SECURITIES AND EXCHANGE COMMISSION

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

                      FOR THE YEAR ENDED DECEMBER 31, 2006

                                       OR

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

               FOR THE TRANSITION PERIOD FROM ________ TO ________

                        COMMISSION FILE NUMBER 000-26909

                                 EDENTIFY, INC.
             (Exact name of registrant as specified in its charter)

                                     Nevada
         (State or other jurisdiction of incorporation or organization)

                                   98-0179013
                     (I.R.S. Employer Identification Number)

          74 West Broad Street, Suite 350, Bethlehem, PA      18018
             (Address of principal executive offices)      (Zip Code)

       Registrant's telephone number, including area code: (610) 814-6830

           Securities registered pursuant to Section 12(b) of the Act:

                          Common Stock, $.001 par value

           Securities registered pursuant to Section 12(g) of the Act:

                              (Title of Each Class)

                                      NONE

Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 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 mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.

                                 Yes |_| No |X|

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

 Large accelerated filer |_|   Accelerated filer |_|   Non-accelerated filer |X|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                 Yes |_| No |X|

The Issuer's revenue for the most recently completed fiscal year was $109,028.

The aggregate market value of Common Stock held by non-affiliates at March 30,
2007, was approximately $4,149,000. For purposes of this calculation, it was
assumed that all Common Stock is valued at the closing price as of such date of
$0.58 per share.

The number of shares of the registrant's Common Stock outstanding as of March
30, 2007 was 26,652,949 (including approximately 6,956,323 of our shares that
are subscribed to but which have not been issued due to ministerial delays).

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

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                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I
Item 1.  Description of Business ........................................     2
         Risk Factors ...................................................    11
Item 2.  Description of Property ........................................    18
Item 3.  Legal Proceedings ..............................................    18
Item 4.  Submission of Matters to a Vote of Security Holders ............    18

PART II
Item 5.  Market for Common Equity and Related Stockholder Matters .......    19
Item 6.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations ..........................    20
Item 7.  Financial Statements ...........................................    27
Item 8.  Changes In and Disagreements with Accountants on
           Accounting and Financial Disclosure ..........................    27
Item 8A. Controls and Procedures ........................................    28
Item 8B. Other Information ..............................................    28

PART III
Item 9.  Directors, Executive Officers, Promotors and Control Persons;
           Compliance with Section 16(a) of the Exchange Act ............    28
Item 10. Executive Compensation .........................................    31
Item 11. Security Ownership of Certain Beneficial Owners
           and Management and Related Stockholder Matters ...............    34
Item 12. Certain Relationships and Related Transactions, Director
           Independence .................................................    38
Item 13. Exhibits .......................................................    40
Item 14. Principal Accountant Fees and Services .........................    42


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<PAGE>

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Our Forward Looking Statement

            Certain statements in this Annual Report on Form 10-KSB (the "Form
10-KSB"), including statements under "Item 1. Business," "Item 3. Legal
Proceedings" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Result of Operations," constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995 (collectively, the "Reform Act").
Certain, but not necessarily all, of such forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. All statements other than
statements of historical fact included in this Form 10-KSB regarding our
financial position, business strategy and plans or objectives for future
operations are forward-looking statements. Without limiting the broader
description of forward-looking statements above, we specifically note that
statements regarding our ability to manufacture and sell any products, market
acceptance or our ability to earn a profit from sales or licenses of any
software or services or our ability to create new software or services in the
future are all forward-looking in nature.

            Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Edentify, Inc. and its subsidiaries (collectively, the
"Company", "we or "us") to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements and other factors referenced in this Form 10-KSB. We do not undertake
and specifically declines any obligation to publicly release the results of any
revisions which may be made to any forward-looking statement to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

            Edentify, Inc. ("Edentify") was formed in August 2004 with the aim
of becoming a leader in the development and deployment of data analysis
solutions for the prevention of identity theft and fraud. It is currently a
development-stage company and expects shortly to begin a period of increased
growth. Edentify analyzes the means by which identity crimes are perpetrated and
develops new technologies and procedures to assist corporations, the government
and consumers in the fight against identity fraud and related crime.

