
            fees of
            which $1,213 are in accrued liabilities.
  In
            December 2005, the Company entered into an agreement with a consulting
            firm
            whereas the consulting firm is to provide public and investor relation
            services
            to the Company. The term of the Agreement is for three months. In accordance
            with this Agreement, the fee structure includes both a cash fee of $7,000
            per
            month and the issuance of 40,000 shares of the Company’s common stock upon
            execution of the Agreement with Rule 144 piggyback registration rights.
            The
            shares were issued in January 2006. For the nine months ended September
            30,
            2006, the Company expensed $24,267 of professional fees related to this
            agreement which are included in consulting expenses. In March 2006, October
            2006
            and November 2006, the Company entered into new agreements with the consulting
            firm (see Notes 15 & 16 below).
  In
            February 2006, the Company executed an agreement with an individual advisor
            whereby the advisor shall serve as a member of the Company’s Advisory Board and
            provide consulting, guidance and advice to the Company. The advisor shall
            also
            assist the Company in obtaining revenues and financing. As compensation
            for the
            advisory services, the advisor received 350,000 shares of the Company’s common
            stock at a value of $0.18 per share. The shares are restricted and have
            piggyback registration rights upon the next registration statement filed
            by the
            Company. The advisor also received warrants to purchase
   F-30
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
            15 -**  **STOCKHOLDERS’
            EQUITY - (cont’d)**
  Issuance
            of Stock for Services - (cont’d)
  240,000
            shares of the Company’s common stock at an exercise price of $0.30 per share
            with a term of six months from the effective date for 120,000 shares
            and twelve
            months from the effective date for 120,000 shares. The fair value of
            all the
            warrants issued using the Black-Scholes Option Pricing Model was $63,096.
            For
            the nine months ended September 30, 2006 and 2005, the Company recorded
            $63,096
            and $0, respectively, in consulting expenses related to the issuance
            of these
            warrants.
  The
            advisor shall also receive a quarterly payment of $5,000 effective June
            2006, a
            10% commission on gross revenues for introduced customers and commission
            on
            introduced financing as follows:
  Gross
                      Proceeds
                    Cash
                        Commission
                    Equity
                        Commission$500,000
                        to $999,999
                    $25,000
                    200,000
                        shares$1,000,000
                        to $1,999,999
                    $50,000
                    400,000
                        shares$2,000,000
                        to $2,999,999
                    $100,000
                    800,000
                        shares$3,000,000
                        to $3,499,999
                    $150,000
                    1,000,000
                        shares$3,500,000
                        to $3,999,999
                    $175,000
                    1,200,000
                        shares$4,000,000
                        and up
                    $200,000
                    1,600,000
                        shares
  The
            term
            of the agreement is perpetual with thirty day written termination rights
            retained by both the Company and the advisor.
  In
            February 2006, the Company executed an agreement with a firm as a representative
            whereby the firm shall provide business development services to expand
            the
            Company’s sales and marketing efforts primarily in South America and Mexico.
            As
            compensation for the services, the firm shall receive a fee of $10,000
            per month
            beginning on February 15, 2006. For the initial four months of the agreement,
            the fee will be in the form of the Company’s common stock. For the second four
            months of the agreement, the fee shall be paid as $5,000 cash and $5,000
            in the
            form of the Company’s common stock. The stock price will be calculated based
            upon the ten days average bid price, prior to the 15 th of each
            month, with the lowest bid price no lower than $0.25 per share. The shares
            are
            restricted and have piggyback registration rights upon the next registration
            statement filed by the Company. There shall be no fee for the last four
            months
            of the agreement’s first year. The firm shall also receive a commission of 10%
            of the net sales from introduced customers. The term of the agreement
            is
            perpetual with thirty day written termination rights retained by both
            the
            Company and the firm. In March 2006, the agreement was amended to expand
            the
            territory outside of South America and Mexico on a case by case basis
            with
            written approval required by both the Company and the firm. For the nine
            months
            ended September 30, 2006, the Company recorded 230,709 shares of common
            stock,
            valued at $58,725, related to the agreement. For the nine months ended
            September
            30, 2006, the Company expensed $58,725 of fees related to this agreement
            which
            are included in consulting expenses, of which $25,000 are in accrued
            liabilities. The Company also executed a consultant agreement with the
            firm in
            January 2006 (see Note 14 above).
  In
            March
            2006, the Company executed a consulting agreement with its public relations
            firm
            whereby the firm shall provide public relations consulting services in
            addition
            to the services defined in an April 2005 engagement letter. As compensation
            for
            providing additional services, the firm shall receive an additional monthly
            fee
            of $5,000 in the form of the Company’s common stock at a value based upon a 20%
            discount to the market value of the Company’s common stock on the last trading
            day of each month.
 
 F-31
  **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
            15 -**  **STOCKHOLDERS’
            EQUITY - (cont’d)**
  Issuance
            of Stock for Services - (cont’d)
  The
            shares shall be restricted and have piggyback registration rights upon
            the next
            registration statement filed by the Company. The term of the agreement
            is for
            six months with automatic renewal terms until either the Company or the
            firm
            provides the other party with at least thirty day’s written notice of its intent
            to terminate the agreement. In April 2006, the public relations firm
            terminated
            the agreement. For the nine months ended September 30, 2006, the Company
            recorded 23,256 shares of common stock and expensed $6,000 of professional
            fees
            related to this agreement which are included in consulting expenses.  The
            stock
            was not issued by the transfer agent until October 2006.
  In
            March
            2006, the Company executed a consulting agreement with an investor relations
            firm whereby the firm shall provide public and investor relations services
            to
            the Company. As compensation for the services, the firm shall receive
            a monthly
            retainer in the amount of $5,000 and 120,000 shares of the Company’s common
            stock, 60,000 shares each to two of the firm’s officers. The shares shall be
            restricted and have piggyback registration rights upon the next registration
            statement filed by the Company. The term of the agreement is for six
            months and
            it can be renewed provided the Company and the firm both agree in writing.
            For
            the nine months ended September 30, 2006, the Company recorded 120,000
            shares of
            common stock and expensed $25,200 of professional fees related to this
            agreement. The stock was not issued by the transfer agent until July
            2006.
  In
            April
            2006, the Company entered into a consulting agreement with an advisory
            firm,
            whereas the services include a review and advice concerning the technical
            design
            of existing and planned products or services, business development, sales
            assistance, financing advice, consulting services, market development
            and public
            relations, advising on issues regarding corporate structure, stock option
            plans
            and introducing the Company to potential investors. The term of this
            agreement
            is one year, ending March 31, 2007. The agreement calls for compensation
            in the
            amount of 350,000 shares of the Company’s common stock valued at $0.19 per
            share. Such shares shall be deemed for all purposes to be earned by the
            consultant upon its receipt thereof and shall be non-refundable and
            non-returnable. For the nine months ended September 30, 2006, the Company
            issued
            350,000 shares of common stock and expensed $66,500 of consulting expenses
            related to this agreement.
  In
            July
            2006, the Company issued 10,417 shares of common stock to a law firm.
            For the
            nine months ended September 30, 2006, the Company expensed $7,500 of
            legal fees
            related to this issuance.
  In
            September 2006, in accordance with an agreement made with a Software
            Development
            Consultant, the Company recorded 31,547 shares of its common stock, valued
            at
            $2,360, as compensation for consulting services rendered. The stock was
            not
            issued by the transfer agent until October 2006. For the nine months
            ended
            September 30, 2006, the Company expensed $2,360 of consulting fees related
            to
            this agreement.
  Issuance
            of Stock for Financing
  In
            May
            2006, the Company sold 200,000 shares of the Company’s common stock to Cornell
            related to the execution of a $100,000 promissory note (see Note 11).
            For the
            nine months ended September 30, 2006, the Company expensed $28,000 of
            financing
            expenses related to the issuance of the shares.
  In
            July
            2006, the Company sold a total of 1,500,000 shares of common stock to
            six
            individuals related to the execution of six promissory notes totaling
            $150,000
            (see Note 11). The Company paid a placement
 
 F-32
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
            15 -**  **STOCKHOLDERS’
            EQUITY - (cont’d)**
  Issuance
            of Stock for Financing - (cont’d)
  agent
            fee
            that included the issuance of 150,000 shares of the Company’s common stock, in
            August 2006, relating to the promissory notes. The Company also issued
            50,000
            shares of the Company’s common stock to the placement agent in July 2006 as a
            part of the due diligence fee. All of the Company’s shares of common stock
            issued in relation to the promissory notes have Rule 144 piggyback registration
            rights. For the nine months ended September 30, 2006, the Company expensed
            $144,500 of financing expenses related to the issuance of the
            shares.
  In
            September 2006, in accordance with an the terms of a Financial Consulting
            Agreement executed with an investor relations consultant in March 2006
            (see Note
            14), the Company recorded 208,000 shares of its common stock, valued
            at $37,440,
            and issuable to the I/R consultant as compensation for raising $150,000
            in debt
            financing and $110,000 in equity financing. The stock was not issued
            by the
            transfer agent until October 2006. For the nine months ended September
            30, 2006,
            the Company expensed $10,800 of financing expense related to this agreement.
  Issuance
            of Warrants for Services
  In
            October 2005, in accordance with a consulting agreement with an investment
            banking services firm executed in October 2005, the Company issued to
            the firm a
            non-refundable retainer fee of common stock warrants to purchase 400,000
            shares
            of the Company’s common stock at an exercise price of $0.75 per share with a
            term of five years (see Note 14). In April 2006, the Company and the
            placement
            agent amended the agreement in order to waive the exclusivity clause.
            In
            exchange for the waiver, the Company has agreed to reduce the exercise
            price of
            the 400,000 warrants to $0.50 per share. For the nine months ended September
            30,
            2006, the Company recorded $186,800 of consulting expense related to
            the
            warrants.
  In
            February 2006, in accordance with a consulting agreement executed with
            an
            advisor (see Note 15 above), the advisor received warrants to purchase
            240,000
            shares of the Company’s common stock at an exercise price of $0.30 per share
            with a term of six months from the effective date for 120,000 shares
            and twelve
            months from the effective date for 120,000 shares. For the nine months
            ended
            September 30, 2006, the Company recorded $63,096 of consulting expense
            related
            to the warrants. \
  In
            March
            2006, in accordance with an Investor Relations consulting agreement executed
            with an investment firm, the firm received warrants to purchase 300,000
            shares
            of the Company’s common stock with an exercise price of $0.18 per share. The
            warrants will have a five year term, piggyback registration rights for
            one year
            and demand registration rights after April 1, 2007. The fair value of
            the
            warrants issued using the Black-Scholes Option Pricing Model was $30,060.
            For
            the nine months ended September 30, 2006, the Company recorded $30,060
            of
            consulting expense related to the warrants.
  In
            May
            2006, in accordance with a consulting agreement executed with a sales
            consultant
            (see Note 14 above), the consultant received warrants to purchase 200,000
            shares
            of the Company’s common stock at an exercise price of $0.20 per share with a
            term of three years from the effective date. For the nine months ended
            September
            30, 2006, the Company recorded $23,120 of consulting expense related
            to the
            warrants.
 
 F-33
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
 
 **NOTE
            15 -**  **STOCKHOLDERS’
            EQUITY - (cont’d)**
  Issuance
            of Options for Employment Services
  In
            July
            2006, the Company issued stock options to purchase 2,025,000 shares of
            common
            stock to twelve existing employees at 150,000 shares for ten employees,
            225,000
            shares for one employee and 300,000 shares for one employee. The options
            were
            issued in accordance with the Company’s 2004 Equity Incentive Plan (see Note 3).
            These options are exercisable at $0.10 per share and expire in July 2016.
            The
            shares vest annually over a three year period. This issuance was exempt
            from
            registration requirements pursuant to Section 4(2) of the Act. One of
            the ten
            employees who received stock options to purchase 150,000 shares was terminated
            in July 2006.
  In
            August
            2006, the Company issued stock options to purchase 899,148 shares of
            common
            stock to eleven existing employees. The options were issued in accordance
            with
            the Company’s 2004 Equity Incentive Plan. Options totaling 405,432 shares are
            exercisable at $0.085 per share and options totaling 493,716 shares are
            exercisable at $0.0698 per share. All of the options expire in August
            2016. The
            shares vest after a one year period. This issuance was exempt from registration
            requirements pursuant to Section 4(2) of the Act.
  In
            August
            2006, the Company issued stock options to purchase 750,000 shares of
            common
            stock to five existing employees at 150,000 shares each. The options
            were issued
            in accordance with the Company’s 2004 Equity Incentive Plan. These options are
            exercisable at $0.10 per share and expire in August 2016. The shares
            vest
            annually over a three year period. This issuance was exempt from registration
            requirements pursuant to Section 4(2) of the Act.
  In
            September 2006, the Company issued stock options to purchase 840,405
            shares of
            common stock to eleven existing employees. The options were issued in
            accordance
            with the Company’s 2004 Equity Incentive Plan. Options totaling 492,309 shares
            are exercisable at $0.07 per share and options totaling 348,096 shares
            are
            exercisable at $0.099 per share. All of the options expire in September
            2016.
            The shares vest after a one year period. This issuance was exempt from
            registration requirements pursuant to Section 4(2) of the Act.
  Sales
            of Common Stock
  In
            January 2006, the Company sold units to an individual which contained
            common
            stock and warrants. This issuance is exempt from registration under the
            Securities Act of 1933 and the rules and regulations promulgated thereunder.
            The
            individual purchased 133,333 shares of common stock from the Company
            at a price
            of $0.75 per share and received an aggregate of 13,333 warrants with
            an exercise
            price of $0.75 per share which are exercisable for a period of two years
            from
            issuance.
  In
            February 2006, the Company sold units to an individual which contained
            common
            stock and warrants. This issuance is exempt from registration under the
            Securities Act of 1933 and the rules and regulations promulgated thereunder.
            The
            individual purchased and the Company recorded 50,000 shares of common
            stock from
            the Company at a price of $0.22 per share and received an aggregate of
            10,000
            warrants with an exercise price of $0.55 per share which are exercisable
            for a
            period of two years from issuance. The stock was not issued by the transfer
            agent until July 2006.
  In
            March
            2006, the Company sold units to four individuals which contained common
            stock
            and warrants. This issuance is exempt from registration under the Securities
            Act
            of 1933 and the rules and regulations promulgated thereunder. The four
            individuals purchased and the Company recorded 190,910 shares of
 
