**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB/A**


Amendment
      1


(Mark
      One)





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





For
      the     quarterly
      period ended: March 31,
      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 May 19, 2006, the issuer had 21,865,794
      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/A is
      to
      restate the Company’s financial statements for the quarters ended March 31, 2006
      and 2005 (the “Financial Statements”) and to modify the related disclosures.
      Please see Note 4 to the Financial Statements included in the amended Form
      10-QSB/A. The restatement arose primarily from the Company’s determination that
      it had not accounted for the derivative financial instruments associated with
      the Convertible Secured Notes entered into in December 2004 and January, April
      and May 2005, although the Company believed that it had accounted for these
      financial instruments in accordance with generally accepted accounting
      principles and industry standards at that time. The Company has determined
      that
      the fair value of the derivatives should have been initially recorded as a
      liability, with any changes in the fair value of the derivatives between
      reporting dates as a derivative loss or gain, as appropriate. This Amendment
      No.
      1 reflects this accounting.





This
      amended Form 10-QSB/A does not attempt to modify or update any other disclosures
      set forth in the original Form 10-QSB, except as required to reflect the effects
      of the restatement as described in Note 4 to the Financial Statements included
      in the amended Form 10-QSB/A. Additionally, this amended Form 10-QSB/A, except
      for the restatement information, speaks as of the filing date of the Form
      10-KSB/A and does not update or discuss any other 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.





2




**STRIKEFORCE
        TECHNOLOGIES, INC.**
 TABLE
        OF CONTENTS
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2006** **and
        2005**
 **(UNAUDITED)**


Page
                  NumberFinancial
                  StatementsBalance
                  sheet at March 31, 2006 (Restated) and December 31, 2005
              F-1Statement
                  of operations for the three months ended March 31, 2006 and 2005
                  (Restated)
              F-2Statement
                  of stockholders’ deficiency for the three months ended March
                  31, 2006 (Restated)
              F-3Statement
                  of cash flows for the three months ended March 31, 2006 (Restated)
                  and
                  December 31, 2005
              F-4Notes to
                financial
                statements (Restated)
              F-5 -
                  F-35






3


**STRIKEFORCE
        TECHNOLOGIES, INC.**


**BALANCE
      SHEET**


**ASSETS****March
                  31,****2006**
              
              **December
                  31,****(As
                  Restated)**
              
              **2005****(Unaudited)**
              
              **(Audited)****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              1,488
              
              $
              77,094Accounts
                  receivable, net
              
              
              13,918
              
              
              1,883Short-term
                  portion of deferred royalties
              
              
              304,861
              
              
              475,448Prepaid
                  expenses
              
              
              44,996
              
              
              63,920**Total
                  current assets**
              
              
              365,263
              
              
              618,345Property
                  and equipment, net
              
              
              41,044
              
              
              45,099Long-term
                  portion of deferred royalties
              
              
              1,956,188
              
              
              2,087,357Intangible
                  assets, net
              
              
              4,329
              
              
              4,329Security
                  deposit
              
              
              8,684
              
              
              8,684**Total
                  Assets**
              
              $
              2,375,508
              
              $
              2,763,814**LIABILITIES
                  AND STOCKHOLDERS' DEFICIENCY****Current
                  Liabilities:**Convertible
                  notes payable
              
              $
              158,000
              
              $
              33,000Convertible
                  notes payable - related parties
              
              
              540,500
              
              
              427,500Notes
                  payable - related parties
              
              
              374,000
              
              
              189,000Capital
                  leases payable
              
              
              29,199
              
              
              25,243Accounts
                  payable
              
              
              291,656
              
              
              205,654Accrued
                  expenses
              
              
              238,186
              
              
              166,186Payroll
                  taxes payable
              
              
              46,053
              
              
              58,175Due
                  to employees
              
              
              38,305
              
              
              32,122**Total
                  current liabilities**
              
              
              1,715,899
              
              
              1,136,880Secured
                  convertible notes payable
              
              
              1,035,173
              
              
              1,013,740Derivative
                  financial instrument
              
              
              1,657,569
              
              
              1,972,288Convertible
                  notes payable
              
              
              485,000
              
              
              510,000Long-term
                  portion of capital leases payable
              
              
              20,530
              
              
              26,383**Total
                  Liabilities**
              
              
              4,914,171
              
              
              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,
                    21,269,565 and 18,454,250 issued and outstanding,respectively
              
              
              2,127
              
              
              1,846Additional
                  paid-in capital
              
              
              8,165,327
              
              
              7,326,491Accumulated
                  deficit
              
              
              (10,706,117
              )
              
              (9,223,814
              )**Total
                  Stockholders' Deficiency**
              
              
              (2,538,663
              )
              
              (1,895,477
              )**Total
                  Liabilities and Stockholders' Deficiency**
              
              $
              2,375,508
              
              $
              2,763,814




See
      notes
      to the  financial statements.


F-1






**STRIKEFORCE
        TECHNOLOGIES, INC.**
 STATEMENT
        OF OPERATIONS
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2006**
 **(UNAUDITED)**
  **2006**
              
              **2005****(As
                  Restated)**
              
              **(As
                  Restated)**Revenues
              
              $
              14,589
              
              $
              8,029Cost
                  of sales
              
              
              2,007
              
              
              2,371Gross
                  profit
              
              
              12,582
              
              
              5,658Operating
                  expenses:Selling,
                  general and administrative expenses
              
              
              1,239,763
              
              
              781,914Research
                  and development
              
              
              104,595
              
              
              104,099Total
                  operating expenses
              
              
              1,344,358
              
              
              886,013Loss
                  from operations before other expense
              
              
              (1,331,776
              )
              
              (880,355
              )Other
                  expense:Interest
                  and financing expense
              
              
              170,675
              
              
              44,587Derivative
                  instrument (income) expense, net
              
              
              (20,148
              )
              
              (14,654
              )Total
                  other expense
              
              
              150,527
              
              
              29,933Net
                  loss
              
              $
              (1,482,303
              )
              $
              (910,288
              )Basic
                  and diluted loss per common share
              
              $
              (0.07
              )
              $
              (0.05
              )Weighted
                  average number of common shares outstanding
              
              
              19,803,844
              
              
              17,254,416




See
        notes
        to the  financial statements.
   F-2






**STRIKEFORCE
        TECHNOLOGIES, INC.**
 STATEMENT
        OF STOCKHOLDERS'
        DEFICIENCY
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2006**
 **(AS
        RESTATED)**
 **(UNAUDITED)**


**Common
                  Stock**
              
              
              **Additional**
                **Paid-In**
              ****
              ****
              **Accumulated**
              ****
              ****
              **Total**
                **Stockholders'**
              ********
              ****
              ****
              **Shares**
              ****
              ****
              **Amount**
              ****
              ****
              **Capital**
              ****
              ****
              **Deficit**
              ****
              ****
              **Deficiency**Balance
                  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
              
              
              374,243
              
              
              37
              
              
              155,963
              
              
              -
              
              
              156,000Issuance
                  of shares from conversions of notes payable and interest
              
              
              1,864,507
              
              
              186
              
              
              409,169
              
              
              
              
              
              409,355Issuance
                  of shares for consulting services
              
              
              576,565
              
              
              58
              
              
              144,962
              
              
              
              
              
              145,020Issuance
                  of warrants in connection with convertible notes payable
              
              
              -
              
              
              -
              
              
              20,363
              
              
              -
              
              
              20,363Issuance
                  of warrants in connection with consulting services
              
              
              -
              
              
              -
              
              
              93,156
              
              
              -
              
              
              93,156Repricing
                  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
              
              
              -
              
              
              -
              
              
              46,609
              
              
              -
              
              
              46,609Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,482,303
              )
              