            Edentify owns the intellectual property rights to a strategic
approach for the detection and prevention of identity fraud consisting of
information-based data analysis and monitoring. Although we had anticipated that
it would be rolled-out sooner, we are still in the process of developing a
second, biometric approach.

            We carry out our data analysis and monitoring through our
wholly-owned subsidiary, Edentify, Inc. (Delaware), using a patented
information-based technology that analyzes identity data information for
individuals in large databases. The product of this analysis is a risk score
(Identity Integrity Index (TM)), which provides a confidence level associated
with an identity verification and is also capable of detecting and scoring
incidences of identity manipulation and potential fraud. The forerunner of this
technology is currently used in screening identities used for new checking
account applications at nearly every major bank in the U.S. Edentify will
continue to market this technology to other areas of the financial services
industry, as well as to large healthcare organizations and local, state and
federal governments.

            The biometric technology, presently still under development, would
be marketed through, our wholly-owned subsidiary, InMotion Biometrics, Inc.
("IMB"). The present plans for this technology are based on a set of algorithms,
combining face and voice recognition techniques for authenticating the identity
of an individual. Our agreement for the development of the IMB technology is
with face2face, Inc., a leading character animation company that was spun off
from Lucent Technologies, Inc. in 2000. The core capability of this technology
is its facial analysis system that contains highly evolved algorithms for
obtaining the inner lip contour, which can accurately measure for optimal visual
speech-recognition performance. Additionally, the IMB system is designed as a
multi-modal platform capable of combining the reading of two or more biometric
technologies simultaneously

            Edentify currently markets its data analysis technology directly and
through channel partners. The biometric technology is currently under
development and, upon completion will be marketed through strategic partners as
OEMs or value-added resellers. Future plans include the development of an
integrated product that combines our information-based ID manipulation detection
capability with IMB's face recognition technology, thereby enabling a
defensively-robust enrollment and subsequent identity protection system.

REORGANIZATION

            On February 29, 2005, BudgetHotels Networks, Inc. ("Budget") signed
an Agreement to acquire all of the issued and outstanding shares of Edentify,
Inc., a Delaware corporation ("Edentify") in exchange for issuance of 21,000,000
shares of the Company's common stock and Share Rights Certificates entitling the
former stockholder of Edentify to receive the balance of the shares upon
consummation of a reverse split or other corporate action making new shares
available for issuance, so that ultimately the former Edentify stockholder and
nominees will own a total of 88.2% of the outstanding common stock of Budget
(hereinafter, the foregoing transaction being the "Acquisition"). Pursuant to
the Agreement, Edentify deposited $75,000 into an escrow account for the benefit
of Budget in conjunction with the execution of the letter of intent, and was
required to pay an additional $75,000 to Budget (with such amount to be assigned
to InfoCenters, Inc.) on or before July 31, 2005. Both amounts were paid to
Budget in July 2005.


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<PAGE>

            The Company subsequently effected a 1-for-10 reverse split of our
capital stock (the "Reverse Split"). Upon the Reverse Split becoming effective
in July, 2005, we issued a total of 19,510,255 shares of its common stock to the
former stockholder of Edentify and his nominees associated with the Share Rights
Certificate in order for such persons to hold approximately 88.2% of the
outstanding common stock of the Company. After the Reverse Split and subsequent
issuance under the Share Rights Certificates, Edentify, formerly Budget, had a
total of approximately 24,501,000 shares of common stock issued and outstanding.

            Prior to the Closing Date of the Acquisition, Budget executed a
Distribution Agreement with its subsidiary InfoCenter, Inc., through which
Budget carried on its then-current operating business activities, pursuant to
which Budget will agree to distribute the shares of InfoCenter, Inc., to the
stockholders of record of Budget as of a record date immediately prior to the
Closing Date of the transaction with Edentify. Distribution of the shares of
InfoCenter, Inc. is intended but not required to be made through the filing of a
registration statement with the U.S. Securities and Exchange Commission by
InfoCenter, Inc. Under the terms of the Agreement, and the subsequent amendment
thereof on January 30. 2006, the distribution was required to be completed on or
before August 31, 2006. Although, this obligation has not as yet been met,
management is considering options in respect to the operations of InfoCenter.