 F-34
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
  **NOTE
            15 -**  **STOCKHOLDERS’
            EQUITY - (cont’d)**
  Sales
            of Common Stock - (cont’d)
  common
            stock from the Company at a price of $0.22 per share for 90,910 shares
            and $0.25
            per share for 100,000 shares. In connection with the sale of common stock,
            the
            Company issued to the individuals an aggregate of 118,182 warrants with
            an
            exercise price of $0.55 per share for 18,182 warrants and $0.50 per share
            for
            100,000 of the warrants. These warrants are exercisable for a period
            of two
            years from issuance. The stock was not issued by the transfer agent until
            July
            2006.
  In
            May
            2006, the Company sold units to an individual which contained common
            stock and
            warrants. This issuance is exempt from registration under the Securities
            Act of
            1933 and the rules and regulations promulgated thereunder. The individual
            purchased and the Company recorded 71,429 shares of common stock from
            the
            Company at a price of $0.14 per share and received an aggregate of 14,286
            warrants with an exercise price of $0.35 per share which are exercisable
            for a
            period of two years from issuance. The stock was not issued by the transfer
            agent until July 2006.
  In
            August
            2006, the Company sold units to an individual which contained common
            stock and
            warrants. This issuance is exempt from registration under the Securities
            Act of
            1933 and the rules and regulations promulgated thereunder. The individual
            purchased and the Company recorded 300,000 shares of common stock from
            the
            Company at a price of $0.07 per share and received an aggregate of 450,000
            warrants with an exercise price of $0.105 per share which are exercisable
            for a
            period of three years from issuance. The stock was not issued by the
            transfer
            agent until October 2006.
  In
            September 2006, the Company sold units to an individual which contained
            common
            stock and warrants. This issuance is exempt from registration under the
            Securities Act of 1933 and the rules and regulations promulgated thereunder. The
            individual purchased and the Company recorded 71,429 shares of common
            stock from
            the Company at a price of $0.07 per share and received an aggregate of
            107,144
            warrants with an exercise price of $0.105 per share which are exercisable
            for a
            period of three years from issuance. The stock was not issued by the
            transfer
            agent until October 2006.
  Warrant
            Agreements
  At
            September 30, 2006, the Company has warrants issued related to its convertible
            notes payable. The warrant agreements entitle the note holders to purchase
            the
            Company’s common stock at: $0.55 per share for 66,667 warrants, $0.25 per share
            for 400,000 warrants, $0.20 per share for 45,000 warrants and $0.16 per
            share
            for 562,500 warrants, for each warrant received. The agreements have
            an exercise
            term of two years for 66,667 warrants, three years for 45,000 warrants
            and five
            years for 962,500 warrants. In the event that any portion of the warrants
            remain
            unexercised as of the expiration date, and the market price of the Company’s
            common stock as of the expiration date is greater than the exercise price
            as of
            the expiration date, then the warrant will be deemed to have been exercised
            automatically for the maximum number of shares then purchasable.
  At
            September 30, 2006, the Company has warrants issued related to its convertible
            notes payable - related parties. All the warrants entitle the note holders
            to
            purchase the Company’s common stock at $1.00 per share for each warrant received
            and have an exercise term of ten years. At September 30, 2006, the warrants
            outstanding are 31,000 which expire in the year 2013, 16,500 which expire
            in the
            year 2014, 21,700 which expire in the year 2015 and 11,300 which expire
            in the
            year 2016. In the event that any portion of the warrants remain unexercised
            as
            of the expiration date, and the market price of the Company’s common stock as of
            the expiration date is greater than the exercise price as of the expiration
 
 F-35
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
  **NOTE
            15 -**  **STOCKHOLDERS’
            EQUITY - (cont’d)**
  Warrant
            Agreements - (cont’d)
  date,
            then the warrant will be deemed to have been exercised automatically
            for the
            maximum number of shares then purchasable.
  At
            September 30, 2006, the Company has warrants issued related to its notes
            payable
            - related parties. The warrants entitle the note holder to purchase the
            Company’s common stock at $0.13 per share for a total of 200,000 warrants and
            have an exercise term of five years. In the event that any portion of
            the
            warrants remain unexercised as of the expiration date, and the market
            price of
            the Company’s common stock as of the expiration date is greater than the
            exercise price as of the expiration date, then the warrant will be deemed
            to
            have been exercised automatically for the maximum number of shares then
            purchasable.
 
 **NOTE
            16 - SUBSEQUENT EVENTS**
  Conversions
            to Common Stock
  In
            November 2006, Highgate converted $25,000 of the May 6, 2005 debenture
            into
            595,238 shares of the Company’s common stock, pursuant to the terms of the
            Securities Purchase Agreement. The conversion price was $0.042 per
            share.
  Notes
            Payable
  In
            October 2006, the Company executed a 15% promissory note in the amount
            of
            $190,000 with an unrelated individual lender. The principal shall be
            payable in
            full at the earlier of: (i) 180 days from the date of the loan; or (ii)
            within
            five days of the Company’s receipt of the proceeds from its inclusion in the New
            Jersey Technology Business Certificate program. In the event of loan
            default,
            the interest rate shall increase to 20% per annum. In October, the Company
            received $100,000 in funds related to the note. The Company anticipates
            receipt
            of the remaining $90,000 of loan funds in November 2006. As consideration
            for
            the loan, the Company paid the lender’s legal fee of $2,500 and issued 50,000
            shares of common stock, valued at $1,750, to a relative of the lender,
            in
            October 2006. The Company’s shares of common stock issued in relation to the
            promissory note have Rule 144 piggyback registration rights. Upon receipt
            of the
            balance of the loan finds, the Company has agreed to pay a lender’s fee to the
            lender in the amount of $14,250.
  Registration
            Statement
  On
            November 2, 2006, the Company filed a Post-Effective Amendment to its
            Form SB-2
            Registration Statement with the SEC. The SEC declared the Company’s
            Post-Effective Amendment effective on November 8, 2006.
  Issuance
            of Stock for Services
  In
            October 2006, the Company executed a consulting agreement with an investor
            relations firm whereby the firm shall provide public and investor relations
            services to the Company. As compensation for the services, the firm shall
            receive a retainer in the amount of 75,000 shares of the Company’s common stock,
            37,500 shares each to two of the firm’s officers. The shares shall be restricted
            and have piggyback registration rights upon the next registration statement
            filed by the Company. The term of the agreement
  
 F-36
 **STRIKEFORCE
              TECHNOLOGIES, INC.**
 **NOTES
              TO FINANCIAL STATEMENTS**
 **FOR
              THE NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005**
 **(UNAUDITED)**
  **NOTE
            16 - SUBSEQUENT EVENTS - (cont’d)**
  Issuance
            of Stock for Services - (cont’d)
  is
            for
            one month and it can be renewed provided the Company and the firm both
            agree in
            writing. Shares totaling 75,000, and valued at $6,375, were recorded
            and issued
            in October 2006.
  In
              November 2006, the Company executed a consulting agreement with an
              investor
              relations firm whereby the firm shall provide public and investor relations
              services to the Company. As compensation for the services, the firm
              shall
              receive a retainer in the amount of 75,000 shares of the Company’s common stock,
              37,500 shares each to two of the firm’s officers. The shares shall be restricted
              and have piggyback registration rights upon the next registration statement
              filed by the Company. The term of the agreement is for one month and
              it can be
              renewed provided the Company and the firm both agree in writing. Shares
              totaling
              75,000, and valued at $7,500, were recorded and issued in November
              2006.
  Sales
              of Common Stock
  In
              November 2006, the Company sold units to an individual which contained
              common
              stock and warrants. This issuance is exempt from registration under
              the
              Securities Act of 1933 and the rules and regulations promulgated thereunder.
              The
              individual purchased and the Company recorded 66,667 shares of common
              stock from
              the Company at a price of $0.075 per share and received an aggregate
              of 80,000
              warrants with an exercise price of $0.15 per share which are exercisable
              for a
              period of one year from issuance.






F-37


**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





**Forward-Looking
      Statements**





The
      information in this quarterly report contains forward-looking statements within
      the meaning of the Private Securities Litigation Reform Act of 1995. This Act
      provides a “safe harbor" for forward-looking statements to encourage companies
      to provide prospective information about themselves so long as they identify
      these statements as forward looking and provide meaningful cautionary statements
      identifying important factors that could cause actual results to differ from
      the
      projected results. All statements other than statements of historical fact
      made
      in this report are forward looking. In particular, the statements herein
      regarding industry prospects and future results of operations or financial
      position are forward looking statements. Forward-looking statements reflect
      management's current expectations and are inherently uncertain. Our actual
      results may differ significantly from management's expectations. Important
      factors that could cause actual results to differ materially from our
      expectations are disclosed in this quarterly report as well as in our annual
      report on Form 10-KSB for the fiscal year ended December 31, 2005.




The
      following discussion and analysis should be read in conjunction with the
      financial statements of StrikeForce Technologies, Inc., included herewith.
      This
      discussion should not be construed to imply that the results discussed herein
      will necessarily continue into the future, or that any conclusion reached herein
      will necessarily be indicative of actual operating results in the future. Such
      discussion represents only the best present assessment of our management.





**Background**





We
      are a
      software development and services company that offers a suite of integrated
      computer network security products using proprietary technology. We were
      organized in August 2001 under New Jersey law as Strike Force Technical
      Services, Inc. We initially conducted operations as an integrator and reseller
      of computer hardware and telecommunications equipment and services. In December
      2002, the Company began to acquire the rights to certain intellectual property
      rights and patent pending technology pursuant to an agreement with NetLabs.com
      including the rights to further develop and sell their principal technology.
      Certain officers of NetLabs.com joined StrikeForce as officers and directors
      of
      our company. We subsequently changed our name to StrikeForce Technologies,
      Inc.,
      under which we had conducted our business since August 2001. Our strategy is
      to
      develop and exploit our suite of network security products for customers in
      the
      corporate, financial, government, e-commerce and consumer markets. We plan
      to
      grow our business through internally generated sales, rather than by
      acquisitions. We have no subsidiaries and we conduct our operations from our
      office in Edison, New Jersey.





The
      Company owns the exclusive right to license and develop various identification
      protection software products to protect computer networks from unauthorized
      access and to protect network owners and users from identity theft. The
      Company has developed a suite of products based upon the licenses and the
      Company is seeking to commercially exploit the products in the areas of
      eCommerce, corporate, government and consumer sectors. We are a development
      stage business and have had nominal revenues since our formation. On August
      3,
      2005 the Company’s registration statement on Form SB-2 was declared effective by
      the Securities and Exchange Commission and on December 14, 2005 the Company
      received its clearance for quotation on the Over-The-Counter Bulletin Board.
      On
      November 2 2006, the Company filed a Post-Effective Amendment to its Form SB-2
      Registration Statement with the SEC. The SEC declared the Company’s
      Post-effective Amendment effective on November 8, 2006.





We
      derived the majority of our revenues from our activities as a reseller through
      the first half of 2003. Upon the acquisition of the licensing rights to certain
      intellectual property and patent pending technology from NetLabs.com to develop
      and sell their principal technology in December 2002, we shifted the focus
      of
      our business to developing and marketing our own suite of security products
      based upon the technology acquired. We have maintained our relationship with
      Panasonic and LG as a reseller, primarily for the resale of biometric
      identification equipment, such as Panasonic’s and LG’s iris scanners, that can
      be used with our software products. We generated nominal revenues from our
      activities as a reseller during 2005 and 2004.





2


We
      completed the development of our ProtectIDTM platform at the end of June 2006 and
      we completed the development of our anti-keylogger product, GuardedID®, which
      will be ready for distribution in November 2006. For the nine months ended
      September 30, 2005, we generated $18,444 from the sales of our security products
      and for the nine months ended September 30, 2006 we generated $163,024 from
      the
      sales of our security products. We seek to locate customers in a variety of
      ways. These include contracts with value added resellers and distributors (both
      inside the United States and globally), direct sales calls initiated by our
      sales staff, exhibitions at security and technology trade shows, through the
      media, consulting agreements and through relationships. Our sales generate
      revenue either as an Original Equipment Manufacturer (OEM) model, through a
      Hosting/License agreement, or through direct purchase by customers. We price
      our
      products for consumer transactions based on the number of transactions in which
      our software products are utilized and we also price our products for business
      applications based on the number of users. These pricing models provide the
      Company with monthly recurring revenues. We also expect that we may generate
      revenue from annual maintenance contracts, renewal fees and based upon the
      execution of international agreements that we have recently closed.





We
      have
      incurred substantial operating losses since commencing operations. We believe
      that our products provide a cost-effective and technologically competitive
      solution that helps prevent the problems of network security and identity theft.
      There can be no assurance, however, that our products will gain acceptance
      in
      the commercial marketplace or that one of our competitors will not introduce
      a
      technically superior product. The products that we offer to customers are
      discussed in Item 1, Description of Business of our annual report on Form
      10-KSB.