              (1,482,303
              )Balance
                  at March 31,2006
              
              
              21,269,565
              
              $
              2,127
              
              $
              8,165,327
              
              $
              (10,706,117
              )
              $
              (2,538,663
              )




See
        notes
        to the  financial statements.
   F-3




**STRIKEFORCE
          TECHNOLOGIES, INC.**
 STATEMENT
          OF CASH FLOWS
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2006** **and
          2005**
 **(UNAUDITED)**




**2006****(As
                  Restated)**
              
              **2005****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (1,482,303
              )
              $
              (910,288
              )Adjustments
                  to reconcile net loss to netcash
                  provided by operating activities:Depreciation
                  and amortization
              
              
              6,626
              
              
              5,959Amortization
                  of deferred financing costs
              
              
              3,721
              
              
              -Professional
                  fees through issuance of common stock, options and
                  warrants
              
              
              422,342
              
              
              72,000Amortization
                  of discount on convertible notes
              
              
              136,217
              
              
              33,422Royalty
                  expense paid through issuance of stock options
              
              
              83,570
              
              
              118,789Mark
                  to market on derivative financial instrument expense
              
              
              (20,148
              )
              
              (14,654
              )Employee
                  stock option compensation
              
              
              46,609
              
              
              -Changes
                  in assets and liabilities affecting operations:Accounts
                  and other receivable, net
              
              
              (12,035
              )
              
              (3,651
              )Prepaid
                  expenses
              
              
              1,800
              
              
              (4,698
              )Accounts
                  payable
              
              
              86,003
              
              
              9,312Accrued
                  expenses
              
              
              108,400
              
              
              (86,853
              )Payroll
                  taxes payable
              
              
              (12,122
              )
              
              10,026Due
                  to employees
              
              
              6,180
              
              
              (2,833
              )**Net
                  cash used in operating activities**
              
              
              (625,140
              )
              
              (773,469
              )**Cash
                  flows from investing activities:**Investment
                  in website
              
              
              (750
              )
              
              -Purchases
                  of property and equipment
              
              
              (1,820
              )
              
              (10,286
              )**Net
                  cash used in investing activities**
              
              
              (2,570
              )
              
              (10,286
              )**Cash
                  flows from financing activities:**Proceeds
                  from sale of common stock and warrants
              
              
              156,000
              
              
              68,550Proceeds
                  from convertible notes payable
              
              
              100,000
              
              
              860,000Proceeds
                  from convertible notes payable - related parties
              
              
              113,000
              
              
              -Proceeds
                  from notes payable - related parties
              
              
              185,000
              
              
              -Payments
                  on secured convertible notes payable
              
              
              -
              
              
              -Payments
                  on convertible notes payable - related parties
              
              
              -
              
              
              -Payments
                  on notes payable - related parties
              
              
              -
              
              
              (7,500
              )Principal
                  payments for capital leases
              
              
              (1,896
              )
              
              (5,033
              )**Net
                  cash provided by financing activities**
              
              
              552,104
              
              
              916,017**Net
                  (decrease) increase in cash**
              
              
              (75,606
              )
              
              132,262**Cash,
                  beginning of period**
              
              
              77,094
              
              
              103,745**Cash,
                  end of period**
              
              $
              1,488
              
              $
              236,007**Supplemental
                  disclosure of cash flow information:**Interest
                  expense
              
              $
              41,845
              
              $
              11,646Income
                  taxes
              
              $
              -
              
              $
              -**Supplemental
                  schedule of non-cash activities:**Revaluation
                  of stock options issued for deferred royalties
              
              $
              (218,186
              )
              $
              954,174Net
                  increase in discount on notes payable
              
              $
              -
              
              $
              111,950Warrants
                  issued in connection with consulting services
              
              $
              20,363
              
              $
              -Conversion
                  of convertible promissory notes payableinto
                  common stock
              
              $
              114,784
              
              $
              -Issuance
                  of common stock for accrued services
              
              $
              36,400
              
              $
              -




See
        notes
        to the  financial statements.


F-4


**STRIKEFORCE
          TECHNOLOGIES, INC.**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 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 WebSecureTM 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
        March 31, 2006, the results of operations for the three months ended March
        31,
        2006, and changes in stockholders’ equity and cash flows for the three months
        ended March 31, 2006. The results for the three months ended March 31, 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-5
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 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 three months ended March 31, 2006 and 2005,
        total
        hardware revenues for products shipped or delivered were $0 (which was 0%
        of
        total revenues) and $829 (which was 10% of total revenues),
        respectively.
 
 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
        three months ended March 31, 2006 and 2005, total software revenues for software
        shipped or delivered were $0 (which was 0% of total revenues) and $5,500
        (which
        was 69% 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
        three months ended March 31, 2006 and 2005, total revenues for services provided
        were $14,589 (which was 100% of total revenues) and $1,700 (which was 21%
        of
        total revenues), respectively.
 
 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.
 
 F-6
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
  **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (cont’d)**
  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 three months ended March 31, 2006 and 2005 were $104,595 and $104,099,
        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 March 31, 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-7
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 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-8
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 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-9
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 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 March 31, 2006 totaled 5,000,000, of which 3,170,000 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 first quarter ended March
        31, 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 (restated)
              
              
              
              
              $
              (910,288
              )Stock
                based compensation (benefits) cost included in the determination
                of net
                income as reported
              
              
              
              
              
              118,789Stock-based
                  compensation cost determined under the fair value method
              
              
              
              
              
              (161,411
              )Pro
                  forma net loss (restated)
              
              
              
              
              $
              (952,910
              )Net
                loss per share:Basic
                    and diluted - as reported (restated)
                  Basic
                      and diluted - pro forma (restated)
              
              
              
              
              $
                $
              (0.05
                (0.06
              )
                )
 
 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 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:
 
 F-10
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
  **NOTE
        3 - STOCK BASED COMPENSATION - (cont’d)**
  **2006**
                **2005**Risk-free
                    interest rate
                3.1%
                    - 4.8%
                3.1%
                    - 4.7%Dividend
                    yield
                0.00%
                0.00%Expected
                    volatility
                6%
                    - 146%
                10%
                    - 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 first quarter 2006 reported
        operating income and net income by $46,609. The
        expense is classified as selling, general and administrative expense on the
        statement of operations.
 
 For
        the
        three months ended March 31, 2006, there was $494,150 of compensation cost
        for
        share-based payment arrangements recognized in general and administrative
        expenses by the Company.
 
 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, 2003. 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
        5,000,000 shares of common stock to be offered from either authorized and
 
 F-11
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 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. All options
        vest equally over a three year period beginning one-year from the
        grant.
 
 As
        of
        March 31, 2006 and 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
        March 31, 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 March
        31, 2006:
  Non-PlanIncentive
              
              Non-Qualified
              
              Non-QualifiedOptions
              
              Options
              
              Options
              
              TotalOutstanding
                  at December 31, 2005
              
              
              -
              
              
              1,830,000
              
              
              7,618,889
              
              
              9,448,889Granted
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -
              
              
              -
              
              
              -Outstanding
                  at March 31, 2006
              
              
              -
              
              
              1,830,000
              
              
              7,618,889
              
              
              9,448,889Vesting
                  Schedule:Vested
                  at December 31, 2005
              
              
              -
              
              
              1,382,083
              
              
              6,651,270
              
              
              8,033,353March
                  31, 2006
              
              
              -
              
              
              148,333
              
              
              362,857
              
              
              511,190
 
 At
        March
        31, 2006 and December 31, 2005, there were 9,448,889 stock options outstanding
        of which 1,830,000 options are exercisable at an exercise price of $1.00,
        7,600,000 options are exercisable at $0.36 and 18,889 options are 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
        March 31, 2006, there were 8,544,543 vested options outstanding of which
        1,530,416 options are exercisable at an exercise price of $1.00, 6,995,238
        options are exercisable at $0.36 and 18,889 options are exercisable at
        $0.90.
 