            The operations regarding our subsidiary, InfoCenter, Inc. have been
accounted for as discontinued operations in accordance with accounting
principles generally accepted within the United States of America.

            The acquisition resulted in the owners and management of Edentify
having effective operating control of the combined entity after the Acquisition,
with the existing Budget shareholders continuing as only minority shareholders.

            Under accounting principles generally accepted in the United States
(US GAAP), the above noted acquisition is considered to be a capital transaction
in substance, rather than a business combination. That is, the acquisition is
equivalent to the issuance of stock by Edentify for the net monetary assets of
Budget, accompanied by a recapitalization, and is accounted for as a change in
capital structure. Accordingly, the accounting for the acquisition is identical
to that resulting from a reverse acquisition, except that no goodwill intangible
is recorded. Under reverse takeover accounting, the post reverse-acquisition
comparative historical financial statements of the "legal acquirer" (Budget),
are those of the "legal acquiree" (Edentify) (i.e. the accounting acquirer).

EDENTIFY (DE) PRODUCTS

            Our solutions revolve around a set of data analysis pattern
recognition algorithms that are capable of analyzing and scoring the relative
behavior of a given identity, which includes name, social security number,
address, date of birth, when compared to its historical usage. This scoring
methodology (Identity Integrity Index (TM)) ranges from low to high risk, where
high risk identities demonstrate suspicious activity qualities related to
identity fraud. The deployment of our technology includes the generation of
encrypted keys that contain the content of each individual name and social
security number from our customers' data as contained in their client database
and a suite of software-based solutions: IDAssess(TM), IDScreen(TM) and
IDAlert(TM).


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<PAGE>

IDASSESS(TM)

            Edentify's unique IDBenchmark process 1) proactively associates
input client records with all available historic variations of digital identity
records (including heretofore "anonymous" digital identity records) and 2)
separates "innocent" associated identity records from "suspicious" associated
identity records with limited false responses.

IDSCREEN(TM)

            Our IDScreen product compares the new applicant identity record with
an external reference data base and retrieves and scores all associated
variations of the new applicant data that reside in the reference database as
determined by Edentify's proprietary IDBENCHMARK advanced pattern recognition
analytics. Each score represents a certain risk profile for each associated
variation as it compares with the new applicant identity record. We then create
a risk rating for the entire group, known as the Identity Integrity Index(TM)
that drives the identity management regimen deemed appropriate by the customer
based on his risk thresholds. The risk rating generally places the new applicant
in one of three categories used to evaluate the information.

IDALERT(TM)

            Our IDAlert product detects subsequent abuses in light of new
identity-record feeds to the reference identity-record database and alerts
either the consumer or Edentify's client based on the client's preferences. As
with automobiles, identities are usually modified, damaged or used to commit a
crime once they are stolen. By continuously monitoring information related to a
specific identity, the owner of the identity or Edentify's client can be
immediately notified if it has been compromised. As identity fraud usually
precedes other types of fraud (such as credit card fraud), this type of
proactive alert system is critical to mitigating the extensive, and expensive,
damage perpetrated after an identity is stolen and manipulated. Given the
considerable lag between when an identity is compromised and when that event is
discovered, this service is a critical component of Edentify's services in
defense against identity fraud.

INMOTION BIOMETRICS PRODUCTS

            The IMB Technology is still under development in accordance with the
agreements entered into between the Company and face2face animation, inc. (See
sections entitled "Material Agreements" below).

COMPETITION RELATING TO EDENTIFY (DE) OPERATIONS

ID Analytics, Inc.

            ID Analytics, Inc. ("ID Analytics") is a private company with
venture capital backing. It provides advanced analytic solutions to manage
identity risk and prevent identity fraud throughout the customer lifecycle. ID
Analytics was established in March 2002 by the former President of HNC Software,
Inc., (now Fair Isaac), the former Group Vice President at HNC Software and the
former Vice President (Business Development) at Evoke Software.

            ID Analytics has developed technology products that are in use today
by consumer companies representing more than half the credit and retail card
market in the US along with large wireless, retail bank and online consumer
finance companies.

Fair Isaac, Inc.