Management,
      in late 2004, introduced procedures that assess our business performance through
      a number of financial and non-financial indicators. Since we are still in the
      process of introducing our products to the commercial marketplace, we attempt
      to
      assess our performance principally through indications of present and potential
      sales. These include the following:




o
            Number
                of contracts signed, or projected to be signed within 30 and 90 day
                periods;




o
            Number
                of prospects in our sales pipeline;




o
            Number
                of Requests for Information and Requests for Proposal in which we
                are
                invited to participate; and




o
            The
                frequency with which we are mentioned in trade or consumer publications
                or
                other media.




We
      also
      assess the number of problems that are reported with each product and over
      specific time frames, e.g. monthly, quarterly. We review our revenues generated
      in the aggregate per quarter and the average revenue generated per
      customer.





3


**Use
      of Estimates**





Management's
      Discussion and Analysis of Financial Condition and Results of Operations are
      based upon our financial statements, which have been prepared in accordance
      with
      generally accepted accounting principles in the United States. When preparing
      our financial statements, we make estimates and judgments that affect the
      reported amounts on our balance sheets and income statements, and our related
      disclosure about contingent assets and liabilities. We continually evaluate
      our
      estimates, including those related to revenue, allowance for doubtful accounts,
      reserves for income taxes, and litigation. We base our estimates on historical
      experience and on various other assumptions, which we believe to be reasonable
      in order to form the basis for making judgments about the carrying values of
      assets and liabilities that are not readily ascertained from other sources.
      Actual results may deviate from these estimates if alternative assumptions
      or
      conditions are used.





**Results
      of Operations**





**THREE
      MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER
      30,
      2005**





Revenues
      for the three months ended September 30, 2006 were $99,155 compared to $14,620
      for the three months ended September 30, 2005, an increase of $84,535, or 578%.
      The resultant increase in revenues was primarily due to the implementation
      of
      several new projects and the signing up of several new clients onto our platform
      and the activity generated by the new clients.





Revenues
      generated consisted of hardware sales, software sales, revenue from sign on
      fees, transaction revenues, consulting revenues and commissions. Hardware sales
      for the three months ended September 30, 2006 were $5,968 compared to $7,100
      for
      the three months ended September 30, 2005, a decrease of $1,132. The resultant
      decrease in hardware revenues was primarily due to the refocusing of the
      Company’s direction from a reseller of biometric technology to becoming a
      developer of our own suite of technology products. Software sales for the three
      months ended September 30, 2006 were $400 compared to $0 for the three months
      ended September 30, 2005, an increase of $400. The resultant increase in
      software revenues was primarily due an increase in the sales of our technology
      platform. Sign on fees for our ASP transaction model amounted to $7,000 for
      the
      three months ended September 30, 2006 compared to $6,500 for the three months
      ended September 30, 2005, an increase of $500. The increase resulted primarily
      from signing up several new clients in the third quarter of 2006. Transaction
      revenues from the ASP hosting model and the implementation of new technology
      projects were $85,787 for the three months ended September 30, 2006 and $1,020
      for the three months ended September 30, 2005, an increase of $84,767. The
      increase was due primarily to the activity generated by new and existing
      clients.





Cost
      of
      revenues for the three months ended September 30, 2006 was $31,432 compared
      to
      $4,169 for the three months ended September 30, 2005, an increase of $27,263,
      or
      654%. The increase resulted primarily from an increase in the ASP transaction
      activity and hardware purchased for resale.




Gross
      profit for the three months ended September 30, 2006 was $67,723 compared to
      $10,451 for the three months ended September 30, 2005, an increase of $57,272,
      or 548%. The increase was primarily due to signing up new clients onto our
      platform, the activity generated by the new clients and the sales of our
      technology.




Research
      and development expenses for the three months ended September 30, 2006 were
      $111,020 compared to $89,303 for the three months ended September 30, 2005,
      an
      increase of $21,717, or 24.3%. The increase is primarily attributable to the
      development and testing of our GuardedID® product and the resulting increase of
      resources attributable to development and Beta testing.




4


Selling,
      general and administrative expenses for the three months ended September 30,
      2006 were $706,489 compared to $747,581 for the three months ended September
      30,
      2005, a decrease of $41,092, or 5.5%. The net decrease was due primarily to
      decreases in our staffing, promotion and marketing and professional fees which
      were implemented in the third quarter of 2006.





Selling,
      general and administrative expenses at September 30, 2006 and September 30,
      2005
      consist primarily of salaries, benefits and overhead costs for executive and
      administrative personnel, insurance, fees for professional services, including
      consulting, legal, and accounting fees, travel costs, non-cash stock
      compensation expense for the issuance of stock and stock options to
      non-employees and other general corporate expenses. Effective January 1, 2006
      employees’ stock option grants are accounted for under FAS 123R for new options
      granted to employees.





Other
      expense (income) for the three months ended September 30, 2006 was $382,346
      as
      compared to $727,915 for the three months ended September 30, 2005, representing
      a decrease in other expenses of $345,569, or 47.5%. The decrease was primarily
      due to net, mark to market changes in the fair value of derivative financial
      instruments relating to the convertible promissory notes.




Derivative
      expense (gain) represents the change in the fair value of the net derivative
      liability at year end, using a layered discounted probability-weighted cash
      flow
      approach. Interest expense derivatives represent the amortization of discount
      on
      the initial valuation of the derivatives, or the amortization of the change
      after any modification of debt. The change represents the amortization for
      both
      the Cornell and Highgate debentures.





Our
      net
      loss for the three months ended September, 30, 2006 was $1,132,132 compared
      to a
      net loss of $1,554,348 for the three months ended September 30, 2005, a decrease
      of $422,216, or 27.2%. The decrease was primarily due to a decrease in salaries,
      benefits and overhead costs for executive and administrative personnel, fees
      for
      professional services, promotion and marketing expenses and net mark to market
      changes in the fair value of derivative instruments relating to the convertible
      promissory notes.





**NINE
      MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
      30,
      2005**





Revenues
      for the nine months ended September 30, 2006 were $244,244 compared to $26,373
      for the nine months ended September 30, 2005, an increase of $217,871 or 826%.
      The resultant increase in revenues was primarily due to the implementation
      of
      several new projects and the signing up of several new clients onto our platform
      and the activity generated by the new clients.





Revenues
      generated consisted of hardware sales, software sales, revenue from sign on
      fees, transaction revenues, consulting revenues and commissions. Hardware sales
      for the nine months ended September 30, 2006 were $78,470 compared to $7,929
      for
      the nine months ended September 30, 2005, an increase of $70,541. The resultant
      increase in hardware revenues was primarily due to the sale of biometric
      technology related to our product lines. Software sales for the nine months
      ended September 30, 2006 were $17,625 compared to $5,500 for the nine months
      ended September 30, 2005, an increase of $12,125. The resultant increase in
      software revenues was primarily due an increase in the sales of our technology
      platform. Sign on fees for our ASP transaction model amounted to $15,000 for
      the
      nine months ended September 30, 2006 compared to $10,700 for the nine months
      ended September 30, 2005, an increase of $4,300. The increase resulted primarily
      from signing up several new clients in the third quarter of 2006. Transaction
      revenues from the ASP hosting model and the implementation of new technology
      projects were $133,149 for the nine months ended September 30, 2006 and $2,244
      for the nine months ended September 30, 2005, an increase of $130,905. The
      increase was due primarily to the activity generated by new and existing
      clients.





5


Cost
      of
      revenues for the nine months ended September 30, 2006 was $50,721 compared
      to
      $8,425 for the nine months ended September 30, 2005, an increase of $42,296,
      or
      502%. The increase resulted primarily from an increase in the ASP transaction
      activity and hardware purchased for resale.




Gross
      profit for the nine months ended September 30, 2006 was $193,523 compared to
      $17,948 for the nine months ended September 30, 2005, an increase of $175,575,
      or 978%. The increase was primarily due to signing up new clients onto our
      platform, the activity generated by the new clients and the sales of our
      technology.




Research
      and development expenses for the nine months ended September 30, 2006 were
      $275,995 compared to $263,767 for the nine months ended September 30, 2005,
      an
      increase of $12,228, or 4.6%. The increase is primarily attributable to the
      development and testing of our GuardedID® product and the resulting increase of
      resources attributable to development and Beta testing.




Selling,
      general and administrative expenses for the nine months ended September 30,
      2006
      were $2,921,100 compared to $2,594,837 for the nine months ended September
      30,
      2005, an increase of $326,263, or 12.6%.




The
      net
      increase was due primarily to increases in our staffing, advertising, promotion
      and marketing, legal and accounting, consulting costs and overhead. The
      increased level of expenses being incurred by the Company resulted from our
      efforts to commercially exploit our suite of network security products and
      prepare for the deployment of our new product, GuardedID®.





Selling,
      general and administrative expenses at September 30, 2006 and September 30,
      2005
      consist primarily of salaries, benefits and overhead costs for executive and
      administrative personnel, insurance, fees for professional services, including
      consulting, legal, and accounting fees, travel costs, non-cash stock
      compensation expense for the issuance of stock and stock options to
      non-employees and other general corporate expenses. Effective January 1, 2006
      employees’ stock option grants are accounted for under FAS 123R for new options
      granted to employees.





Other
      expense (income) for the nine months ended September 30, 2006 was $389,346
      as
      compared to $1,116,082 for the nine months ended September 30, 2005,
      representing a decrease in other expenses of $726,736, or 65.1%. The decrease
      was primarily due to interest charges for notes payable and net, mark to market
      changes in the fair value of derivative financial instruments relating to the
      convertible promissory notes.




Derivative
      expense (gain) represents the change in the fair value of the net derivative
      liability at year end, using a layered discounted probability-weighted cash
      flow
      approach. Interest expense derivatives represent the amortization of discount
      on
      the initial valuation of the derivatives, or the amortization of the change
      after any modification of debt. The change represents the amortization for
      both
      the Cornell and Highgate debentures.





Our
      net
      loss for the nine months ended September, 30, 2006 was $3,392,918 compared
      to a
      net loss of $3,956,738 for the nine months ended September 30, 2005, a decrease
      of $563,820, or 14.3%. The decrease was primarily due to a decrease in salaries,
      benefits and overhead costs for executive and administrative personnel in the
      second quarter of 2006, fees for professional services, promotion and marketing
      expenses and net mark to market changes in the fair value of derivative
      instruments relating to the convertible promissory notes.





**Liquidity
      and Capital Resources**





Our
      total
      current assets at the nine months ended September 30, 2006 were $696,598,
      including $154,299 in cash as compared with $618,345 in total current assets
      at
      the year ended December 31, 2005, which included cash of $77,094. We have
      historically incurred losses and have financed our operations through loans,
      principally from affiliated parties such as our directors, and from the proceeds
      of debt and equity financing.




6


The
      number of common shares outstanding increased from 17,657,190 shares at the
      nine
      months ended September 30, 2005 to 26,535,803 at the nine months ended September
      30, 2006, an increase of 50.3%. Additionally, we had a shareholders’ deficiency
      in the amount of $3,789,784 at the nine months ended September 30, 2006 as
      compared to a shareholders’ deficiency of $454,465 at the nine months ended
      September 30, 2005, an increase of approximately 734%. The increase in
      shareholders’ deficiency is a result of the Company’s net losses and funding
      through an increased debt position from convertible debentures and promissory
      notes rather than the sale of stock. We had $154,299 of cash at the nine months
      ended September 30, 2006, compared to $17,708 cash at the nine months ended
      September 30, 2005, an increase of approximately 771%. We financed our
      operations during the nine months ended September 30, 2006 through debt and
      equity financing. To date, we have not generated significant revenues and we
      anticipate that we will not generate any significant revenues until the end
      of
      the first quarter of 2007. We expect that we will rely, at least in the near
      future, upon a limited number of customers for a substantial percentage of
      our
      revenues and may continue to have customer concentrations. Inherently, as time
      progresses and corporate exposure in the market grows, we will attain greater
      numbers of customers and the concentrations will diminish. Until this is
      accomplished, we will continue to attempt to secure additional financing through
      both the public and private market sectors to meet our continuing commitments
      of
      capital expenditures and until our sales revenue can provide greater liquidity.





We
      have
      historically incurred losses and expect to continue to incur losses in the
      foreseeable future. Our operations presently require funding of approximately
      $160,000 per month. Our current forecast and potential pipeline substantiate
      our
      becoming profitable by the third quarter of 2007 based on some key potential
      clients contracting with the Company in the financial industry, enterprise
      and
      consumer sectors in the United States, South America and in Asia. There can
      be
      no assurance, however, that the sales anticipated will materialize or that
      we
      will achieve the profitability we have forecasted.





During
      the nine months ended September 30, 2006 the Company reflected in its financial
      statements sales of common stock and common stock for services rendered.
      Although these transactions were recorded during the nine months ended September
      30, 2006, the stock for several of these transactions was not issued by the
      transfer agent until October 2006.





On
      April
      27, 2005, the Company entered into an amended and restated 8% secured
      convertible debenture with Cornell Capital Partners, LP (“Cornell”) in the
      amount of $1,024,876, which terminated the two $500,000 debentures entered
      into
      with Cornell in December 2004 and January 2005. At September 30, 2006, the
      unpaid principal balance of this debenture was $1,024,876. The new debenture
      entitles Cornell, at its option, to convert, at any time and from time to time,
      all or any part of the principal amount of the debenture, plus accrued interest,
      into shares of the Company’s common stock at the price per share equal to the
      lesser of (i) the greater of $0.25 or an amount equal to 120% of the initial
      bid
      price or (ii) an amount equal to 80% of the lowest volume weighted average price
      of the Company’s common stock for the last five trading days immediately
      preceding the conversion date. The debenture matures on April 27, 2007. The
      Company, at its option, may redeem, with three days advance written notice,
      a
      portion or all outstanding convertible debenture. The redemption shall be 120%
      of the amount redeemed plus accrued interest remaining for the executed
      debenture.