 As
        of
        March 31, 2006, there was $68,666 of total unrecognized compensation cost
        related to unvested share-based compensation arrangements that is expected
        to be
        recognized over a weighted-average period of 19 months.
  **NOTE
        4 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS**
 
 The
        Company's management determined that the Company should restate previously
        issued financial statements for the quarters ended March 31, 2005 and 2006
        to
        correct for errors in the accounting for embedded derivative instruments
        within
        the Company’s secured convertible debt that required the Company to bifurcate
        them and account for them separately as derivative instrument liabilities.
        The
 
 F-12
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        4 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS -
        (cont’d)**
 
 following
        provides a more detailed discussion of the restatement along with a comparison
        of the amounts previously reported in the Balance Sheet for March 31, 2006,
        and
        Statements of Operations in the Company’s Quarterly Report on Form 10-QSB for
        the periods ended March 31, 2006 and 2005.
 
 More
        specifically, the convertible debt has previously been accounted for under
        EITF
        98-5 and EITF 00-27 using the intrinsic value accounting model which includes
        accounting for beneficial conversion features. It has been determined that
        the
        secured convertible debentures have compound embedded derivatives requiring
        bifurcation under EITF 00-19 which require these instruments to be accounted
        for
        under SFAS 133 using the fair value accounting model.
 
 As
        a
        result of the Company's determination, certain convertible debt instruments
        are
        not conventional convertible debt, and any associated warrants and any
        beneficial conversion features that were previously recorded as additional
        paid
        in capital, with a corresponding reduction to the notes payable would be
        eliminated from the balance sheet and the amortization of any warrant and
        beneficial conversion feature value would be eliminated from the results
        of
        operations. The warrants and any other potential compound embedded derivatives
        in the notes requiring bifurcation under ElTF 00-19 would be accounted for
        as
        liabilities and valued by being marked to market at each balance sheet date
        under SFAS 133 and the corresponding gain or loss in value would be recorded
        in
        our statement of operation as additional financing costs.
 
 The
        Company reviewed its initial accounting for its convertible promissory notes
        originally issued to Cornell and subsequent notes issued to Highgate. During
        the
        review, the Company identified that EITF 00-19 should be applied to evaluate
        whether any embedded derivative instruments qualify as equity instruments
        or as
        liabilities. As a result, certain compound embedded derivatives were identified
        that met the conditions set forth under paragraph 12 of SFAS No. 133. These
        embedded derivative instruments have been evaluated using EITF 00-19 paragraphs
        12 to 32 and determined that these instruments would not be classified as
        components of stockholders equity. The instruments have been deemed liabilities,
        and as such, will be subject to SFAS 133 and should be recorded at fair
        value.
 
 Compound
        embedded derivatives contained in the convertible debentures are now bifurcated
        from the host debt and measured at fair value and classified as derivative
        liabilities. These compound embedded derivatives will also be marked to market
        on each balance sheet date.
 
 The
        resulting debt discount will be amortized over the period of the convertible
        debt as interest and other expenses in our accompanying statements of
        operations.
 
 The
        effect on the Company’s accompanying balance sheet as of March 31, 2006, was an
        increase in assets of $317, an increase in liabilities of $1,287,383 and
        an
        increase in stockholders' deficiency of $1,287,066. The effect on the Company’s
        statement of operations for the quarter ended March 31, 2006 was an increase
        in
        the net loss of $91,694. Basic and diluted loss per common share for the
        quarter
        ended March 31, 2006 did not change.
 
 The
        effect on the Company’s accompanying balance sheet as of March 31, 2005, was a
        decrease in assets of $225,692, a decrease in liabilities of $21,912 and
        corresponding decrease in stockholders' equity of $203,787. The effect on
        the
        Company’s statement of operations for the quarter ended March 31, 2005 was a
        decrease in the net loss of $22,078.
 
 
 F-13
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        4 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS -
        (cont’d)**
 
 The
        adoption of SFAS No. 123R decreased the Company’s first quarter 2006 reported
        operating income and net income by $46,609 which was recorded as stock option
        expense and is classified as selling, general and administrative expense
        on the
        restated statement of operations.
 
 For
        the
        three months ended March 31, 2006, the Company has recorded an additional
        $16,800 of miscellaneous expense and is classified as selling, general and
        administrative expense on the restated statement of operations.
 
 Features
        within the debt noted above that have been evaluated and determined to require
        such treatment include:
 
 o
        The
        principal conversion options.
 
 o
        The
        monthly payments conversion options.
 
 o
        Registration rights.
 
 o
        Potential liquidated damages.
 
 Management
        believes the scope and process of its internal review of previously reported
        financial information was sufficient to identify issues of a material nature
        that could affect the Company’s Financial Statements and all dates and periods
        presented herein have been restated to fairly present the results of our
        operations.
 
 
 
 *REMAINDER
        OF PAGE LEFT BLANK INTENTIONALLY*
 
 
 
 
 
 F-14
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
  **NOTE
        4 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS -
        (cont’d)**
 
 The
        following is a summary of the effect of the restatement on the originally
        issued
        balance sheets, statements of operation and statements of cash flows for
        the
        quarters ended March 31, 2006 and 2005.
 
 **BALANCE
        SHEETS**
 **As
        of March 31, 2006 and 2005**
  **Previously**
                  **Reported**
                **2006**
              
              **As**
                **Restated**
                **2006**
              
              **Previously**
                **Reported**
                **2005**
              
              **As**
                **Restated**
                **2005****ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              1,488
              
              $
              1,488
              
              $
              236,007
              
              $
              236,007Accounts
                  receivable, net
              
              
              13,918
              
              
              13,918
              
              
              16,349
              
              
              16,349Short-term
                  portion of deferred royalties
              
              
              318,210
              
              
              304,861
              
              
              356,368
              
              
              356,368Prepaid
                  expenses
              
              
              44,996
              
              
              44,996
              
              
              193,309
              
              
              130,811**Total
                  current assets**
              
              
              378,612
              
              
              365,263
              
              
              802,033
              
              
              739,535Property
                  and equipment, net
              
              
              41,044
              
              
              41,044
              
              
              47,557
              
              
              47,557Long-term
                  portion of deferred financing costs
              
              
              -
              
              
              -
              
              
              163,194
              
              
              -Long-term
                  portion of deferred royalties
              
              
              1,942,522
              
              
              1,956,188
              
              
              3,642,869
              
              
              3,642,869Intangible
                  assets, net
              
              
              4,329
              
              
              4,329
              
              
              4,329
              
              
              4,329Security
                  deposit
              
              
              8,684
              
              
              8,684
              
              
              8,684
              
              
              8,684**Total
                  Assets**
              
              $
              2,375,191
              
              $
              2,375,508
              
              $
              4,668,666
              
              $
              4,442,974**LIABILITIES
                  AND STOCKHOLDERS'****EQUITY
                  (DEFICIENCY)****Current
                  Liabilities:**Convertible
                  notes payable
              
              $
              158,000
              
              $
              158,000
              
              $
              125,000
              
              $
              125,000Convertible
                  notes payable - related parties
              