            Founded in 1956, Fair Isaac, Inc. ("Fair Isaac") has been a pioneer
in transaction analysis using regression analysis. Fair Isaac merged with HNC
Software in 2002, thereby strengthening its leadership in high-end analytics and
customer strategy and decision management systems across various industries.
Most of its revenues come from Strategy Machine solutions, a group of decision
automation tools and services. These solutions combine predictive models and
strategy optimization expertise with decision management systems and services,
enabling businesses to form and manage profitable customer relationships
throughout the customer lifecycle.


                                        4

<PAGE>

            Fair Isaac also delivers risk-scoring solutions to various
telecommunications, government and financial agencies to identify credit fraud
and identity theft and minimize associated losses. Other business segments
include consulting services and analytic software tools.

            More than 2,500 businesses in over 60 countries use Fair Isaac's
products and services. Fair Isaac's proprietary FICO Scores and Falcon Fraud
Manager are used by several businesses to monitor the health of their accounts
and minimize the losses from identity risk and credit frauds.

RELATING TO INMOTION BIOMETRICS BUSINESS

L-1 Identity Solutions, Inc./Viisage Technology

            L-1 offers technology-based identity solutions that are used for
instantaneous identification (using images in a database), access, and
surveillance applications. These solutions are aimed at reducing identity theft,
providing access control, protecting personal privacy, etc. The Company's main
customers are government agencies, law enforcement departments and enterprises
that are concerned with providing security. Viisage accounts for more than 30
million government-issued ID cards per year at more than 2000 locations.

            L-1 operates in two main segments: secure credentials and
biometrics. Secure credentials involve the development and implementation of
software and hardware solutions that utilize face recognition and other
biometric technologies. The major applications of Viisage's solutions include
driver's licenses, passports, voter registrations, ID cards, etc.

            L-1 recently acquired Identix, Inc. Identix Inc. focuses on
fingerprint, facial and skin biometric solutions that are used in several
security and individual identification applications. These solutions are used to
prevent fraud and identity theft, identify criminals, enroll individuals in
identification programs, control physical access, authorize financial
transactions, assist in job applicant screening, etc.

            Identix's major customers include several law enforcement agencies,
the Department of Homeland Security, the IRS, the Department of Motor Vehicles
(DMV), several financial institutions and others in the healthcare sector. The
US government accounts for about 14% of Identix's revenue, while foreign
customers contributed 12%.

            Identix focuses on three biometric segments - fingerprint, face and
skin.

            1. Fingerprint biometrics is powered by Identix's BioEngine
            algorithm that contains fingerprint matching and recognition
            capabilities that, in turn, allow customers to create custom
            one-to-one verification and one-to-many identification applications,
            such as time and attendance, physical access, information security,
            etc.

            2. Face biometrics uses Identix's FaceIt engine that combines facial
            images with skin biometrics, thereby giving higher levels of
            quality.

            3. Identix's skin biometrics uses an algorithm called Surface
            Texture Analysis, by which the surface of the skin is analyzed for
            random features and a skinprint (skin template) is taken. This skin
            print can either be used on its own or clubbed with traditional face
            or fingerprint recognition technologies.


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<PAGE>

            Based on publicly available information, L-1 is ranked #2 in the
U.S. Driver's license market with 13 states (23% of licensed drivers) using its
products. Digimarc is #1 ranked with 32 states (68% of licensed drivers),
including the District of Columbia. In passports, Viisage has an exclusive
contract for the production of 7 million U.S. passports per year. Viisage's
facial recognition solutions are incorporated into driver's licensing in six
states to prevent fraud. Currently, 13 US states have incorporated the facial
recognition technology, of which Digimarc (which licenses third party technology
from Identix and Cognitec) caters to six.

MATERIAL AGREEMENTS

DATA AGREEMENT WITH CHOICEPOINT PUBLIC RECORDS.