In
      May
      2006, we sold a unit to Cornell consisting of a 9% promissory note payable
      in
      the amount of $100,000 and 200,000 shares of the Company’s common stock. The
      principal due shall be payable in full in immediately available funds of
      $200,000 or more through any funding transaction, even if the funding is with
      Cornell, or by August 28, 2006. If the note is not fully repaid within a twenty
      (20) day grace period after the maturity date, then the remaining outstanding
      principal and accrued and unpaid interest under the note shall be convertible
      into shares of common stock of the Company at the sole option of Cornell, in
      whole or in part at any time and from time to time at a conversion price equal
      to the lesser of (a) $0.22 or (b) ninety percent (90%) of the lowest Volume
      Weighted Average Price of the common stock during the thirty trading days
      immediately preceding the date of conversion as quoted by Bloomberg, LP. The
      Company paid a placement agent fee of $7,000 relating to the promissory note.
      As
      of September 17, 2006, the company considers the note as convertible debt per
      the terms stated herein





7


On
      April
      27, 2005, the Company entered into a Securities Purchase Agreement with Highgate
      House Funds, Ltd. (“Highgate”) pursuant to which the Company received $750,000
      in exchange for two 7% secured convertible debentures amounting to $750,000
      that
      mature in 2 years, and the issuance of 150,000 shares of the Company’s common
      stock. At September 30, 2006, the unpaid principal balance of these debentures
      was $350,000. The Securities Purchase Agreement provides for the execution
      of
      funding under two closings. The first closing occurred upon the signing of
      the
      aforementioned Securities Purchase Agreement and the second closing occurred
      upon the filing of a registration statement on Form SB-2. The Company issued
      the
      aforementioned securities to the investor pursuant to Rule 506 of Regulation
      D
      as promulgated under the Securities Act of 1933, as amended (the “Act”), and/or
      Section 4 (2) of the Act.





In
      addition, in accordance with the Securities Purchase Agreement with Cornell,
      the
      Company has reserved for issuance an aggregate of 2,000,000 shares of the
      Company’s common stock, which may be adjusted from time to time as agreed upon
      by the parties, to be issued to the debenture holder upon conversion of accrued
      interest and liquidated damages into common stock. The 2,000,000 shares were
      not
      required to be registered in the registration statement on Form SB-2. Also,
      the
      Company has reserved for issuance an aggregate of 8,680,000 shares of the
      Company’s common stock, which may be adjusted from time to time as agreed upon
      by the parties, to be issued to the debenture holder upon conversion of the
      secured debenture into common stock. The 8,680,000 shares were not required
      to
      be registered in the registration statement on Form SB-2.




Additionally,
      in accordance with the Securities Purchase Agreement with Highgate, the Company
      is required to maintain in escrow and registered five times the number of shares
      of common stock that would be needed to satisfy the full conversion of all
      such
      convertible debentures outstanding (currently 2,537,977 shares in reserve)
      and
      to issue additional shares as needed if the number of shares in escrow becomes
      less than required. For the nine months ended September 30, 2006, Highgate
      converted the entire April 27, 2005 debenture of $375,000 into 3,525,594 shares
      of the Company’s common stock, pursuant to the terms of the Securities Purchase
      Agreement. For the nine months ended September 30, 2006, Highgate converted
      $25,000 of the May 6, 2005 debenture into 446,429 shares of the Company’s common
      stock, pursuant to the terms of the Securities Purchase Agreement. The
      conversion price ranged from $0.056 to $0.48 per share.




In
      accordance with the use of proceeds, the funds received from Highgate are to
      be
      used to:




o
            cover
                our current monthly burn rate during the filing period,




o
            hire
                one to two additional junior sales persons and interns,




o
            purchase
                related technology equipment in order to meet our current and potential
                client requirements,




o
            cover
                our working capital requirements dedicated to increasing the sales
                and
                revenues of our Company,




o
            cover
                monthly payments for our public relations and investor relations
                firms,




o
            stress
                and lab testing our software,




o
            purchase
                strategic cold call listings,




o
            pay
                for costs relating to our SEC filing obligations, financial audits,
                quarterly reviews and legal expenses incurred during filing period
                and for
                various regulatory reporting requirements, and






8






o
            cover
                expenses associated with marketing events, trade shows, travel and
                entertainment.




Furthermore,
      without Highgate’s approval, except for a $400,000 exclusion, we are prohibited
      from using the proceeds to repay any indebtedness of any of our insiders.




The
      aforementioned debentures bear interest at a rate of 7% per annum and expire
      2
      years after the date of issuance. The debentures are convertible into shares
      of
      our common stock at a conversion price equal to the lesser of (i) 120% of the
      average closing bid price for the 5 trading days immediately preceding the
      closing date; or (ii) 80% of the lowest closing bid price for the 5 trading
      days
      immediately preceding the date of conversion. In addition, the Company has
      the
      right to redeem the debentures, at any time prior to its maturity, upon 3
      business day’s prior written notice to the holder. The redemption price is equal
      to 120% of the face amount redeemed plus accrued interest.




In
      July
      2006, the Company agreed to an anti-dilution adjustment with Cornell and
      Highgate whereby the conversion price that the secured convertible debentures
      are convertible into the Company’s common stock was reduced to a fixed per share
      price equal to the lower of $0.085 or 80% of the lowest closing bid price during
      the five days preceding the conversion date.





In
      addition, we entered into a Security Agreement with Highgate dated as of April
      27, 2005 pursuant to which we granted Highgate a secured interest in all of
      our
      assets. Such secured interest shall be second in priority to the secured
      interest which we granted to Cornell Capital Partners, L.P. on December 20,
      2004, as further described below. The Security Agreement contains certain
      negative covenants that will remain in effect until our repayment obligations
      pursuant to the convertible debenture have been satisfied. In accordance with
      such agreement, we may not, without Highgate’s written consent, directly or
      indirectly:





o
            permit
                to exist any assignment, transfer, pledge, mortgage, security interest
                or
                other lien or encumbrance in or against any part of the pledged property,




o
            assign,
                pledge or in any way transfer or encumber Highgate’s right to receive any
                income or other distribution from any part of the pledged property,





o
            enter
                into any sale-leaseback financing respective to any part of the pledged
                property,




o
            materially
                change our ownership, executive staff or management, including
                specifically Mark L. Kay and Mark Corrao,




o
            declare
                or pay any dividend of any kind, in cash or in property, on any class
                of
                our capital stock, or make any distribution of any kind in respect
                thereof, or




o
            make
                any payments in respect of any pension, profit sharing, retirement,
                stock
                option, stock bonus, incentive compensation or similar plan, without
                the
                prior written consent of Highgate.




In
      addition, we may not guarantee or be liable in any manner, whether directly
      or
      indirectly, or become contingently liable after the date of the Security
      Agreement in connection with the indebtedness of any person, except for (i)
      the
      indebtedness currently secured by the liens identified on the pledged property
      and (ii) the endorsement of negotiable instruments payable to us for deposit
      or
      collection in the ordinary course of business.




Further,
      we may not make any loan, advance or extension of credit to any person other
      than in the normal course of our business, and create, incur, or assume any
      additional indebtedness of any description whatsoever in an aggregate amount
      in
      excess of $25,000 (excluding trade accounts payable and accrued expenses
      incurred in the ordinary course of business). However, the Company may continue
      to accept debt and/or convertible debt investments from accredited investors
      for
      a maximum total of up to $2,000,000, providing no terms are better than the
      Cornell and Highgate convertible debenture terms.





9


During
      the nine months ended September 30, 2006, the Company sold units for an
      aggregate total of $192,000 to nine individuals which contained common stock
      and
      warrants. The issuance is exempt from registration under the Securities Act
      of
      1933 and the rules and regulations promulgated thereunder. The individuals
      purchased and the Company recorded a total of 817,101 shares of common stock
      from the Company at a price ranging from $0.07 to $0.75 per share and received
      an aggregate of 712,945 warrants with an exercise price ranging from $0.105
      to
      $0.75 per share which are exercisable for a period of two years from issuance
      for 155,801 warrants and three years from issuance for 557,144 warrants. Stock
      totaling 133,333 shares was issued in January 2006, stock totaling 312,339
      shares was issued in July 2006 and stock totaling 371,429 shares was not issued
      by the transfer agent until October 2006.




The
      Company issued unsecured convertible notes payable during the nine months ended
      September 30, 2006 in an aggregate total of $450,000 to two unrelated parties.





The
      Company issued unsecured convertible notes payable during the nine months ended
      September 30, 2006 in an aggregate total of $113,000 to three related parties.
      Additionally, during the nine months ended September 30, 2006, the Company
      repaid a total of $62,500 of unsecured convertible notes payable to four related
      parties.





The
      Company issued unsecured notes payable during the nine months ended September
      30, 2006 in an aggregate total of $150,000 to six unrelated parties.





The
      Company issued unsecured notes payable during the nine months ended September
      30, 2006 in an aggregate total of $447,000 to two related parties. Additionally,
      during the nine months ended September 30, 2006, the Company repaid a total
      of
      $7,000 of unsecured notes payable to one related party.





It
      is
      unlikely that we will be able to generate sufficient funds internally to sustain
      our operations until the end of the first quarter 2007. We will seek to raise
      additional funds to continue our operation. It is management's plan to seek
      additional funding through the sale of common stock and the issuance of notes
      and debentures, including notes and debentures convertible into common stock.
      If
      we issue additional shares of common stock, the value of shares of existing
      stockholders is likely to be diluted.





However,
      the terms of the secured convertible debentures issued to certain of the
      existing stockholders require that we obtain the consent of such stockholders
      prior to our entering into subsequent financing arrangements. No assurance
      can
      be given that we will be able to obtain additional financing, that we will
      be
      able to obtain additional financing on terms that are favorable to us or that
      the holders of the secured debentures will provide their consent to permit
      us to
      enter into subsequent financing arrangements.




Our
      future revenues and profits, if any, will primarily depend upon our ability
      to
      secure sales of our suite of network security products. We do not at present
      generate significant revenue from the sales of our products. Although management
      believes that our products are competitive for customers seeking a high level
      of
      network security, we cannot forecast with any reasonable certainty whether
      our
      products will gain acceptance in the marketplace and if so by when. In addition,
      we are a reseller and potential distributor for various security and
      telecommunications related products, for which we anticipate minimal revenues.




Except
      for the limitations imposed upon us respective to the secured convertible
      debentures of Cornell and Highgate, there are no material or known trends that
      will restrict either short-term or long-term liquidity.




In
      December 2005 and March 2006, we engaged the services of two consulting firms
      in
      order for us to obtain additional funding. As of September 30, 2006 the Company
      did not received any funding from these consultants. In May 2006, the Company
      executed a term sheet with an investor in the amount of $1 million. As of
      September 30, 2006 the Company did not conclude the transaction with the
      investor.





10




**Off-Balance
      Sheet Arrangements**




We
      do not
      have any off balance sheet arrangements that are reasonably likely to have
      a
      current or future effect on our financial condition, revenues, results of
      operations, liquidity or capital expenditures.




**Going
      Concern**





We
      are
      assuming that we will continue as a going concern, which contemplates the
      realization of assets and the satisfaction of liabilities in the normal course
      of business. We have incurred net operating losses of approximately $3,392,918
      for the nine months ended September 30, 2006, compared to a net operating loss
      of $3,956,738 for the nine months ended September 30, 2005. At September 30,
      2006, the Company's accumulated deficit was $12,616,732, its working capital
      deficiency was $2,285,354 and approximately 83% of its assets consist of
      deferred royalties. Additionally, for the nine months ended September 30, 2006,
      we had negative cash flows from operating activities of approximately
      $1,293,022. Since our inception, we have incurred losses, had an accumulated
      deficit, and have experienced negative cash flows from operations. The expansion
      and development of our business may require additional capital. This condition
      raises substantial doubt about our ability to continue as a going concern.





We
      have
      issued three-year and two-year secured debentures in 2004 and 2005 that are
      convertible into shares of our common stock to Cornell Capital Partners, LP
      and
      Highgate House Funds, Ltd., respectively. The Cornell debentures were amended
      and combined in 2005 into one two-year secured debenture. Under the terms of
      the
      secured debentures, we are restricted in our ability to issue additional
      securities as long as any portion of the principal or interest on the secured
      debentures remains outstanding. ****





Currently,
      the Company is aggressively attempting to increase revenues and improve profit
      margins by implementing a revised sales strategy. In principle, the Company
      is
      redirecting its sales focus from direct sales to companies using an internal
      sales force, to selling through a distribution channel of Value Added Resellers
      and Original Equipment Manufacturers. The profit margin for this approach is
      more lucrative than selling direct due to the increase in sales volume. This
      revised sales approach should increase the Company’s sales and revenues in order
      to mitigate future losses. In addition, management has raised funds through
      convertible debt instruments and the sale of equity in order to alleviate the
      working capital deficiency. Through the utilization of the public capital
      markets, the Company plans to raise the funds necessary to continue, expand
      and
      enhance its growth; however, there can be no assurance that this will be able
      to
      increase revenues or raise additional capital. In May 2006, the Company executed
      a term sheet with an investor in the amount of $1 million. As of September
      30,
      2006 the Company did not conclude the transaction with the investor. The Company
      is currently in negotiations with other investors to conclude the necessary
      working capital needs of the Company.





Our
      management expects cash flows from operating activities to improve in the first
      quarter of 2007, primarily as a result of an increase in sales, and plans to
      raise financing through various methods to achieve the business plans, although
      there can be no assurance thereof. The accompanying financial statements do
      not
      include any adjustments that might be necessary should we be unable to continue
      as a going concern. If we fail to generate positive cash flows or obtain
      additional financing when required, we may have to modify, delay or abandon
      some
      or all of our business and expansion plans.