              
              540,500
              
              
              540,500
              
              
              247,500
              
              
              247,500Notes
                  payable - related parties
              
              
              374,000
              
              
              374,000
              
              
              196,200
              
              
              196,200Capital
                  leases payable
              
              
              30,044
              
              
              29,199
              
              
              18,013
              
              
              18,013Accounts
                  payable
              
              
              291,656
              
              
              291,656
              
              
              131,042
              
              
              131,042Accrued
                  expenses
              
              
              372,335
              
              
              238,186
              
              
              67,217
              
              
              48,039Payroll
                  taxes payable
              
              
              46,053
              
              
              46,053
              
              
              62,956
              
              
              62,956Due
                  to employees
              
              
              38,305
              
              
              38,305
              
              
              1,160
              
              
              1,160**Total
                  current liabilities**
              
              
              1,850,893
              
              
              1,715,899
              
              
              839,088
              
              
              829,910Secured
                  convertible notes payable
              
              
              1,271,210
              
              
              1,035,173
              
              
              1,000,000
              
              
              700,916Derivative
                  financial instrument
              
              
              -
              
              
              1,657,569
              
              
              -
              
              
              365,143Convertible
                  notes payable
              
              
              485,000
              
              
              485,000
              
              
              235,000
              
              
              235,000Long-term
                  portion of capital leases payable
              
              
              19,685
              
              
              20,530
              
              
              50,780
              
              
              50,780**Total
                  Liabilities**
              
              
              3,626,788
              
              
              4,914,171
              
              
              2,134,868
              
              
              2,181,749**Commitments
                  and contingencies****Stockholders'
                  Equity (Deficiency)**Preferred
                  stock, par value $0.10
              
              
              -
              
              
              -
              
              
              -
              
              
              -Common
                  stock, par value $0.0001
              
              
              2,127
              
              
              2,127
              
              
              1,729
              
              
              1,729Additional
                  paid-in capital
              
              
              8,402,824
              
              
              8,165,327
              
              
              7,468,672
              
              
              7,218,673Accumulated
                  deficit
              
              
              (9,656,548
              )
              
              (10,706,117
              )
              
              (4,936,603
              )
              
              (4,959,177
              )**Total
                  Stockholders' Equity (Deficiency)**
              
              
              (1,251,597
              )
              
              (2,538,663
              )
              
              2,533,798
              
              
              2,261,225**Total
                  Liabilities and Stockholders' Equity (Deficiency)**
              
              $
              2,375,191
              
              $
              2,375,508
              
              $
              4,668,666
              
              $
              4,442,974
 
  F-15
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
  **STATEMENTS
        OF OPERATIONS**
 **For
        the Three Months Ended March 31, 2006 and 2005**
 
 
 **Previously**
              
              **As**
              
              **Previously**
              
              **As****Reported**
              
              **Restated**
              
              **Reported**
              
              **Restated****2006**
              
              **2006**
              
              **2005**
              
              **2005**Revenues
              
              $
              14,589
              
              $
              14,589
              
              $
              8,029
              
              $
              8,029Cost
                  of sales
              
              
              2,007
              
              
              2,007
              
              
              2,371
              
              
              2,371Gross
                  profit
              
              
              12,582
              
              
              12,582
              
              
              5,658
              
              
              5,658Operating
                  expenses:Selling,
                  general and administrative expenses
              
              
              1,177,671
              
              
              1,239,763
              
              
              781,914
              
              
              781,914Research
                  and development
              
              
              104,595
              
              
              104,595
              
              
              104,099
              
              
              104,099Total
                  operating expenses
              
              
              1,282,266
              
              
              1,344,358
              
              
              886,013
              
              
              886,013Loss
                  from operations before other expense
              
              
              (1,269,684
              )
              
              (1,331,776
              )
              
              (880,355
              )
              
              (880,355
              )Other
                  expense:Interest
                  and financing expense
              
              
              120,925
              
              
              170,675
              
              
              52,011
              
              
              44,587Derivative
                  instrument expense, net
              
              
              -
              
              
              (20,148
              )
              
              -
              
              
              (14,654
              )Total
                  other expense
              
              
              120,925
              
              
              150,527
              
              
              52,011
              
              
              29,933Net
                  loss
              
              $
              (1,390,609
              )
              $
              (1,482,303
              )
              $
              (932,366
              )
              $
              (910,288
              )Basic
                  and diluted loss per common share
              
              $
              (0.07
              )
              $
              (0.07
              )
              $
              (0.05
              )
              $
              (0.05
              )Weighted
                  average common shares
              
              
              19,894,261
              
              
              19,803,844
              
              
              17,254,416
              
              
              17,254,416
 
 
 F-16
  **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        4 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS -
        (cont’d)**
  **STATEMENTS
        OF CASH FLOWS**
 **As
        of March 31, 2006 and 2005**
 
 **Previously**
              
              **As**
              
              **Previously**
              
              **As****Reported**
              
              **Restated**
              
              **Reported**
              
              **Restated****2006**
              
              **2006**
              
              **2005**
              
              **2005****Cash
                  flows from operating activities:**Net
                  loss
              
              $
              (1,390,609
              )
              $
              (1,482,303
              )
              $
              (932,366
              )
              $
              (910,288
              )Adjustments
                  to reconcile net loss to netcash
                  provided by operating activities:Amortization
                  of deferred financing costs
              
              
              59,051
              
              
              3,721
              
              
              20,833
              
              
              -Professional
                  fees through issuance of commonstock,
                  options and warrants
              
              
              397,918
              
              
              422,342
              
              
              72,000
              
              
              72,000Royalty
                  expense paid through issuance ofstock
                  options
              
              
              83,887
              
              
              83,570
              
              
              118,789
              
              
              118,789Amortization
                  of discount on convertible notes
              
              
              -
              
              
              136,217
              
              
              -
              
              
              33,422Mark
                  to market on derivative instrument expense
              
              
              -
              
              
              (20,148
              )
              
              -
              
              
              (14,654
              )Employee
                  stock option compensation
              
              
              -
              
              
              46,609
              
              
              -
              
              
              -Prepaid
                  expenses
              
              
              36,250
              
              
              1,800
              
              
              (4,698
              )
              
              (4,698
              )Accrued
                  expenses
              
              
              113,711
              
              
              108,400
              
              
              (66,840
              )
              
              (86,853
              )Other
                  operating activities
              
              
              74,652
              
              
              74,652
              
              
              18,813
              
              
              18,813**Net
                  cash used in operating activities**
              
              
              (625,140
              )
              
              (625,140
              )
              
              (773,469
              )
              
              (773,469
              )**Net
                  cash used in financing activities**
              
              
              552,104
              
              
              552,104
              
              
              916,017
              
              
              916,017**Net
                  cash used in investing activities**
              
              
              (2,570
              )
              
              (2,570
              )
              
              (10,286
              )
              
              (10,286
              )**Net
                  increase in cash**
              
              
              (75,606
              )
              
              (75,606
              )
              
              132,262
              
              
              132,262**Cash,
                  beginning of period**
              
              
              77,094
              
              
              77,094
              
              
              103,745
              
              
              103,745**Cash,
                  end of period**
              
              $
              1,488
              
              $
              1,488
              
              $
              236,007
              
              $
              236,007
 
 **NOTE
        5 -**  **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 March 31, 2006, the Company's restated accumulated deficit was
        $10,706,117, its restated working capital deficiency was $1,350,636 and
        approximately 95% of its assets consist of deferred royalties. In addition,
        the
        Company had restated net losses of $1,482,303
 
 
 F-17
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        5 -**  **GOING
        CONCERN - (cont’d)**
 
 and
        $910,288 for the three months ended March 31, 2006 and 2005.
  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 14), 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. The
        first
        tranche  of
        $500,000 should be available to the Company
        by the end of the second quarter of 2006. The Company is awaiting the
        contracts.
 
 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.
 
 **NOTE
        6 -** **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 March 31, 2006) were measured using
        May 19,
        2006 assumptions since those assumptions are considered indicative of a
        non-temporary change in the market value of the Company’s common
        stock.
 