            The Company entered into a Services Agreement ("Services Agreement")
and Scope of Work ("SOW 1") with ChoicePoint Public Records, Inc. as of October
24, 2006. This Services Agreement provides for ChoicePoint to provide certain
services and for Edentify to perform certain duties as outlined in SOW 1 all in
connection with supporting our ongoing efforts to detect and prevent identity
fraud. The Services Agreement also provides that a fee will be paid to
ChoicePoint as specified in a separate SOW. The term of the Services Agreement
began on October 24, 2006 and continues for a term of three years, renewable for
successive one-year terms unless the non-renewing party notifies the other in
writing of such non-renewal at least 90 days prior to the expiration of the
respective term. Upon expiration of the term, all licenses granted pursuant to
the Agreement or any SOW will terminate. The Services Agreement also provides
for an indemnification by each of the parties of the other party under
conditions set forth in detail in the Services Agreement. Except with respect to
the indemnification obligations of the parties, liability under the Services
Agreement is limited to the amount payable under the Services Agreement. This
agreement also provides for confidentiality with respect to the information and
technology being exchanged and developed. The Services Agreement further
requires us to maintain general liability insurance with coverage of no less
than $1,000,000 per claim and $2,000,000 aggregate.

      Pursuant to the first SOW ("SOW 1"), executed simultaneously with the
Services Agreement, ChoicePoint is to provide all hardware, operating software
(excluding certain assessment modules provided by Edentify) and data center
needs necessary for the development, implementation and maintenance of servers
that shall perform identity fraud detection services to our customers. Edentify
is to provide the assessment modules for processing to develop a key that will
allow for the detection of identity fraud. The term of SOW 1 begins as of
October 24, 2006 and continues for three (3) years, renewable for successive one
year terms unless the non-renewing party notifies the other in writing of such
non-renewal at least 90 days prior to the expiration of the respective term.
Edentify also grants to ChoicePoint a revocable (to the extent that SOW 1 is
terminable), world-wide, non-transferable, royalty-free restricted license
without the right to sublicense to use the assessment modules and key generation
modules solely for the purpose of performing the services contemplated by SOW 1.

      In consideration for the development and implementation of the Company's
database server, assessment server(s), and required operating infrastructure
within ChoicePoint, and the initial run of the Company's key generation and
update service and identity assessment processing service, the Company agreed to
pay to ChoicePoint a $300,000 fee (the "Implementation Fee"). Such
Implementation Fee is payable in two equal installments, with the first payment
delivered on the effective date of the agreement, and the second payment due
upon the acceptance or production use of the system by Edentify. The Company
paid the first payment due upon execution of the agreement. SOW 1 also requires
us to pay ChoicePoint a monthly service fee in the amount of $83,000 billed
monthly in advance and payable within 35 days of the invoice. There is also a
termination fee payable to ChoicePoint in the event that the Company terminates
the SOW 1 or Services Agreement at any time prior to 14 months when service fees
are payable, unless such termination is as a result of a change in ChoicePoint
policy or an uncured breach by ChoicePoint.

      The Company paid $150,000 of the $300,000 on October 24, 2006. In
consideration for the ongoing services provided to the Company, including the
maintenance of the Company's database server and assessment server(s) and all
subsequent runs of the Company's key generation and update service and identity
assessment processing services, the Company agreed to pay to ChoicePoint fees
for 2007, 2008 and 2009, respectively.


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<PAGE>

MARKETING AGREEMENT WITH TRILEGIANT (AFFINION)

            On April 7, 2006 (the "Effective Date"), we entered into a Marketing
Agreement (the "Marketing Agreement") with Trilegiant Corporation whereby
Trilegiant agreed to market, on a non-exclusive basis, our products to members
of its membership programs (including, but not limited to, PrivacyGuard, PC
Safety, ID Secure, Identity Sweep, Hotline and any program(s) established by
Trilegiant on or subsequent to the Effective Date. The term of the agreement is
for five (5) years, renewable for successive twelve month terms thereafter.

            Trilegiant is obligated to pay Edentify a license fee, in part
payable within thirty (30) days of the Effective Date; and an equal amount
payable on each anniversary date of the Effective Date during the Term. In
addition, Trilegiant is required to pay Edentify, on the fifteenth (15th)
business day of each calendar month during the term, monthly fees in respect of
active Members of Trilegiant Edentify Programs as of the immediately preceding
calendar month.