**Critical
      Accounting Policies**





In
      accordance with generally accepted accounting principles (“GAAP”), we record
      certain assets at the lower of cost and/or fair value. In determining the fair
      value of certain of our assets, we must make judgments, estimates and
      assumptions regarding circumstances or trends that could affect the value of
      theses assets, such as economic conditions. Those judgments, estimates and
      assumptions are made based on current information available to us at that time.
      Many of those conditions, trends and circumstances are outside our control
      and
      if changes were to occur in the events, trends or other circumstances on which
      our judgments or estimates were based, we may be required under GAAP to adjust
      those of our earlier estimates that are affected by those changes. Changes
      in
      such estimates may require that we reduce the carrying value of the affected
      assets on our balance sheet (which are commonly referred to as “write downs” of
      the assets involved).




11


It
      is our
      practice to establish reserves or allowances to record downward adjustments
      or
“write-downs” in the carrying value of assets, such as accounts receivable. Such
      write-downs are recorded as charges to income or increases in the expense in
      our
      statement of operations in the periods when such reserves or allowances are
      established or increased to take account of changed conditions or events. As
      a
      result, our judgments, estimates and assumptions about future events can and
      will affect not only the amounts at which we record such assets on our balance
      sheet but also our results of operations.




In
      making
      our estimates and assumptions, we follow GAAP and accounting practices
      applicable to our business and those that we believe will enable us to make
      fair
      and consistent estimates of the fair value of assets and establish adequate
      reserves or allowances. Set forth below is a summary of the accounting policies
      that we believe are material to an understanding of our financial condition
      and
      results of operations.




**Derivative
      Financial Instruments**





We
      do not
      use derivative instruments to hedge exposures to cash flow, market, or foreign
      currency risks.





We
      review
      the terms of convertible debt and equity instruments that we issue to determine
      whether there are embedded derivative instruments bifurcated and accounted
      for
      separately as a derivative financial instrument. When the risks and rewards
      of
      any embedded derivative instrument are not “clearly and closely” related to the
      risks and rewards of the host instrument, the embedded derivative instrument
      is
      generally required to be bifurcated and accounted for separately. If the
      convertible instrument is debt, or has debt-like characteristics, the risks
      and
      rewards associated with the embedded conversion option are not “clearly and
      closely” related to that debt host instrument. The conversion option has the
      risks and rewards associated with an equity instrument, not a debt instrument,
      because its value is related to the value of our common stock. Nonetheless,
      if
      the host instrument is considered to be “conventional convertible debt” (or
“conventional convertible preferred stock”), bifurcation of the embedded
      conversion option is generally not required. However, if the instrument is
      not
      considered to be conventional convertible debt (or conventional convertible
      preferred stock), bifurcation of the embedded conversion option may be required
      in certain circumstances. Generally, where the ability to physical or net-share
      settle the conversion option is deemed to be not within our control, the
      embedded conversion option is required to be bifurcated and accounted for as
      a
      derivative financial instrument liability.





In
      connection with the sale of convertible debt and equity instruments, we may
      also
      issue freestanding options or warrants. Additionally, we may issue options
      or
      warrants to non-employees in connection with consulting or other services they
      provide. Although the terms of the options and warrants may not provide for
      net-cash settlement, in certain circumstances, physical or net-share settlement
      may be deemed to be out of our control and, accordingly, we may be required
      to
      account for these freestanding options and warrants as derivative financial
      instrument liabilities, rather than as equity.





Derivative
      financial instruments are required to be initially measured at their fair value.
      For derivative financial instruments that shall be accounted for as liabilities,
      the derivative instrument is initially recorded at its fair value and is then
      re-valued at each reporting date, with changes in the fair value reported as
      charges or credits to income.





In
      circumstances where the embedded conversion option in a convertible instrument
      may be required to be bifurcated and there are also other embedded derivative
      instruments in the convertible instrument that are required to be bifurcated,
      the bifurcated derivative instruments are accounted for as a single, compound
      derivative instrument.





12


If
      the
      embedded derivative instrument is to be bifurcated and accounted for as a
      liability, the total proceeds received will be first allocated to the fair
      value
      of the bifurcated derivative instrument. If freestanding options or warrants
      were also issued and are to be accounted for as derivative instrument
      liabilities (rather than as equity), the proceeds are next allocated to the
      fair
      value of those instruments. The remaining proceeds, if any, are then allocated
      to the convertible instrument itself, usually resulting in that instrument
      being
      recorded at a discount from its face amount. In circumstances where a
      freestanding derivative instrument is to be accounted for as an equity
      instrument, the proceeds are allocated between the convertible instrument and
      the derivative equity instrument, based on their relative fair
      values.





The
      identification of, and accounting for, derivative instruments is complex.
      Derivative instrument liabilities are re-valued at the end of each reporting
      period, with changes in fair value of the derivative liability recorded as
      charges or credits to income in the period in which the changes occur. For
      options, warrants and bifurcated conversion options that are accounted for
      as
      derivative instrument liabilities, we determine the fair value of these
      instruments using the Black-Scholes option pricing model, binomial stock price
      probability trees, or other valuation techniques, sometimes with the assistance
      of a valuation consultant. These models require assumptions related to the
      remaining term of the instruments and risk-free rates of return, our current
      common stock price and expected dividend yield, and the expected volatility
      of
      our common stock price based on not only the history of our stock price but
      also
      the experience of other entities considered comparable to us. The identification
      of, and accounting for, derivative instruments and the assumptions used to
      value
      them can significantly affect our financial statements.





The
      derivatives (convertible debentures) issued on December 20, 2004 and January
      18,
      2005 (amended April 27, 2005) and on April 27, 2005 and May 6, 2005 have been
      accounted for in accordance with SFAS 133 and EITF No. 00-19, “Accounting for
      Derivative Financial Instruments Indexed to, and Potentially Settled in, a
      Company’s Own Stock”.





The
      Company has identified that the Cornell and Highgate debentures have compound
      embedded derivatives. These compound embedded derivatives have been bifurcated
      from their respective host debt contracts and accounted for as derivative
      liabilities in accordance with EITF 00-19. When multiple derivatives exist
      within the Convertible Notes, they have been bundled together as a single hybrid
      compound instrument in accordance with SFAS No. 133 Derivatives Implementation
      Group Implementation Issue No. B-15, Embedded Derivatives: Separate Accounting
      for Multiple Derivative Features Embedded in a Single Hybrid
      Instrument”.





The
      compound embedded derivatives within the Convertible Notes have been recorded
      at
      fair value at the date of issuance; and are marked-to-market each reporting
      period with changes in fair value recorded to the Company’s Statement of
      Operations as “Net change in fair value of derivative liabilities”. The Company
      has utilized a third party valuation consultant to fair value the embedded
      derivatives using layered discounted probability-weighted cash flow approach.
      We
      have developed a financial model to value the compound embedded derivatives
      analyzing the conversion features, redemption options and penalty provisions.
      Additionally, our model has been developed to incorporate management’s
      assessment of the various potential outcomes relating to the specific features
      and provisions contained in the convertible debt instruments.





The
      six
      primary events that can occur which will affect the value of the compound
      embedded derivatives are (a) payments made in cash, (b) payments made with
      stock, (c) the holder converts the note(s), (d) the company redeems the note(s),
      (e) the company fails to register the common shares related to the convertible
      debt and (f) the company defaults on the note (s).





The
      primary factors driving the economic value of the embedded derivatives are
      the
      same as the Black-Scholes factors, except that they are incorporated
      intrinsically into the binomial calculations for this purpose. Those factors
      are
      stock price, stock volatility, trading volume, outstanding shares issued,
      beneficial shares owned by the holder, interest rate, whether or not a timely
      registration has been obtained, change in control, event of default, and the
      likelihood of obtaining alternative financing. We assigned probabilities to
      each
      of these potential scenarios over the initial term, and at each quarter, the
      remaining term of the underlying financial instrument. The financial model
      generates a quarterly cash flow over the remaining life of the underlying
      debentures and assigns a risk-weighted probability to the resultant cash flow.
      We then assigned a discounted weighted average cash flow over the potential
      scenarios which were compared to the discounted cash flow of the debentures
      without the subject embedded derivatives. The result is a value for the compound
      embedded derivatives at the point of issue and at subsequent
      quarters.





13


The
      fair
      value of the derivative liabilities are subject to the changes in the trading
      value of the Company’s common stock, as well as other factors. As a result, the
      Company’s financial statements may fluctuate from quarter-to-quarter based on
      factors, such as the price of the Company’s stock at the balance sheet date and
      the amount of shares converted by the Cornell and Highgate. Consequently, our
      financial position and results of operations may vary from quarter-to-quarter
      based on conditions other than our operating revenues and expenses.





SFAS
      No.
      86, “Accounting for the Costs of Computer Software to be Sold, Leased, or
      Otherwise Marketed,” requires capitalization of software development costs
      incurred subsequent to establishment of technological feasibility and prior
      to
      the availability of the product for general release to customers. Systematic
      amortization of capitalized costs begins when a product is available for general
      release to customers and is computed on a product-by-product basis at a rate
      not
      less than straight-line basis over the product’s remaining estimated economic
      life. To date, all costs have been accounted for as research and development
      costs and no software development cost has been capitalized.




Management
      will evaluate the net realizable value of software costs capitalized by
      comparing estimated future gross revenues reduced by the estimated future costs
      of completing, disposing of and maintaining the software. These costs also
      include the costs of performing maintenance and customer support required by
      us.




**Revenue
      Recognition**




Sales
      transactions are recorded automatically and posted to the general ledger from
      the invoice produced when shipment of the product is completed. Invoices and
      sales returns are reconciled monthly. Each customer completes a credit
      application and a credit check is completed before credit is granted. Credit
      terms vary between thirty (30) and forty five (45) days and are dependent on
      the
      size of the customer and the agreement with the individual customer. The sales
      transaction is recorded when the product is delivered to the customer.




We
      recognize revenue from the sales of software licenses when persuasive evidence
      of an arrangement exists, the product has been delivered, the fee is fixed
      and
      determinable and collection of the resulting receivable is reasonably assured.
      Delivery generally occurs when the product is delivered to a common carrier.




We
      assess
      collection based on a number of factors, including past transaction history
      with
      the customer and the creditworthiness of the customer. We do not request
      collateral from our customers. If we determine that collection of a fee is
      not
      reasonably assured, we defer the fee and recognize revenue at the time
      collection becomes reasonably assured, which is generally upon the receipt
      of
      cash.





For
      technology arrangements with multiple obligations (for example, undelivered
      software, maintenance and support), we allocate revenue to each component of
      the
      arrangement using the residual value method based on the fair value or the
      fixed
      agreement of the undelivered elements. Accordingly, we defer technology revenue
      in the amount equivalent to the fair value or the fixed agreement of the
      undelivered elements.




We
      recognize revenue for maintenance services ratably over the contract term.
      Our
      training and consulting services are billed at hourly rates and we generally
      recognize revenue as these services are performed. However, upon execution
      of a
      contract, we determine whether any services included within the arrangement
      require us to perform significant work either to alter the underlying software
      or to build additional complex interfaces so that the software performs as
      the
      customer requests. If these services are included as part of an arrangement,
      we
      recognize the fee using the percentage of completion method. We determine the
      percentage of completion based on our estimate of costs incurred to date
      compared with the total costs budgeted to complete the project.




14


**Impairment
      of Intangible Assets**




We
      operate in an industry that is rapidly evolving and extremely competitive.
      It is
      reasonably possible that our accounting estimates with respect to the useful
      life and ultimate recoverability of our carrying basis of intangible assets
      could change in the near term and that the effect of such changes on the
      financial statements could be material. In accordance with Statement of
      Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”,
      we complete a test for impairment of certain other intangible assets annually
      and whenever events or circumstances indicate a potential impairment.




**Stock
      Based Transactions**




We
      have
      concluded various transactions where we paid the consideration in shares of
      our
      common stock and/or warrants or options to purchase shares of our common stock.
      These transactions include:




-
            Acquiring
                the services of various professionals who provided us with a range
                of
                corporate consultancy services, including developing business and
                financial models, financial advisory services, strategic planning,
                development of business plans, investor presentations and advice
                and
                assistance with investment funding;




-
            Retaining
                the services of our Advisory Board to promote the business of the
                Company;




-
            Settlement
                of our indebtedness; and




-
            Providing
                incentives to attract, retain and motivate employees who are important
                to
                our success.





When
      our
      stock is used in transactions, the transactions are generally valued using
      the
      price of the shares being transferred at the time the shares are issued for
      the
      services provided. If the value of the asset or service being acquired is
      available and is believed to fairly represent its market value, the transaction
      is valued using the value of the asset or service being provided.




When
      options or warrants to purchase our stock are used in transactions with third
      parties, the transaction is valued using the Black-Scholes valuation method.
      The
      Black-Scholes valuation method is widely used and accepted as providing the
      fair
      market value of an option or warrant to purchase stock at a fixed price for
      a
      specified period of time. Black-Scholes uses five (5) variables to establish
      market value of stock options or warrants:




-
            strike
                price (the price to be paid for a share of our stock);




-
            price
                of our stock on the day options or warrants are granted;




-
            number
                of days that the options or warrants can be exercised before they
                expire;




-
            trading
                volatility of our stock; and




-
            annual
                interest rate on the day the option or warrant is granted.