 F-18
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        6 -** **DEFERRED
        ROYALTIES - (cont’d)**
 
  As
        of
        March 31, 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 vest on September
        11, 2006) are valued at March 31, 2006 at $264,160. The total value of the
        deferred royalties, net of accumulated amortization of $598,955, is $2,260,732.
        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 three
        months ended March 31, 2006 and 2005, $83,570 and $118,789 of royalties were
        expensed, respectively, $304,861 was classified as short-term deferred royalties
        and the remainder of $1,956,188 was classified as long-term deferred royalties
        on the balance sheet at March 31, 2006. Measurement is based upon the
        Black-Scholes Model using the following assumptions:
 
  December
                  31, 2005
              
              May
                  19, 2006Market
                  share price
              
              $0.22
              
              $0.12Expected
                  volatility
              
              146.00%
              
              152.00%Risk-free
                  interest rate
              
              4.82%
              
              4.96%Expected
                  life
              
              5
                  years
              
              5
                  years
 
 **NOTE
        7 - ACCRUED EXPENSES**
 
 Accrued
        expenses consist of the following at March 31, 2006:
 
 Interest
              
              $
              98,815Commitment
                  fees
              
              
              26,447Professional
                  Fees
                Trade
                  Shows
              
              
              110,134
                2,790Total
                  accrued expenses
              
              $
              238,186
 
 **NOTE
        8 -**  **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.
 
 F-19
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        8 - SECURED CONVERTIBLE NOTES PAYABLE - (cont’d)**
 
 
 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 6,510,000 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, 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 three months ended March 31, 2006 was
        approximately $31,002. 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.
 
 F-20
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        8 - SECURED CONVERTIBLE NOTES PAYABLE - (cont’d)**
 
 
 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 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 March 31, 2006, the
        fair
        value of the notes was $679,189 for Cornell and $355,984 for Highgate,
        respectively
 
 Conversions
        to Common Stock
 
 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
        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, 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
 
 F-21
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        8 - SECURED CONVERTIBLE NOTES PAYABLE - (cont’d)**
 
 Conversions
        to Common Stock - (cont’d)
 
 share
        and
        on March 2, 2006 for $50,000 into 367,647 shares of common stock at a conversion
        price of $0.136 per share.
 
 **NOTE
        9 - 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.
 
 **NOTE
        10 -**  **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. 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 three months ended
        March
        31, 2006 and 2005, the Company recorded $136 and $0, respectively, in financing
        expense related to the issuance of these warrants.
  F-22
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        10 -**  **CONVERTIBLE
        NOTES PAYABLE - (cont’d)**
 
  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 March 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.
 
 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. This note is included in current
        liabilities on the balance sheet at March 31, 2006. 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.
 
 
 F-23
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        10 -**  **CONVERTIBLE
        NOTES PAYABLE - (cont’d)**
 
 The
        fair
        value of all the warrants issued using the Black-Scholes Option Pricing Model
        was $12,300. For the three months ended March 31, 2006 and 2005, the Company
        recorded $513 and $0, respectively, in financing expense related to the issuance
        of these warrants
 
 Interest
        expense for the convertible notes payable for the three months ended March
        31,
        2006 was approximately $10,410.
 
 **NOTE
        11 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES**
 
 Convertible
        notes payable - related parties at March 31, 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 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. Per
        a
        verbal agreement reached with the note holders, the notes shall be repaid
        in May
        2006.
 
 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. In December 2005, the maturity dates of the notes
        were
        extended to March 31, 2006. In March 2006, the maturity dates of the notes
        were
        extended to September 30, 2006.
 
 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. In December 2005,
        the
        maturity date of the $50,000 note was extended to March 31, 2006. In March
        2006,
        the maturity date of the $50,000 note was extended to September 30,
        2006.
 
 F-24
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        11 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES -
        (cont’d)**
 
 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. In December 2005, the maturity
        date of the note was extended to March 31, 2006. In March 2006, the maturity
        date of the note was extended to September 30, 2006.
  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.
 
 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
        March
        31, 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 December 2005, the maturity dates of the notes
        were
        extended to March 31, 2006. In March 2006, the maturity date of the $50,000
        note
        was extended to August 1, 2006 and the maturity date of the $7,500 note was
        extended to June 1, 2006.
 
 At
        March
        31, 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 $.72, $.75 and $1.00 per share. The
        maturity dates of four of the notes payable, aggregating $230,000, were December
        31, 2005. In December 2005, the maturity dates of the notes were extended
        to
        March 31, 2006. In March 2006, the maturity dates of the notes were extended
        to
        September 30, 2006. The maturity date for the remaining two notes entered
        in to
        in the quarter ended March 31, 2006 aggregating $38,000 is December 31, 2006.
        For the three months ended March 31, 2006, the interest ranged between 8.625%
        and 9.125% per annum.
 
 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 $28,987. For the three months ended March 31, 2006 and 2005, the
        Company recorded $5,472 and $0, respectively, in financing expense related
        to
        the issuance of these warrants.
 
 At
        March
        31, 2006, accrued interest due for the convertible notes - related parties
        was
        $20,216 and is included in accrued expenses in the accompanying balance sheet.
        Interest expense for convertible notes payable
        -
        related parties for the three months ended March 31, 2006 and 2005 was
        approximately $11,619 and $4,444, respectively.
 
 F-25
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        12 -**  **NOTES
        PAYABLE - RELATED PARTIES**
 
 Notes
        payable - related parties at March 31, 2006 consist of the
        following:
  At
        March
        31, 2006, the Company had executed five notes payable with its CEO aggregating
        $349,000. 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 March 2006, the maturity dates of the
        notes
        were extended to September 30, 2006. For the three months ended March 31,
        2006,
        the interest ranged between 8.625% and 9.125% per annum. The remaining two
        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 May 2006, the maturity date of the $150,000
        note
        was extended to June 30, 2006.
 
 In
        the
        quarter ended March 31, 2006, the Company executed four promissory notes
        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. The maturity date of all the notes is September 30, 2006.
 
 Interest
        expense for notes payable - related parties for the three months ended March
        31,
        2006 and 2005 was approximately $5,856 and $3,051, 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 March 31, 2006,
        reflects the amended changes to these capital leases.
 
 At
        March
        31, 2006, the aggregate future minimum remaining lease payments under capital
        leases are as follows:
 
 **Period
                  Ending****December
                  31,**2006
              
              $
              33,7442007
              
              
              19,375Total
              
              
              53,119Less:
                  amount representing interest
              
              
              (3,390
              )Net
                  present value of capital lease obligations
              
              
              49,729Current
                  portion
              
              
              (29,199
              )Long-term
                  portion
              
              $
              20,530
  
 The
        capital leases listed above relate to property and equipment with a book
        value
        of $11,830.
  F-26
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **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.
 
 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 settlement has been reflected in the
        following lease commitment schedule.
 
 The
        approximate future annual minimum rentals under non-cancelable operating
        leases
        in effect on March 31, 2006 are as follows:
 
 
 **Office** **Space******
              
              
              **Equipment**2006
              
              $
              55,862
              
              $
              4,9532007
              
              
              74,483
              
              
              3,9102008
              
              
              6,207
              
              
              1,966$
              136,552
              
              $
              10,829
  Rent
        expense charged to operations for office space for the three months ended
        March
        31, 2006 and 2005 amounted to approximately $17,238 and $17,282, respectively.
        The expense charged to operations for equipment rental for the three months
        ended March 31, 2006 and 2005 amounted to approximately $550 and $1,101,
        respectively.
 