            The Marketing Agreement provides for mutual non-compete and
non-solicitation provisions that prevents either Edentify or Trilegiant from
selling directly to certain specified customers and competitors of the
respective parties. Edentify is required to meet certain service level standards
described in more detail in the Marketing Agreement. In addition, the Marketing
Agreement requires that, upon receiving an acquisition offer from a competitor
of Trilegiant, we are required to give Trilegiant notice of the offer and the
opportunity to make its own offer to acquire us within 20 days of our filing of
an 8-K announcing the initial offer. The Marketing Agreement also contains a
provision protecting the confidentiality of proprietary information of the
parties. Customer service for Trilegiant members is to be provided through
Trilegiant's customer service department. The Marketing Agreement also provides
for customary indemnification provisions and protection of intellectual property
rights.

            Liability for either party under the Marketing Agreement, related to
breaches, performance, non-performance, acts or omissions is limited to a
monetary cap.

DEVELOPMENT AND SERVICE AGREEMENT WITH FACE2FACE ANIMATION

            On August 29, 2005, the Company's wholly-owned subsidiary, InMotion
Biometrics, Inc. ("InMotion") entered into a license, development and share and
warrant issuance agreement with face2face animation, inc. ("face2face") on
August 29, 2005. The Company was granted an exclusive worldwide license
("License Agreement") to make, use, import and sell certain patents, hardware,
software and other technology related to the identification of persons and
facial recognition. InMotion also has limited right to sub-license the
technology and requires face2face to pay InMotion any royalties or fees due to
third parties that are related to the technology.

            As consideration for the license agreement, the Company was required
to issue shares of common stock and warrants pursuant to a share and warrant
issuance agreement as described further below. The term of the license is
perpetual.

            As part of the same transaction, InMotion also entered into a
non-exclusive Development Agreement ("Development Agreement") with face2face for
the joint development of hardware and software to be used for advanced
acoustical and visual speech recognition and facial recognition. The term of the
agreement is twelve months from the date of execution with an option to renew
for an additional six months. InMotion paid face2face $1,000 upon execution of
the development agreement and also provided other assurances regarding minimum
capitalization required for face2face to obtain grant funding from certain state
agencies.


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<PAGE>

            As part of the consideration for the License Agreement and the
Development Agreement described above, the Company, on August 29, 2005 also
closed on a Share and Warrant Issuance Agreement (the "Issuance Agreement") with
face2face. The Issuance Agreement was entered into as a condition precedent to
the performance obligations of the parties to each of the License Agreement and
the Development Agreement. As part of the consideration for face2face entering
into the License Agreement and the Development Agreement, The Company issued in
the name of face2face a total of 7,500,000 shares of our common stock (the
"Shares") which shall be delivered to face2face as follows: 2,500,000 Shares at
closing, 2,500,000 Shares upon acceptance of the Product by the Company under
the Development Agreement, and 2,500,000 Shares upon the closing of a sublicense
or other agreement between the Company and a customer relating to the Product.
The Company also issued a warrant, at closing, to face2face to purchase
1,000,000 shares of the Company's common stock at an exercise price of $1.00 per
share. At present the Company is in negotiations with face2face in respect of
amending the above referenced agreements regarding its obligation to deliver the
5,000,000 shares not delivered to date.

MARKETING/DISTRIBUTION

            Edentify markets each technology directly and through channel
partners in each specific vertical sector that it addresses. Future plans
include the development of an integrated product that combines our
information-based ID manipulation detection capability with IMB's face
recognition technology, thereby enabling a foolproof enrollment and subsequent
identity protection system.

            In December, 2005, we entered into a Scoring Services Agreement with
MyPublicInfo ("MPI") whereby MPI will provide us with identity information from
their proprietary database for the purpose of our using proprietary databases,
processes and information developed by us and/or obtained from third parties to
produce an "Identity Score". We will provide MPI with a license to use the
"Identity Score" derived using our proprietary scoring methodology, which
measures the level of suspicious identity manipulation activity and potential
fraud associated with each identity record provided by MPI.

            In addition, we have, during the course of 2006, entered into
co-marketing agreements and other types of referral agreements with Affinion and
other various significant partners in the financial services industry, in
particular a trade association for community banks, as well as vendors of
complimentary services in our industry. We have also entered into a
collaborative agreement with a General Services Administration-approved provider
of consulting services to federal government contractors and the federal
government that will broaden our entry into the government sector.