15




The
      determination of expected volatility requires management to make an estimate
      and
      the actual volatility may vary significantly from that estimate. Accordingly,
      the determination of the resulting expense is based on a management estimate.
      Prior to December 31, 2005, when options or warrants to purchase our stock
      were
      used as incentives for employees, officers or directors, we use the intrinsic
      value method in accordance with the recognition and measurement principles
      of
      Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to
      Employees”, as permitted by Statement of Financial Accounting Standards “SFAS”
No. 123. The intrinsic value method calculates the value of the option or
      warrant at the difference between the strike price and the price of the stock
      on
      the day the option or warrant is granted, except that such value is zero if
      the
      strike price is higher than the price of the stock. In December 2004, the
      Financial Accounting Standards Board (“FASB”) issued Statement No. 123 (revised
      2004) (“123R”) *Share
      Based Payment* .
      Statement 123R supersedes Accounting Principles Board (“APB”) Opinion No. 25,
      and its related implementation guidance. This statement establishes standards
      for the accounting for transactions in which an entity exchanges its equity
      instruments for goods and services. It also addresses transactions in which
      an
      entity incurs liabilities in exchange for goods and services that are based
      on
      the fair value of the entity’s equity instruments or that may be settled by the
      issuance of those equity instruments. 123R focuses primarily on accounting
      for
      transactions in which an entity obtains employee services in share-based payment
      transactions.





If
      the
      Company determined compensation expense based on the fair value at the dates
      for
      those awards consistent with the method of SFAS No. 123 and not the intrinsic
      value method, the effect on the historical financial statements for the periods
      presented would be as follows:





Period
            
            Loss
                as OriginallyReported
            
            Additional
                Employee CompensationExpense
            
            Adjusted
                Loss For ThePeriodFor
                the nine months ended September 30, 2005
            
            $3,956,738
            
            
            $131,057
            
            
            $4,087,795





When
      the
      Company offers incentives to our employees, officers or directors, through
      the
      issuance of options or warrants, the Company calculates the fair value of the
      instruments at the time of the negotiations as part of our evaluation of the
      compensation package offered to the parties. At the time the fair value of
      the
      instruments is evaluated all variables used to establish fair value are also
      re-evaluated.




When
      the
      instruments are provided for past services or are provided fully vested and
      are
      not subject to return, the shares are valued at the market price at the time
      the
      instrument is delivered. When the instrument is provided for future services,
      the expense is based on the fair market value of the instruments when the
      services are provided.




Once
      the
      transaction value is determined, GAAP requires us to record the transaction
      value as an expense or asset as determined by the transaction and to record
      an
      increase in our paid-in capital.





Effective
      January 1, 2006, we adopted Statement of Financial Accounting Standards No.
      123
      (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified
      prospective method. Under this method, compensation cost in the first half
      of
      2006 included the portion vesting in the period for (1) all share-based payments
      granted prior to, but not vested as of January 1, 2006, based on the grant
      date
      fair value estimated in accordance with the original provisions of SFAS No.
      123
      and (2) all share-based payments granted subsequent to January 1, 2006, based
      on
      the grant date fair value estimated in accordance with the revised provisions
      of
      SFAS 123R. Prior to adoption of SFAS 123R, we accounted for stock based
      compensation under the recognition and measurement principles of Accounting
      Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
      Employees,” and related interpretations, the disclosure-only provisions of SFAS
      No. 123, “Accounting for Stock-Based Compensation” and the disclosures required
      by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and
      Disclosure.” In accordance with APB Opinion No. 25, no stock-based compensation
      cost was reflected in prior year net income for grants of stock options to
      employees because we granted stock options with an exercise price equal to
      the
      market value of the stock on the date of grant.





16


The
      adoption of SFAS No. 123R decreased the Company’s third quarter and nine months
      ended 2006 reported operating income and net income by $35,979 and $106,021,
      respectively. The expense is classified as selling, general and administrative
      expense on the statement of operations.




**Recent
      Accounting Pronouncements**




In
      February 2006, the FASB issued SFAS 155 - "Accounting for Certain Hybrid
      Financial Instruments--an amendment of FASB Statements No. 133 and 140." This
      Statement amends FASB Statements No. 133, "Accounting for Derivative Instruments
      and Hedging Activities", and No. 140, "Accounting for Transfers and Servicing
      of
      Financial Assets and Extinguishments of Liabilities". This Statement resolves
      issues addressed in Statement 133 Implementation Issue No. D1, "Application
      of
      Statement 133 to Beneficial Interests in Securitized Financial Assets." This
      Statement:





a.
      Permits fair value remeasurement for any hybrid financial instrument that
      contains an embedded derivative that otherwise would require
      bifurcation.





b.
      Clarifies which interest-only strips and principal-only strips are not subject
      to the requirements of Statement 133.





c.
      Establishes a requirement to evaluate interests in securitized financial assets
      to identify interests that are freestanding derivatives or that are hybrid
      financial instruments that contain an embedded derivative requiring
      bifurcation.





d.
      Clarifies that concentrations of credit risk in the form of subordination are
      not embedded derivatives.





e.
      Amends
      Statement 140 to eliminate the prohibition on a qualifying special-purpose
      entity from holding a derivative financial instrument that pertains to a
      beneficial interest other than another derivative financial
      instrument.





This
      Statement is effective for all financial instruments acquired or issued after
      the beginning of the Company’s first fiscal year that begins after September 15,
      2006. The fair value election provided for in paragraph 4(c) of this Statement
      may also be applied upon adoption of this Statement for hybrid financial
      instruments that had been bifurcated under paragraph 12 of Statement 133 prior
      to the adoption of this Statement. Earlier adoption is permitted as of the
      beginning of the Company’s fiscal year, provided the Company has not yet issued
      financial statements, including financial statements for any interim period,
      for
      that fiscal year. Provisions of this Statement may be applied to instruments
      that the Company holds at the date of adoption on an instrument-by-instrument
      basis.





The
      Company does not believe that any other of the recently issued and adopted,
      but
      not yet effective, accounting standards would have a material effect on the
      accompanying financial statements.




**ITEM
      3. CONTROLS AND PROCEDURES**




(a)
            Evaluation
                of disclosure controls and procedures.




As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of our chief executive officer and chief
      financial officer of our disclosure controls and procedures (as defined in
      Rule
      13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
      our chief executive officer and chief financial officer concluded that our
      disclosure controls and procedures are effective,  except
      for the formation of an Audit Committee including an independent
      member,  to
      provide reasonable assurance that the information required to be disclosed
      by
      the Company in reports filed under the Securities Exchange Act of 1934 is
      recorded, processed, summarized and reported within the time periods specified
      in the SEC’s rules and forms. There was no change in our internal controls or in
      other factors that could affect these controls during our last fiscal quarter
      that has materially affected, or is reasonably likely to materially affect,
      our
      internal control over financial reporting.





17


(b)
            Change
                in Internal Control over Financial
                Reporting.





No
      change
      in our internal control over financial reporting occurred during our most recent
      fiscal quarter that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial reporting.





We
      believe that a controls system, no matter how well designed and operated, can
      not provide absolute assurance that the objectives of the controls system are
      met, and no evaluation of controls can provide absolute assurance that all
      control issues and instances of fraud, if any, within a company have been
      detected.





**PART
      II - OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





The
      Company is not currently a party to, nor is any of its property currently the
      subject of, any pending legal proceeding. None of the Company's directors,
      officers or affiliates is involved in a proceeding adverse to the Company's
      business or has a material interest adverse to the Company's business.





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS******




In
      January 2006, the Company executed an 8% convertible promissory note in the
      amount of $70,000 with its Office Manager. The principal due hereunder shall
      be
      payable in full in immediately available funds of one million dollars or more
      through any sales or investment by the end of June 30, 2006 or later if agreed
      upon by the Office Manager and the Company. At any time prior to repayment
      of
      all outstanding principal, the holder is entitled, at its option, to convert,
      at
      any time and from time to time, until payment in full, all or any part of the
      principal amount of the note into shares of the Company’s common stock at the
      price of $1.00 per share. The note was partially repaid in the amount of $10,000
      in June 2006 and $2,500 in August 2006. In September 2006, the maturity date
      of
      the balance of the note was extended to December 31, 2006. In connection with
      the convertible promissory note, the Company issued to the Office Manager
      warrants for the purchase of 7,000 shares of the Company’s common stock with an
      exercise price of $1.00 per share and an exercise period ending ten years from
      issuance.




In
      January 2006, the Company executed a convertible promissory note in the amount
      of $10,000 with its CEO. The convertible note payable bear’s interest equal to
      the CEO’s private banking account monthly lending rate. The principal due
      hereunder shall be payable in full in immediately available funds of one million
      dollars or more through any sales or investment by the end of December 31,
      2006
      or later if agreed upon by the CEO and the Company. In September 2006, the
      maturity date of the note was extended to March 31, 2007 and the interest rate
      was revised to a fixed rate of 8%, effective August 1, 2006. At any time prior
      to repayment of all outstanding principal, the holder is entitled, at its
      option, to convert, at any time and from time to time, until payment in full,
      all or any part of the principal amount of the note into shares of the Company’s
      common stock at the price of $1.00 per share. In connection with the convertible
      promissory note, the Company issued to the CEO warrants for the purchase of
      1,000 shares of the Company’s common stock with an exercise price of $1.00 per
      share and an exercise period ending ten years from issuance.





In
      January 2006, one company purchased 133,333 shares of common stock from the
      Company at a price of $0.75 per share. In connection with the sale of common
      stock, the Company issued warrants for the purchase of 13,333 shares of the
      Company’s common stock to the individual with an exercise price of $0.75 per
      share. These warrants are exercisable for a period of two years from issuance.





In
      January 2006, the Company issued 6,000 shares of its common stock, valued at
      $0.93 per share, and issuable to a law firm as compensation for general counsel
      legal services rendered.





18


In
      January 2006, Highgate converted $30,000 of the April 27, 2005 debenture into
      121,860 shares of the Company’s common stock, pursuant to the terms of the
      Securities Purchase Agreement. The conversions were made as follows: $10,000,
      plus $493 of interest, into 21,860 shares of common stock at a conversion price
      of $0.48 per share and $20,000 into 100,000 shares of common stock at a
      conversion price of $0.20 per share.





In
      January 2006, the Company executed a consultant agreement with a consulting
      firm
      whereby the firm will introduce to the Company potential purchasers of the
      Company’s equity or debt. The Company shall pay a placement fee to the
      consultant in the amount of 6% of the gross subscription proceeds of an equity
      and/or debt offering by the Company from purchasers introduced directly by
      the
      consultant. Either the Company or the consultant may terminate the agreement
      upon thirty day’s prior written notice. The Company also executed a
      representation agreement with the firm in February 2006





In
      February 2006, the Company executed a convertible promissory note in the amount
      of $28,000 with its CEO. The convertible note payable bear’s interest equal to
      the CEO’s private banking account monthly lending rate. The principal due
      hereunder shall be payable in full in immediately available funds one million
      dollars or more through any sales or investment by the end of December 31,
      2006
      or later if agreed upon by the CEO and the Company. In September 2006, the
      maturity date of the note was extended to March 31, 2007 and the interest rate
      was revised to a fixed rate of 8%, effective August 1, 2006. At any time prior
      to repayment of all outstanding principal, the holder is entitled, at its
      option, to convert, at any time and from time to time, until payment in full,
      all or any part of the principal amount of the note into shares of the Company’s
      common stock at the price of $0.75 per share. In connection with the convertible
      promissory note, the Company issued to the CEO warrants for the purchase of
      2,800 shares of the Company’s common stock with an exercise price of $1.00 per
      share and an exercise period ending ten years from issuance.





In
      February 2006, the Company executed an agreement with an individual advisor
      whereby the advisor shall serve as Chair of the Company’s Advisory Board and
      provide consulting, guidance and advice to the Company. The advisor shall also
      assist the Company in obtaining revenues and financing. As compensation for
      the
      advisory services, the advisor received 350,000 shares of the Company’s common
      stock at a value of $0.18 per share. The shares are restricted and have
      piggyback registration rights upon the next registration statement filed by
      the
      Company. The advisor also received warrants to purchase 240,000 shares of the
      Company’s common stock at an exercise price of $0.30 per share, 120,000 of the
      warrants have a term of six months from the effective date and the remaining
      120,000 warrants have a term of twelve months from the effective date. The
      advisor shall also receive a quarterly payment of $5,000 effective June 2006,
      a
      10% commission on gross revenues from introduced customers and proceeds of
      financing from investors/creditors. The term of the agreement is perpetual
      with
      thirty day written termination rights retained by both the Company and the
      advisor.




In
        February 2006, the Company executed an agreement with a firm as a representative
        whereby the firm shall provide business development services to expand the
        Company’s sales and marketing efforts primarily in South America and Mexico. As
        compensation for the services, the firm shall receive a fee of $10,000 per
        month
        beginning on February 15, 2006. For the initial four months of the agreement,
        the fee will be in the form of the Company’s common stock. For the second four
        months of the agreement, the fee shall be paid as $5,000 cash and $5,000
        in the
        form of the Company’s common stock. The stock price will be calculated based
        upon the ten days average bid price, prior to the 15 th of each
        month, with the lowest bid price no lower than $0.25 per share. The shares
        are
        restricted and have piggyback registration rights upon the next registration
        statement filed by the Company. For the nine months ended September 30, 2006,
        the Company recorded 230,709 shares of common stock, valued at
 $58,725, related to the agreement. Shares totaling 38,760 were issued by
        the  transfer agent


19




in
      March
      2006, shares totaling 131,949 were issued by the transfer agent in July 2006
      and
      shares totaling 60,000 were issued by the transfer agent in October
      2006.  There
      shall be no fee for the last four months of the agreement’s first year. The firm
      shall also receive a commission of 10% of the net sales from introduced
      customers. The term of the agreement is perpetual with thirty-day written
      termination rights retained by both the Company and the firm. In March 2006,
      the
      agreement was amended to expand the territory outside of South America and
      Mexico on a case by case basis with written approval required by both the
      Company and the firm. The Company also executed a consultant agreement with
      the
      firm in January 2006.