 Payroll
        Taxes
 
 As
        of
        March 31, 2006, the Company owes $46,053 of payroll taxes, of which
        approximately $45,000 are delinquent from the year ended December 31, 2003.
        The
        Company has also recorded $29,311 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 March 31, 2006 and 2005,
        nine
        customers represented 100% and two customers
        represented 100% of the total accounts receivable, respectively. For the
        three
        months ended  March
        31,
        2006, the Company had four unrelated customers, which accounted for 14%,
        16%,
        28% and 34%, respectively, of total revenue. For the three months ended March
        31, 2005, the Company had three unrelated customers, which accounted for
        6%,
        15%, and 79%, respectively, of total revenue.
  
 F-27
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 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.
 For
            the
            three months ended March 31, 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-28
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        14 - COMMITMENTS AND CONTINGENCIES - (cont’d)**
 
 Panasonic
        - (cont’d)
  As
        of
        March 31, 2006, the contract required yearly minimum commitment fees from
        the
        Company as follows:
  Quarter
                    ending March
                    31,2007
                
                $
                50,0002008
                
                
                50,0002009
                
                
                37,500Total
                
                $
                137,500
  
 As
        of
        March 31, 2006 the Company has accrued $12,500 against the balance due for
        the
        March 31, 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. Based
        upon
        the terms of the amended Agreement, the Company is not in default of any
        payments owed to Panasonic.
  Finder’s
        Agreement
 
 In
        May
        2005, the Company entered into a consulting finder’s agreement with an
        investment advisory firm, whereas the services to be provided by the advisory
        firm involve the introduction of potential investors to the Company. No fee
        is
        due to the advisory firm unless a financial arrangement between the investor
        and
        the Company is consummated. If an arrangement is accepted and concluded with
        the
        Company and an introduced investor, then the advisory firm is entitled to
        a fee
        equal to ten percent of the investment. This fee may be in the form of cash,
        equity or a combination of both. The term of the agreement is for one year,
        is
        non exclusive and may be cancelled by either party upon 30 days written
        notice.
 
 In
        July
        2005, the Company entered into a consulting agreement with an independent
        consultant whereas the services to be provided by the consultant involve
        the
        introduction of potential investors to the Company and the potential sale
        of
        products. No fee is due to the consultant unless a financial arrangement
        between
        an investor and the Company is consummated or a sale of product is consummated.
        If an arrangement is accepted and concluded with the Company and an introduced
        investor, then the consultant is entitled to a fee equal to seven percent
        of the
        investment. If a sale is consummated the consultant is entitled to a fee
        equal
        to ten percent of the sale. If a sale is made by a third party, based upon
        the
        introduction by the consultant, the consultant is entitled to a fee of five
        percent of the sale. The term of the agreement is for six months, is non
        exclusive and may be cancelled by either party upon 30 days written notice.
 
 In
        January 2006, the Company entered into a contingency search agreement with
        a
        recruitment firm, whereas the recruitment firm will provide the Company with
        potential candidates for employment. No fee is due to the recruitment firm
        unless a candidate is hired by the Company. If an arrangement is consummated
        between a candidate and the Company, then the recruitment firm is entitled
        to a
        fee equal to twenty percent of that new employee’s annual base salary. This fee
        may be in the form of cash or a combination
        of cash and warrants. The term of the agreement is open, is non exclusive
        and
        can be cancelled by either party at any time by written notice.
 
 F-29
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        14 - COMMITMENTS AND CONTINGENCIES - (cont’d)**
 
 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 shall also issue 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
        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.
 
 F-30
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        14 - COMMITMENTS AND CONTINGENCIES - (cont’d)**
  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.
 
 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).
 
 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 $1,000 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 this time, therefore, the 50,000 shares of
        common stock were not issued. The Company may decide to pursue further
        agreements with the investment firm in the near future.
 
 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.
 
 
 F-31
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        15 -**  **STOCKHOLDERS’
        EQUITY**
 
 Issuance
        of Stock for Services
  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 three months ended March 31, 2006, the Company expensed $24,267
          of
          professional fees related to this agreement which are included in consulting
          expenses.
 
 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 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 three months
        ended March 31, 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 three months
        ended
        March 31, 2006, the Company issued 75,809 shares of common stock and expensed
        $20,000 of fees related to this agreement which are included in consulting
        expenses. The Company also executed a consultant agreement with the firm
        in
        January 2006 (see Note 14 above).
  F-32
 **STRIKEFORCE
            TECHNOLOGIES, INC.**
 **NOTES
            TO FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
 **NOTE
        15 -**  **STOCKHOLDERS’
        EQUITY - (cont’d)**
 
 
 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 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. For the three
        months ended March 31, 2006, the Company issued 23,256 shares of common stock
        and expensed $6,000 of professional fees related to this agreement which
        are
        included in consulting expenses.
 
 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 three months ended March 31, 2006, the Company issued 120,000 shares
        of
        common stock and expensed $53,200 of professional fees related to this agreement
        of which $36,400 were included in accrued expenses.
  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 three months ended March
        31,
        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 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 three months ended
        March 31, 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 all the warrants issued using the Black-Scholes
        Option Pricing Model was $30,060. For the three months ended March 31, 2006,
        the
        Company recorded $30,060 of consulting expense related to the
        warrants.
  F-33
 **STRIKEFORCE
          TECHNOLOGIES, INC.**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
   **NOTE
        15 -**  **STOCKHOLDERS’
        EQUITY - (cont’d)**
 
 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 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.
 
 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 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.
 
 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.
 
 Warrant
        Agreements
 
 At
        March
        31, 2006, the Company has warrants issued related to its convertible notes
        payable. All the warrants entitle the note holders to purchase the Company’s
        common stock at $0.20 per share for each warrant received and have an exercise
        term of three years. At March 31, 2006, the warrants outstanding are 45,000
        which expire in the year 2009. 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
        March
        31, 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 March 31, 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 date,
        then the
        warrant will be deemed to have been exercised automatically for the maximum
        number of shares then purchasable.
  F-34
 **STRIKEFORCE
          TECHNOLOGIES, INC.**
 **NOTES
          TO FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2006 and 2005**
 **(UNAUDITED)**
    **NOTE
        16 - SUBSEQUENT EVENTS**
 
 Secured
        Convertible Notes Payable - Conversions
 
 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 as a conversion
        price of $0.112 per share.
 
 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. The Company paid a placement agent fee of
        $7,000
        relating to the promissory note.
 
 In
        April
        2006, the Company executed three promissory notes with its CEO in the amounts
        of
        $7,000, $5,000 and $150,000. The $7,000 and $5,000 notes are due September
        30,
        2006 and the $150,000 note is due June 30, 2006. The notes bear interest
        equal
        to the CEO’s private banking account monthly lending rate.
 
 Term
        Sheet with Investor
 
 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. The first
        tranche  of
        $500,000 should be available to the Company
        by the end of the second quarter of 2006. The Company is awaiting the
        contracts.
 
 Issuance
        of Stock for Services
 
 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.
  Sales
        of Common Stock
  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 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.
 
 F-35


**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.







4


**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
      and
      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.





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.





We
      anticipate that the development of our suite of security products will be
      completed in 2006 and we expect our products to be available to the marketplace
      in 2006. For the period ended March 31, 2005, we generated $1,700 from the
      sales
      of our security products and for the period ended March 31, 2006 we generated
      $14,589 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 the execution of
      potential international agreements that are presently in the evaluation
      phase.





We
      have
      incurred substantial operating losses since commencing operations. We believe
      that our products provide a cost-effective and technologically competitive
      solution that prevents 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.





5


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.