INTELLECTUAL PROPERTY

            Currently, Edentify owns the IP rights to two strategic approaches
for detecting and preventing identity fraud. One uses a patented
information-based technology that analyzes identity information for individuals
in large corporate databases and is capable of detecting and scoring incidences
of identity manipulation and potential theft (Identity Integrity Index(TM)). The
forerunner of this technology is currently used in screening new checking
account applications at nearly every major bank in the U.S. and Edentify will
continue to market the current version to other areas of the financial services
industry, as well as to large healthcare organizations and local, state and
federal governments. Our biometric technology will be marketed through, and is
named after, our wholly-owned subsidiary, InMotion Biometrics, Inc. ("IMB"),
that combines face and voice recognition technologies for authenticating the
identity of an individual. The IMB technology is licensed from face2face, Inc.,
a leading character animation company that was spun-off from Lucent
Technologies, Inc. in 2000. The core capability of this technology is its facial
analysis system that contains highly evolved algorithms for obtaining the inner
lip contour, which can accurately measure for optimal visual speech recognition
performance. Claiming high levels of performance and reliability, the InMotion
Biometrics technology offers significantly improved recognition capabilities
over existing biometric technologies, eliminates the possibility of deception by
using challenge response and reduces the inconvenience to the user.


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<PAGE>

            We have a registration, on the primary register with the U.S. Patent
and Trademark Office, for our service mark:

                                 (EDENTIFY LOGO)

GOVERNMENT REGULATION

            Our business model and technology do not require us to collect,
aggregate, and retain data in order to provide the services we do. As a result,
we are not currently subject to certain privacy laws and regulations that are
aimed at protecting consumer information. Many of our business partners, who
deal directly with individual consumer information, however, are subject to such
laws and regulation. Since this area of the law changes rapidly and is regularly
fluctuating, however, this could change at any time.

HUMAN RESOURCES

            As of March 30, 2007, our total headcount was 14 full time employees
('FTE') and 2 part-time employees. Part time personnel are paid on a per diem or
monthly basis. Three FTEs are engaged in our sales and marketing effort and four
FTEs perform general administration, including financial and investor relations
functions. We have no union employees and we believe our relationship with our
employees is good.

RECENT FINANCINGS

Convertible Debentures

            In January-February 2007, we issued $815,000 principal amount 6%
senior convertible debentures due on February 20, 2009, and warrants to receive
an aggregate of 1,630,000 shares of common stock of the Company in a private
placement resulted in aggregate proceeds to the Company of $815,000. Interest is
due quarterly at a rate of 6% per annum on the outstanding principal. The
debenture is convertible into shares of common stock at the option of the holder
equal to the principal amount converted divided by $0.50. The warrants are to
acquire an aggregate of 1,630,000 shares of common stock at a price of $0.50 per
share at any time commencing on February 20, 2007 through February 20, 2012.

            As of November 27, 2006, we issued $1,102,000 principal amount
(including $2,000 of capitalized interest) of 6% debentures due June 30, 2007,
and 5-year warrants to receive an aggregate of 1,000,000 shares of common stock
of the Company in a private placement resulted in aggregate proceeds to the
Company of $1,100,000. Originally these funds were advanced to the Company as
two bridge loans (one in the amount of $400,000 on November 2, 2006, $600,000
on November 27, 2006 and an additional $100,000 on December 31, 2006), however,
the terms were not finalized until February, 2007. Interest is due quarterly at
a rate of 6% per annum on the outstanding principal.

            On September 30, 2006, we issued convertible debentures in principal
of, 6% senior secured convertible debentures due on September 30, 2009, and
warrants to receive an aggregate of 1,000,000 shares of common stock of the
Company in a private placement resulted in aggregate proceeds to the Company of
$500,000. Interest is due quarterly at a rate of 6% per annum on the outstanding
principal. The debenture is convertible into shares of common stock at the
option of the holder equal to the principal amount converted divided by $0.50.
The warrants are to acquire an aggregate of 1,000,000 shares of common stock at
a price of $0.50 per share at any time commencing on September 30, 2006 through
September 30, 2011.