In
      February 2006, one individual purchased and the Company recorded 50,000 shares
      of common stock from the Company at a price of $0.22 per share.  The
      stock
      was not issued by the transfer agent until July 2006. In connection with the
      sale of common stock, the Company issued to the individual warrants for the
      purchase of 10,000 shares of the Company’s common stock with an exercise price
      of $0.55 per share and an exercise period ending two years from issuance.





In
      February 2006, Highgate converted $140,000 of the April 27, 2005 debenture
      into
      1,166,667 shares of the Company’s common stock, pursuant to the terms of the
      Securities Purchase Agreement. The conversions were made as follows: $90,000
      into 750,000 shares of common stock at a conversion price of $0.12 per share,
      $30,000 into 250,000 shares of common stock at a conversion price of $0.12
      per
      share and $20,000 into 166,667 shares of common stock as a conversion price
      of
      $0.12 per share.





In
      March
      2006, the Company executed an 8% convertible promissory note in the amount
      of
      $100,000 with an individual. At any time, the holder is entitled, at its option,
      to convert, at any time and from time to time, until payment in full of the
      debenture, all or any part of the principal amount of the debenture, plus
      accrued interest, into shares of the Company’s common stock at the price of
      $0.90 per share. If not converted at the holder’s option, the entire principal
      amount and all accrued interest shall be due to the holder on the second year
      anniversary of the debenture. In connection with the convertible promissory
      note
      payable, the Company issued to the individual warrants for the purchase of
      66,667 shares of the Company’s common stock with an exercise price of $0.55 per
      share and an exercise period ending two years from issuance.





In
      March
      2006, the Company extended the maturity date of the convertible debenture that
      was executed in January 2005 with an investor for $125,000 to January 26, 2007.
      In connection with the extension, the Company issued to the investor warrants
      for the purchase of 45,000 shares of the Company’s common stock with an exercise
      price of $0.20 per share and an exercise period ending on January 26,
      2009.





In
      March
      2006, the Company executed an 8% convertible promissory note in the amount
      of
      $5,000 with one of its Software Developers and the wife of the CTO. The
      principal due shall be payable in full in immediately available funds of one
      million dollars or more through any sales or investment by the end of December
      31, 2006 or later if agreed upon by the Software Developer and the Company.
      At
      any time prior to repayment of all outstanding principal, the holder is
      entitled, at its option, to convert, at any time and from time to time, until
      payment in full, all or any part of the principal amount of the note into shares
      of the Company’s common stock at the price of $0.75 per share. In connection
      with the convertible promissory note, the Company issued to the Software
      Developer warrants for the purchase of 500 shares of the Company’s common stock
      with an exercise price of $1.00 per share and an exercise period ending ten
      years from issuance.




In
      March
      2006, the Company retained the services of an investor relations consulting
      firm
      and both parties mutually executed three agreements: a Financial Consulting
      Agreement, a Business Introduction Agreement and an Investor Relations
      Consulting Agreement. Per the terms of the Financial Consulting Agreement,
      the
      firm will provide services in order assist the Company in developing a strategy
      and structure for obtaining financing. As compensation for the financial
      consulting services, the firm will receive, on a prorated basis 400,000 shares
      of the Company’s common stock at a value of $0.18 per share upon the closing of
      up to $500,000 in financing. The shares are to be placed in escrow with the
      Company’s law firm. The firm will also receive, on a prorated basis, up to
      $40,000 in cash upon the closing of a second $500,000 in financing. The term
      of
      the financing agreement is for ten months. Per the terms of the Business
      Introduction Agreement, the firm will provide potential sales opportunities
      to
      the Company. The firm commenced the introduction process in February 2006.
      As
      compensation for the introduction services, the firm will receive a $5,000
      cash
      payment for each of February 2006 and March 2006. Also, upon the Company
      receiving $1,000,000 or more in purchase contracts for its products and
      services, the firm will receive 100,000 shares of the Company’s common stock at
      a value of $0.18 per share and warrants to purchase 100,000 shares of the
      Company’s common stock with an exercise price of $0.25 per share. The warrants
      will have a five year term, piggyback registration rights for one year and
      demand registration rights after April 1, 2007. The term of the introduction
      agreement is for ten months. Per the terms of the Investor Relations Consulting
      Agreement, the firm will assist the Company in developing a comprehensive
      financial relations strategy. As compensation for the services, the Company
      will
      make cash payments to the firm of $5,000 for each of the first two term months,
      $9,000 for each of the second two term months and $10,000 for each of the
      remaining six term months. The company issued warrants to purchase 300,000
      shares of the Company’s common stock with an exercise price of $0.18 per share
      related to the agreement. The warrants have a five year term, piggy back
      registration rights for one year and demand registration rights after April
      1,
      2007. The term of the investor relations agreement is for ten
      months.





20


In
      March
      2006, the Company executed a consulting agreement with its public relations
      firm
      whereby the firm shall provide public relations consulting services in addition
      to the services defined in an April 2005 engagement letter. As compensation
      for
      providing additional services, the firm shall receive an additional monthly
      fee
      of $5,000 in the form of the Company’s common stock at a value based upon a 20%
      discount to the market value of the Company’s common stock on the last trading
      day of each month. The shares shall be restricted and have piggy back
      registration rights upon the next registration statement filed by the Company.
      The stock was not issued by the transfer agent until August of 2006. The term
      of
      the agreement is for six months with automatic renewal terms until either the
      Company or the firm provides the other party with at least thirty day’s written
      notice of its intent to terminate the agreement. In April 2006, the public
      relations firm terminated the agreement. For the nine months ended September
      30,
      2006, the Company recorded 23,256 shares of common stock related to this
      agreement. The stock was not issued by the transfer agent until October 2006.





In
      March
      2006, the Company executed a consulting agreement with an investor relations
      firm whereby the firm shall provide public and investor relations services
      to
      the Company. As compensation for the services, the firm shall receive a monthly
      retainer in the amount of $5,000 and a one time issuance of 120,000 shares
      of
      the Company’s common stock (60,000 shares each) will be made to two of the
      firm’s officers. The shares shall be restricted and have piggy back registration
      rights upon the next registration statement filed by the Company.  For
      the
      nine months ended September 30, 2006, the Company recorded 120,000 shares of
      common stock related to this agreement. The stock was not issued by the transfer
      agent until July 2006. The term of the agreement is for six months and it can
      be
      renewed provided the Company and the firm both agree in writing.





In
      March
      2006, four individuals purchased and the Company recorded 190,910 shares of
      common stock from the Company at a price of $0.22 per share for 90,910 shares
      and $0.25 per share for 100,000 shares. The stock was not issued by the transfer
      agent until July 2006. In connection with the sale of common stock, the Company
      issued to the individuals warrants to purchase an aggregate of 118,182 shares
      of
      the Company’s common stock with an exercise price of $0.55 per share for 18,182
      warrants and $0.50 per share for 100,000 of the warrants. These warrants are
      exercisable for a period of two years from issuance.





In
      March
      2006, Highgate converted $75,000 of the April 27, 2005 debenture into 575,980
      shares of the Company’s common stock, pursuant to the terms of the Securities
      Purchase Agreement. The conversions were made as follows: $25,000 into 208,333
      shares of common stock at a conversion price of $0.12 per share and on March
      2,
      2006 for $50,000 into 367,647 shares of common stock as a conversion price
      of
      $0.136 per share.





In
      March
      2006, the Company recorded 7,500 shares of its common stock, valued at $1.05
      per
      share for 2,500 shares, $0.263 per share for 2,500 shares and $0.215 for 2,500
      shares, and issuable to a law firm as compensation for general counsel legal
      services rendered. The stock was not issued by the transfer agent until July
      2006.





21


In
      April
      2006, the Company entered into a consulting agreement with an advisory firm,
      for
      services to include review and advice concerning the technical design of
      existing and planned products or services, business development, sales
      assistance, financing advice, consulting services, market development and public
      relations, advising on issues regarding corporate structure, stock option plans
      and introducing the Company to potential investors. The term of this agreement
      is one year, ending March 31, 2007. The agreement calls for compensation in
      the
      amount of 350,000 shares of the Company’s common stock valued at $0.19 per
      share. Such shares shall be deemed for all purposes to be earned by the
      consultant upon its receipt thereof and shall be non-refundable and
      non-returnable.





In
      April
      2006, Highgate converted $50,000 of the April 27, 2005 debenture into 418,527
      shares of the Company’s common stock, pursuant to the terms of the Securities
      Purchase Agreement. The conversions were made on April 11, 2006 for $25,000
      into
      195,313 shares of common stock at a conversion price of $0.128 per share and
      on
      April 25, 2006 for $25,000 into 223,214 shares of common stock at a conversion
      price of $0.112 per share.





In
      April
      2006, the Company amended the placement agent agreement signed in October 2005
      with an investor relations consulting firm. The amendment waives the
      consultant’s exclusivity clause from the agreement in exchange for the Company’s
      agreement to lower the price of the 400,000 warrants provided to the consultant
      to $0.50 per share from $0.75 per share.





In
      April
      2006, the Company executed three promissory notes, in the amounts of $7,000,
      $5,000 and $150,000, with its CEO. The notes bear interest at a per annum rate
      equal to the CEO’s private account monthly lending rate. The $7,000 note was
      repaid in April 2006. The $5,000 note has a maturity date of September 30,
      2006.
      In September 2006, the maturity date of the $5,000 note was extended to March
      31, 2007. The $150,000 note had a maturity date of June 30, 2006. In June 2006,
      the maturity date of the $150,000 note was extended to September 30, 2006.
      In
      September 2006, the maturity date of the $150,000 note was extended to March
      31,
      2007. In September 2006, the interest rate was revised to a fixed rate of 8%,
      effective August 1, 2006.




In
      May
      2006, the Company executed a consultant agreement with a sales consulting firm
      whereby the firm shall act as a global sales consultant and shall also provide
      an individual to serve as the manager of the Company’s sales department. Upon
      signing the agreement, the firm received warrants to purchase 200,000 shares
      of
      the Company’s common stock at an exercise price of $0.20 per share and a term of
      three years. Under the terms of the agreement, the firm will receive a 10%
      commission on net revenues of sales resulting from direct introduction, a 5%
      commission on net revenues of introduced sales involving integrators, resellers
      or distributors and a 2% commission on net revenues of sales made by the
      Company’s internal sales representatives if the firm was instrumental in closing
      the sale. Additionally, for the direct sales whereby the firm receives a 10%
      commission, the firm shall receive 200,000 warrants for each $1,000,000 in
      sales
      booked by the Company up to a maximum of 1,000,000 warrants. The warrants shall
      have an exercise price of $0.25 per share, $0.30 per share, $0.35 per share,
      $0.40 per share and $0.45 per share, respectively, for each $1,000,000 in direct
      sales earned. All of the warrants shall have a term of three years. The firm
      shall also receive a bonus if the Company’s total sales in 2006 reach $4,000,000
      in the form of warrants to purchase 100,000 shares of the Company’s common stock
      with an exercise price of 0.20 and a term of three years.




In
      May
      2006, we sold a unit to Cornell consisting of a 9% promissory note payable
      in
      the amount of $100,000 and 200,000 shares of the Company’s common stock. The
      principal due shall be payable in full in immediately available funds of
      $200,000 or more through any funding transaction, even if the funding is with
      Cornell, or by August 28, 2006. If the note is not fully repaid within a twenty
      (20) day grace period after the maturity date, then the remaining outstanding
      principal and accrued and unpaid interest under the note shall be convertible
      into shares of common stock of the Company at the sole option of Cornell, in
      whole or in part at any time and from time to time at a conversion price equal
      to the lesser of (a) $0.22 or (b) ninety percent (90%) of the lowest Volume
      Weighted Average Price of the common stock during the thirty trading days
      immediately preceding the date of conversion as quoted by Bloomberg, LP. The
      Company paid a placement agent fee of $7,000 relating to the promissory note.
      As
      of September 17, 2006, the company considers the note as convertible debt per
      the terms stated herein




22


In
      May
      2006, Highgate converted $25,000 of the April 27, 2005 debenture into 260,417
      shares of the Company’s common stock, pursuant to the terms of the Securities
      Purchase Agreement. The conversion was made on May 25, 2006 at a conversion
      price of $0.096 per share.





In
      May
      2006, the Company executed a promissory note in the amount of $100,000 with
      its
      CEO. The note bears interest at a rate equal to 9% per annum with a maturity
      date of July 31, 2006. In July 2006, the maturity date of the $100,000 note
      was
      extended to September 30, 2006. In September 2006, the maturity date of the
      $100,000 note was extended to March 31, 2007. In connection with the promissory
      note, the Company issued to the CEO warrants for the purchase of 200,000 shares
      of the Company’s common stock with an exercise price of $0.13 per share and an
      exercise period ending five years from issuance.





In
      May
      2006, one individual purchased and the Company recorded 71,429 shares of common
      stock from the Company at a price of $0.14 per share. The stock was not issued
      by the transfer agent until July 2006. This issuance is exempt from registration
      under the Securities Act of 1933 and the rules and regulations promulgated
      thereunder. In connection with the sale of common stock, the Company issued
      to
      the individual an aggregate of 14,286 warrants with an exercise price of $0.35
      per share. These warrants are exercisable for a period of two years from
      issuance.





In
      June
      2006, Highgate converted $55,000 of the April 27, 2005 debenture into 982,143
      shares of the Company’s common stock, pursuant to the terms of the Securities
      Purchase Agreement. The conversions were made on June 26, 2006 for $40,000
      into
      714,286 shares of common stock at a conversion price of $0.056 per share and
      on
      June 29, 2006 for $15,000 into 267,857 shares of common stock at a conversion
      price of $0.056 per share.