**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 MARCH 31, 2006 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2005**





Revenues
      for the three months ended March 31, 2006 were $14,589 compared to $8,029 for
      the three months ended March 31, 2005, an increase of $6,560 or 81.7%. The
      resultant increase in revenues was primarily due to signing up 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 March 31, 2006 were $0 compared to $829 for the
      three
      months ended March 31, 2005, a decrease of $829. 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 March 31,
      2006
      were $0 compared to $5,500 for the three months ended March 31, 2005, a decrease
      of $5,500. The resultant decrease in software 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.
      Sign
      on fees for our ASP transaction model amounted to $4,000 for the three months
      ended March 31, 2006 compared to $1,700 for the three months ended March 31,
      2005, an increase of $2,300. The increase was due to signing up several new
      clients. Transaction revenues from the ASP hosting model were $10,589 for the
      three months ended March 31, 2006 and $0 for the three months ended March 31,
      2005, an increase of $10,589. The increase was due primarily to the activity
      generated by the new clients.





6


Cost
      of
      revenues for the three months ended March 31, 2006 was $2,007 compared to $2,371
      for the three months ended March 31, 2005, a decrease of $364, or 15.4%.
      The decrease resulted primarily from the refocusing of the Company's
      direction from a reseller of biometric technology to becoming a developer of
      our
      own suite of technology products.




Gross
      profit for the three months ended March 31, 2006 was $12,582 compared to $5,658
      for the three months ended March 31, 2005, an increase of $6,924, or 122%.
      The
      increase was primarily due to signing up several new clients onto our platform
      and the activity generated by the new clients.




Research
      and development expenses for the three months ended March 31, 2006 were $104,595
      compared to $104,099 for the three months ended March 31, 2005, an increase
      of
      $496, or 0.5%. The increase is primarily attributable to an increase in
      compensation costs as a result of increases in research and development
      personnel added after March 31, 2005. The salaries, benefits and overhead costs
      of personnel conducting research and development of our software products
      comprise research and development expenses.




Restated
      selling, general and administrative expenses for the three months ended March
      31, 2006 were $1,239,763 compared to $781,914 for the three months ended March
      31, 2005, a restated increase of $457,849 or 58.6%.




Selling,
      general and administrative expenses at March 31, 2006 and March 31, 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.




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 in 2006 resulted
      from
      our efforts to commercially exploit our suite of network security
      products.





Other
      expense, as restated, for the three months ended March 31, 2006 was $150,527
      as
      compared to a restated amount of $29,933 for the three months ended March 31,
      2005, representing a restated increase in other expenses of $120,594, or 403%.
      The increase was primarily due to interest and financing charges for notes
      payable and convertible promissory notes.




The
      financial statements for the years ended December 31, 2005 and 2004 and the
      quarters ended March, June and September 2005 have been restated to record
      embedded derivatives related to convertible debt. 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 in 2005 and less than one month in 2004 for
      the
      Cornell debenture.





Our
      restated net loss for the three months ended March, 31, 2006 was $1,482,303
      compared to a restated net loss of $910,288 for the three months ended March
      31,
      2005, an increase of $572,015, or 62.8%. The increase
      was primarily due to an increase in salaries, benefits and overhead costs for
      executive and administrative personnel, insurance, fees for professional
      services, including consulting, legal, and accounting fees, travel costs,
      interest and financing charges for notes payable and convertible promissory
      notes.





7


**Liquidity
      and Capital Resources**





Our
      total
      restated current assets at the three months ended March 31, 2006 were $365,263,
      including $1,488 in cash as compared with $739,535 in restated total current
      assets at the three months ended March 31, 2005, which included cash of
      $236,007. 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.




The
      number of common shares outstanding increased from 17,288,855 shares at the
      three months ended March 31, 2005 to 21,269,565 at the three months ended March
      31, 2006, an increase of 23.0%. Additionally, we had a restated shareholders’
deficiency in the amount of ($2,538,663) at the three months ended March 31,
      2006 as compared to a restated shareholders equity of $2,261,225 at the three
      months ended March 31, 2005, a decrease of approximately 212%. The decrease
      in
      shareholders equity to a deficiency position 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 $1,488
      of
      cash at the three months ended March 31, 2006, compared to $236,007 cash at
      the
      three months ended March 31, 2005 a decrease of approximately 99.4%. We financed
      our operations during the three months ended March 31, 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 third quarter of 2006. 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
      $200,000 per month. Our current forecast and potential pipeline substantiate
      our
      becoming profitable by the end of the third quarter of 2006 based on some key
      potential clients contracting with the Company in the financial industry,
      enterprise and consumer sectors in the United States, Latin 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.





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 March 31, 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.




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 March 31, 2006, the unpaid principal balance of these debentures
      was $505,000. 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.




8


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 6,510,000 shares in reserve)
      and
      to issue additional shares as needed if the number of shares in escrow becomes
      less than required.




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
                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




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
      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:







9


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.




Additionally,
      the Company issued unsecured notes payable during the three months ended March
      31, 2006 in an aggregate total of $100,000 to one unrelated party.





It
      is
      unlikely that we will be able to generate sufficient funds internally to sustain
      our operations until the end of the third quarter 2006. 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
      over the next nine (9) months.




10


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. We intend 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. The first tranche
      of $500,000 should be available to the Company by the end of the second quarter
      of 2006, of which there can be no assurance.





**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 restated net operating losses of approximately
      $1,482,303 for the three months ended March 31, 2006, compared to a restated
      net
      operating loss of $910,288 for the three months ended March 31, 2005. At March
      31, 2006, the Company's restated accumulated deficit was $10,706,117, its
      restated working capital deficiency was $1,350,636 and approximately 95% of
      its
      assets consist of deferred royalties. Additionally, for the three months ended
      March 31, 2006, we had restated negative cash flows from operating activities
      of
      approximately $625,140. 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. 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,
      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. The first tranche of $500,000 should be available to the Company
      by
      the end of the second quarter of 2006, of which there can be no assurance.





Our
      management expects cash flows from operating activities to improve in the third
      quarter of 2006, 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 consolidated 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.





11


**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).




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.





12


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.





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.





13


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.





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.





**Software
      Development Costs**




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.




14


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.




**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:




15


-
            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.




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
            
            Restated
                Loss as OriginallyReported
            
            Additional
                Employee CompensationExpense
            
            Adjusted
                Loss For ThePeriodFor
                the three months ended March 31, 2005
            
            $
            910,288
            
            $
            42,622
            
            $
            952,910





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.





16


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 quarter
      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.





The
      adoption of SFAS No. 123R decreased the Company’s first quarter 2006 reported
      operating income and net income by $46,000. The expense is classified as
      selling, general and administrative expense on the statement of operations.
      For
      the three months ended March 31, 2006, there was $540,856 of compensation cost
      for share-based payment arrangements recognized in general and administrative
      expenses by the Company.




**Recent
      Accounting Pronouncements**





In
      December 2002, the Financial Accounting Standards **** Board
      ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 148,
      "Accounting for Stock-Based Compensation-Transition and Disclosure - an
      amendment of FASB Statement No. 123" ("SFAS 148"). SFAS 148 amends SFAS No.
      123,
      "Accounting for Stock-Based Compensation" ("SFAS 123"), to provide alternative
      methods of transition for a voluntary change to the fair value based method
      of
      accounting for stock-based employee compensation and does not permit the use
      of
      the original SFAS 123 prospective method of transition in fiscal years beginning
      after December 15, 2003. In addition, SFAS 148 amends the disclosure
      requirements of SFAS 123 to require prominent disclosures in both annual and
      interim financial statements about the method of accounting for stock-based
      employee compensation and the effect of the method used on reported results,
      regardless of whether, when, or how an entity adopts the preferable, fair value
      based method of accounting. SFAS 148 improves the prominence and clarity of
      the
      pro forma disclosures required by SFAS 123 by prescribing a specific tabular
      format and by requiring disclosure in the "Summary of Significant Accounting
      Policies" or its equivalent and improves the timeliness of those disclosures
      by
      requiring their inclusion in financial reports for interim periods. 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. The Company is required to implement 123R beginning in the fiscal
      year beginning January 1, 2006. Effective January 1, 2006 employees’ stock
      option grants are treated under FAS 123R for new options granted to
      employees.


The
      FASB
      issued Staff Position FIN46(R)-5, Implicit Variable Interests Under FASB
      Interpretation No. 46 (revised December 2003), in March 2005. It addresses
      whether a reporting enterprise should consider whether it holds an implicit
      variable interest in a variable interest entity ("VIE") or potential VIE when
      specific conditions exist. In 2005, the Company adopted this
      pronouncement.






17





The
      FASB
      issued Staff Position FIN 47, Accounting for Conditional Asset Retirement
      Obligations, and an interpretation of FASB Statement No. 143, in March 2005.
      The
      Interpretation is effective no later than the end of fiscal years ending after
      December 15, 2005. The statement clarifies the term "conditional asset
      retirement obligation" as used in FASB 143. The Company believes that it is
      already in compliance with the statement and does not expect any impact on
      financial position or results of operations when adopted.




In
      December 2004, the FASB issued FSP FAS No. 109-1, "Application of FASB Statement
      No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S.
      Based Manufacturers by the American Jobs Creation Act of 2004" ("FSP FAS No.
      109-1"). This statement requires the qualified production activities deduction
      as defined in the American Jobs Creation Act of 2004 (the "Jobs Act") to be
      accounted for as a special deduction in accordance with SFAS No. 109,
      "Accounting for Income Taxes." The statement also requires that the special
      deduction should be considered in measuring deferred taxes when graduated tax
      rates are a significant factor and when assessing whether a valuation allowance
      is necessary. FSP FAS No. 109-1 was effective upon issuance. In accordance
      with
      the Jobs Act, determination of the qualified production activities deduction
      is
      not required until 2005. Due to the projected tax losses for the next few years,
      management does not believe that this statement will have a material effect
      on
      the Company's results of operations, financial condition and
      liquidity.





The
      FASB
      issued Statement of Financial Accounting Standards No. 154, Accounting Changes
      and Error Corrections -- a replacement of APB Opinion No. 20 and FASB Statement
      No. 3 ("SFAS 154"). SFAS 154 is effective, and will be adopted, for accounting
      changes made in fiscal years beginning after December 15, 2005 and is to be
      applied retrospectively. SFAS 154 requires that retroactive application of
      a
      change in accounting principle be limited to the direct effects of the change.
      The Company is currently evaluating the impact of this standard.




In
      December 2004, the FASB issued SFAS No. 153 "Exchanges of Non-monetary
      Assets--an amendment of APB Opinion No. 29." This Statement amended APB Opinion
      No. 29 to eliminate the exception for non-monetary exchanges of similar
      productive assets and replaces it with a general exception for exchanges of
      non-monetary assets that do not have commercial substance. A non-monetary
      exchange has commercial substance if the future cash flows of the entity
      are expected to change significantly as a result of the exchange. The Company
      is
      currently evaluating the impact of this new standard, but believes that it
      will
      not have a material impact upon the Company's financial position, results of
      operations or cash flows.




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.





18


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.




Our
      principal executive officer and our principal financial officer evaluated the
      effectiveness of our disclosure controls and procedures as of the end of the
      period covered by this report. Such disclosure controls and procedures are
      designed to ensure that information required to be disclosed by the Company
      is
      accumulated and communicated to the appropriate management, including the
      principal executive and financial officers, on a basis that permits timely
      decisions regarding timely disclosure. Based on that evaluation, such principal
      executive officer and principal financial officer concluded that, the Company’s
      disclosure controls and procedures as of the end of the period covered by this
      report have been designed and are functioning effectively, except for the
      ability to identify and analyze derivatives and 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.





As
      a
      result of our review we have concluded that our previous derivative accounting
      policies were not adequate and a communication failure resulted in not properly
      adjusting for the embedded derivatives.





In
      light
      of the above, we have determined to restate our financial statements for the
      years ending December 31, 2005 and 2004 and the March 31, 2006 quarter to
      correct accounting for derivatives.





Further,
      we concluded that our disclosure controls and procedures were not effective
      at
      the reasonable assurance level at December 31, 2005, 2004 and March 31, 2006.
      More specifically, our failure to maintain affective controls over the
      selection, application and monitoring of our accounting policies to assure
      that
      certain transactions were accounted for in conformity with generally accepted
      accounting principles resulted in a failure during 2004 and 2005 and the first
      quarter ended March 31, 2006 to record an appropriate derivative liability,
      deemed interest expense associated with the derivative liability and related
      charges associated with changes in the value of embedded derivatives, arising
      from the issuance during 2004 and 2005.





Remediation
      of Material Weaknesses


The
      Company has taken the following steps to address the specific problems
      identified:





(a)
      Evaluation of disclosure controls and procedures.





a)
      the
      Company has engaged an independent CFA to analyze the valuations pertaining
      to
      the embedded derivatives associated with the financial instruments;





b)
      all
      non-routine transactions will be reviewed by our Chief Financial Officer and
      controller before they are completed;





19


c)
      our
      Chief Financial Officer will monitor our accounting policies to assure proper
      accounting of financial derivates and other unusual transactions on an ongoing
      basis;





d)
      the
      Company will subscribe to professional publications that discuss new accounting
      rules and regulations;





e)
      the
      Company will work with an accounting firm (other than the Company’s auditors) to
      consult with on accounting issues;





f)
      members of the Company’s accounting management will attend financial related
      seminars.





Based
      upon the above, we believe we have set a plan in motion to correct any
      significant deficiencies or material weaknesses or other factors that could
      significantly affect these controls. Therefore the Company believes it will
      have
      proper controls and procedures in place to deal with these transactions on
      a
      go-forward basis.





(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. 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. 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.





20


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, 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. 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. 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.





21


In
      February 2006, one individual purchased 50,000 shares of common stock from
      the
      Company at a price of $0.22 per share. 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.





22


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 shall also issue 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, 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.





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 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
      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. 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 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. 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
      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, 2006. 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.





23


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
      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 Company paid a placement agent fee of $7,000 relating to the
      promissory note. 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.





In
      May
      2006, one individual purchased 71,429 shares of common stock from the Company
      at
      a price of $0.14 per share. 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.





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.





**ITEM
      5. OTHER INFORMATION**





In
      January 2006, the Company entered into a contingency search agreement with
      a
      recruitment firm, whereas the recruitment firm will provide the Company with
      potential candidates for employment. No fee is due to the recruitment firm
      unless a candidate is hired by the Company. If an arrangement is consummated
      between a candidate and the Company, then the recruitment firm is entitled
      to a
      fee equal to twenty percent of that new employee’s annual base salary. This fee
      may be in the form of cash or a combination of cash and warrants. The term
      of
      the agreement is open, is non-exclusive and can be cancelled by either party
      at
      any time by written notice.





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.





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 each and $1,000 to the investment firm’s attorney, which are included in
      selling, general and administrative expenses on the financial statements. 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 this time, therefore, the 50,000 shares of common stock
      were
      not issued. The Company may decide to pursue further agreements with the
      investment firm in the near future.





24


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. The first tranche
      of $500,000 should be available to the Company by the end of the second quarter
      of 2006, of which there can be no assurance. The Company is awaiting the
      contracts.





**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)






25




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)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.





26


**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:
                June 28, 2006*
            *By:
                /s/ Mark L. Kay**Mark
                L. Kay**Chief
                Executive Officer**Dated:
                June 28, 2006*
            *By:
                /s/ Mark Joseph Corrao**Mark
                Joseph Corrao**Chief
                Financial Officer and Principal Accounting Officer*