In
      June
      2006, the Company executed a 9% convertible promissory note in the amount of
      $200,000 with an individual. At any time, the holder is entitled, at its option,
      to convert, and sell on the same day, at any time and from time to time, until
      payment in full of the debenture, all or any part of the principal amount of
      the
      debenture, plus accrued interest, into shares of the Company’s common stock at
      the price of $0.14 per share. If not converted at the holder’s option, the
      entire principal amount and all accrued interest shall be due to the holder
      on
      the third year anniversary of the debenture. In connection with the convertible
      promissory note payable, the Company issued to the individual an aggregate
      of
      400,000 warrants with an exercise price of $0.25 per share. These warrants
      are
      exercisable for a period of five years from issuance.




In
      July
      2006, the Company sold a total of six units to six individuals, each unit
      consisting of a 12% promissory note payable in the amount of $25,000 and 250,000
      shares of the Company’s common stock for a total of $150,000 and 1,500,000
      shares of common stock. The principal due shall be payable in full by January
      10, 2007. If any of the notes are deemed unenforceable, then the remaining
      outstanding principal and accrued and unpaid interest under that note shall
      be
      convertible into shares of common stock of the Company at the sole option of
      the
      note holder, in whole or in part at any time and from time to time at a
      conversion price equal to $0.085 per share, in addition to any other remedies
      or
      enforcement actions that the note holder may take to enforce collection of
      the
      note. Six months of prepaid interest, for a total of $9,000, was due at closing,
      of which $6,750 was withheld by the escrow agent and $2,250 was paid directly
      to
      the note holder by the Company. The Company paid a placement agent fee of
      $15,000 and issued 150,000 shares of the Company’s common stock relating to the
      promissory notes. The Company also paid an escrow agent fee of $3,000 relating
      to the promissory notes, of which $1,500 was paid in March 2006. The Company
      also paid the $7,500 due diligence fee in March 2006. The Company issued 50,000
      shares of the Company’s common stock to the placement agent in July 2006 as a
      part of the due diligence fee. All of the Company’s shares of common stock
      issued in relation to the promissory notes have Rule 144 piggyback registration
      rights.




23




In
      July
      2006, the Company entered into a purchase and sale agreement with a factoring
      agent whereby the Company sold its rights to four June 2006 invoices totaling
      $96,087 to the agent. Upon signing the agreement and providing the required
      disclosures, the factoring agent remitted 75% of the factored balance to the
      Company, net of a $750 set-up fee (the down payment date). Per the terms of
      the
      agreement, once the Company’s client remits the invoice amount to the factoring
      agent, the agent deducts a discount fee from the remaining balance of the
      factored invoices and forwards the net proceeds to the Company. The discount
      fee
      is computed as a percentage of the face amount of the invoice as follows: 4%
      fee
      for invoices paid within 30 days of the down payment date, 5% for invoices
      paid
      within 45 days of the down payment date, 6% for invoices paid within 60 days
      of
      the down payment date, 7% for invoices paid within 75 days of the down payment
      date and an additional 1% for each 15 day period thereafter. Two of the invoices
      were paid in July and two were paid in August, all within 30 days of the down
      payment date. The Company paid a total discount fee of $3,843 and wire transfer
      fees of $120 in July and August 2006 related to the factoring of the four
      invoices.




In
      July
      2006, the Company recorded 7,500 shares of its common stock, valued at $0.085
      per share, and issuable to a law firm as compensation for general counsel legal
      services rendered.




In
      July
      2006, the Company issued 10,417 shares of common stock, valued at $0.72 per
      share, to a law firm for legal services rendered.






In
      July
      2006, the Company issued stock options to purchase 2,025,000 shares of common
      stock to twelve existing employees at 150,000 shares for ten employees, 225,000
      shares for one employee and 300,000 shares for one employee. The options were
      issued in accordance with the Company’s 2004 Equity Incentive Plan (see Note 3).
      These options are exercisable at $0.10 per share and expire in July 2016. The
      shares vest annually over a three year period. This issuance was exempt from
      registration requirements pursuant to Section 4(2) of the Act. One of the ten
      employees who received stock options to purchase 150,000 shares was terminated
      in July 2006.




For
      the
      seven months ended July 31, 2006, the interest rate of the Company’s CEO private
      lending account ranged between 8.625% and 11.00% per annum.





In
      August
      2006, Highgate converted $25,000 of the May 6, 2005 debenture into 446,429
      shares of the Company’s common stock, pursuant to the terms of the Securities
      Purchase Agreement. The conversion was made on August 18, 2006 at a conversion
      price of $0.056 per share.




In
      August
      2006, the Company and its former public relations firm reached an informal
      agreement whereby the Company has agreed to make periodic payments in order
      to
      repay a June 2005 convertible note in the amount of $33,000 in full by December
      31, 2006. The note had a maturity date of June 30, 2006.




In
      August
      2006, the Company sold units to an individual which contained common stock
      and
      warrants. This issuance is exempt from registration under the Securities Act
      of
      1933 and the rules and regulations promulgated thereunder. The individual
      purchased and the Company recorded 300,000 shares of common stock from the
      Company at a price of $0.07 per share and received an aggregate of 450,000
      warrants with an exercise price of $0.105 per share which are exercisable for
      a
      period of three years from issuance. The stock was not issued by the transfer
      agent until October 2006.





In
      August
      2006, the Company issued stock options to purchase 899,148 shares of common
      stock to eleven existing employees. The options were issued in accordance with
      the Company’s 2004 Equity Incentive Plan. Options totaling 405,432 shares are
      exercisable at $0.085 per share and options totaling 493,716 shares are
      exercisable at $0.0698 per share. All of the options expire in August 2016.
      The
      shares vest after a one year period. This issuance was exempt from
      registration requirements pursuant to Section 4(2) of the Act.





24




In
      August
      2006, the Company issued stock options to purchase 750,000 shares of common
      stock to five existing employees at 150,000 shares each. The options were issued
      in accordance with the Company’s 2004 Equity Incentive Plan. These options are
      exercisable at $0.10 per share and expire in August 2016. The shares vest
      annually over a three year period. This issuance was exempt from
      registration requirements pursuant to Section 4(2) of the Act.





In
      September 2006, the Company sold units to an individual which contained common
      stock and warrants. This issuance is exempt from registration under the
      Securities Act of 1933 and the rules and regulations promulgated thereunder.
      The
      individual purchased and the Company recorded 71,429 shares of common stock
      from
      the Company at a price of $0.07 per share and received an aggregate of 107,144
      warrants with an exercise price of $0.105 per share which are exercisable for
      a
      period of three years from issuance. The stock was not issued by the transfer
      agent until October 2006.




In
      September 2006, the Company executed a 9% convertible promissory note in the
      amount of $150,000 with an individual. At any time, the holder is entitled,
      at
      its option, to convert, and sell on the same day, at any time and from time
      to
      time, until payment in full of the debenture, all or any part of the principal
      amount of the debenture, plus accrued interest, into shares of the Company’s
      common stock at the price of $0.10 per share. If not converted at the holder’s
      option, the entire principal amount and all accrued interest shall be due to
      the
      holder on the third year anniversary of debenture. In connection with the
      convertible promissory note payable, the Company issued to the individual an
      aggregate of 562,500 warrants with an exercise price of $0.16 per share. These
      warrants are exercisable for a period of five years from issuance.




In
      September 2006, the Company recorded 7,500 shares of its common stock, valued
      at
      $0.135 per share for 2,500 shares, $0.10 per share for 2,500 shares and $0.07
      per share for 2,500 shares, and issuable to a law firm as compensation for
      general counsel legal services rendered. The stock was not issued by the
      transfer agent until October 2006.





In
      September 2006, in accordance with an agreement made with a Software Development
      Consultant, the Company recorded 31,547 shares of its common stock, valued
      at
      $2,360, as compensation for consulting services rendered. The stock was not
      issued by the transfer agent until October 2006.





In
      September 2006, in accordance with an the terms of a Financial Consulting
      Agreement executed with an investor relations consultant in March 2006, the
      Company recorded 208,000 shares of its common stock, valued at $37,440, and
      issuable to the consultant as compensation for raising $150,000 in debt
      financing and $110,000 in equity financing. The stock was not issued by the
      transfer agent until October 2006.





In
      September 2006, the Company issued stock options to purchase 840,405 shares
      of
      common stock to eleven existing employees. The options were issued in accordance
      with the Company’s 2004 Equity Incentive Plan. Options totaling 492,309 shares
      are exercisable at $0.07 per share and options totaling 348,096 shares are
      exercisable at $0.099 per share. All of the options expire in September 2016.
      The shares vest after a one year period. This issuance was exempt from
      registration requirements pursuant to Section 4(2) of the Act.





All
      of
      the above offerings and sales were deemed to be exempt under Rule 506 of
      Regulation D and Section 4(2) of the Securities Act of 1933, as amended.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





Not
      applicable.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





Not
      applicable.





25




**ITEM
      5. OTHER INFORMATION******





In
      May
      2006, the Company executed a term sheet with an investor in the amount of $1
      million. As of September 30, 2006 the Company did not conclude the transaction.






**ITEM
      6. EXHIBITS**




3.1
            
            Amended
                and Restated Certificate of Incorporation of StrikeForce Technologies,
                Inc. (1)3.2
            
            By-laws
                of StrikeForce Technologies, Inc. (1)10.1
            
            2004
                Stock Option Plan. (1)10.2
            
            Securities
                Purchase Agreement dated December 20, 2004, by and among StrikeForce
                Technologies, Inc. and Cornell Capital Partners, LP.
                (1)10.3
            
            Secured
                Convertible Debenture with Cornell Capital Partners, LP.
                (1)10.4
            
            Investor
                Registration Rights Agreement dated December 20, 2004, by and between
                StrikeForce Technologies, Inc. and Cornell Capital Partners, LP in
                connection with the Securities Purchase Agreement.
                (2)




10.5
            
            Escrow
                Agreement, dated December 20, 2004, by and between StrikeForce
                Technologies, Inc. and Cornell Capital Partners, LP in connection
                with the
                Securities Purchase Agreement. (2)10.6
            
            Security
                Agreement dated December 20, 2004, by and between StrikeForce
                Technologies, Inc. and Cornell Capital Partners, LP in connection
                with the
                Securities Purchase Agreement. (1)10.7
            
            Secured
                Convertible Debenture with Cornell Capital Partners, LP dated January
                18,
                2005. (1)10.8
            
            Asset
                Purchase Agreement with NetLabs.com, Inc. and Amendments.
                (1)10.9
            
            Employment
                Agreement dated as of May 20, 2003, by and between StrikeForce
                Technologies, Inc. and Mark L. Kay. (1)10.10
            
            Amended
                and Restated Secured Convertible Debenture with Cornell Capital Partners,
                LP dated April 27, 2005. (1)10.11
            
            Amendment
                and Consent dated as of April 27, 2005, by and between StrikeForce
                Technologies, Inc. and Cornell Capital Partners, LP.
                (1)10.12
            
            Securities
                Purchase Agreement dated as of April 27, 2005 by and between StrikeForce
                Technologies, Inc. and Highgate House Funds, Ltd. (1)10.13
            
            Investor
                Registration Rights Agreement dated as of April 27, 2005 by and between
                StrikeForce Technologies, Inc. and Highgate House Funds, Ltd.
                (2)






26




10.14
            
            Secured
                Convertible Debenture with Highgate House Funds, Ltd. dated April
                27,
                2005. (2)10.15
            
            Escrow
                Agreement dated as of April 27, 2005 by and between StrikeForce
                Technologies, Inc., Highgate House Funds, Ltd. and Gottbetter &
                Partners, LLP. (1)10.16
            
            Escrow
                Shares Escrow Agreement dated as of April 27, 2005 by and between
                StrikeForce Technologies, Inc., Highgate House Funds, Ltd. and Gottbetter
                & Partners, LLP. (1)10.17
            
            Security
                Agreement dated as of April 27, 2005 by and between StrikeForce
                Technologies, Inc. and Highgate House Funds, Ltd. (1)10.18
            
            Network
                Service Agreement with Panasonic Management Information Technology
                Service
                Company dated August 1, 2003 (and amendment). (1)10.19
            
            Client
                Non-Disclosure Agreement. (1)10.20
            
            Employee
                Non-Disclosure Agreement. (1)10.21
            
            Secured
                Convertible Debenture with Highgate House Funds, Ltd. dated May 6,
                2005.
                (2)10.22
            
            Termination
                Agreement with Cornell Capital Partners, LP dated February 19, 2005.
                (1)31.1
            
            Certification
                by Chief Executive Officer, required by
                Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated
                pursuant
                to Section 302 of the Sarbanes-Oxley Act of 2002.
                (3)31.2
            
            Certification
                by Chief Financial Officer, required by
                Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act, promulgated
                pursuant
                to Section 302 of the Sarbanes-Oxley Act of 2002.
                (3)32.1
            
            Certification
                by Chief Executive Officer, required by
                Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section
                1350 of
                Chapter 63 of Title 18 of the United States Code, promulgated pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of 2002. (3)32.2
            
            Certification
                by Chief Financial Officer, required by
                Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section
                1350 of
                Chapter 63 of Title 18 of the United States Code, promulgated pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of 2002. (3)




(1)
      Filed
      as an exhibit to the Registrant's Form SB-2 dated as of May 11, 2005 and
      incorporated herein by reference.





(2)
      Filed
      as an exhibit to the Registrant's Amendment No. 1 to Form SB-2 dated as of
      June
      27, 2005 and incorporated herein by reference.





(3)
      Filed
      herewith.







27





**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly authorized.






**STRIKEFORCE
      TECHNOLOGIES, INC.**


*Dated:
                  December 4, 2006*
              *By:
                  /s/ Mark L. Kay**Mark
                  L. Kay**Chief
                  Executive Officer**Dated:
                  December 4, 2006*
              *By:
                  /s/ Mark Joseph Corrao**Mark
                  Joseph Corrao**Chief
                  Financial Officer and Principal Accounting Officer*







28