            In May 15, 2006, we issued $800,000 principal amount 6% senior
secured convertible debentures due on May 30, 2009, and warrants to receive an
aggregate of 1,600,000 shares of common stock of the Company in a private
placement resulted in aggregate proceeds to the Company of $800,000. Interest is
due quarterly at a rate of 6% per annum on the outstanding principal. The
debenture is convertible into shares of common stock at the option of the holder
equal to the principal amount converted divided by $0.50. The warrants are to
acquire an aggregate of 1,600,000 shares of common stock at a price of $0.50 per
share at any time commencing on May 30, 2006 through May 30, 2011.


                                        9

<PAGE>

            On December 10, 2005, we issued an aggregate of $ 1,050,000 in
principal amount of 6% senior secured convertible debentures due on December 10,
2007, and warrants to receive an aggregate of 2,100,000 shares of common stock
of the Company in a private placement. Interest is due quarterly at a rate of 6%
per annum on the outstanding principal. The debenture is convertible into shares
of common stock at the option of the holder equal to the principal amount
converted divided by $0.50. The warrants are to acquire an aggregate of
2,100,000 shares of common stock at a price of $0.50 per share at any time
commencing on December 10, 2005 through December 10, 2010.

            On August 29, 2005, we issued an aggregate of $1,000,000 in
principal amount of 6% senior secured convertible debentures due on August 29,
2007, and warrants to receive an aggregate of 2,000,000 shares of common stock
of the Company in a private placement for aggregate proceeds of $1,000,000. The
debenture is one of a series of 6% senior secured convertible debentures.
Interest is due quarterly at a rate of 6% per annum on the outstanding
principal. The debenture is convertible into shares of common stock at the
option of the holder equal to the principal amount converted divided by $0.50.
The warrants are to acquire an aggregate of 2,000,000 shares of common stock at
a price of $0.50 per share at any time commencing on August 29, 2005 through
August 29, 2010.

            On April 21, 2005, we issued an aggregate of $600,000 in principal
amount of 8% senior secured convertible debentures due on April 21, 2007 (as
subsequently extended by written agreement to December 31, 2007), and warrants
to receive an aggregate of 1,875,000 shares of common stock of the Company in a
private placement for aggregate proceeds of $600,000. The debenture is one of a
series of 8% senior secured convertible debentures. Interest is due quarterly at
a rate of 8% per annum on the outstanding principal. The debenture is
convertible into shares of common stock at the option of the holder equal to the
principal amount converted divided by $0.32. The warrants are to acquire an
aggregate of 1,875,000 shares of common stock at a price of $0.32 per share at
any time commencing on April 21, 2005 through April 21 2010.

            On December 31, 2004, we issued an aggregate of $300,000 in
principal amount of 8% senior secured convertible debentures due on December 31,
2006 (as subsequently extended by written agreement to December 31, 2007), and
warrants to receive an aggregate of 2,000,000 shares of common stock of the
Company in a private placement for aggregate proceeds of $300,000. The debenture
is one of a series of 8% senior secured convertible debentures. Interest is due
quarterly at a rate of 8% per annum on the outstanding principal. Each debenture
is convertible into shares of common stock at the option of the holder equal to
the principal amount converted divided by $0.15. The warrants are to acquire an
aggregate of 2,000,000 shares of common stock at a price of $0.15 per share at
any time commencing on December 31, 2004 through December 31, 2009. On December
10, 2005, the debenture holders exercised 2,000,000 warrants for which the
Company received gross proceeds of $300,000.

            The convertible debentures noted above were accounted for in
accordance with EITF 98-5: Accounting for convertible securities with beneficial
conversion features or contingency adjustable conversion and with EITF No.
00-27: Application of issue No. 98-5 to certain convertible instruments. The
Company determined the fair values to be ascribed to detachable warrants issued
with the convertible debentures utilizing the Black-Scholes method.

Other Financing

            In connection with the Company's purchase of the data analysis
software and monitoring technology, the Company, in September 2005, entered into
a note agreement with a financial institution in the principal amount of
$127,000. The note matures on December 15, 2007. The Company is required to make
interest only payments during the term of the note. Interest is payable at the
Prime rate of interest (6.00% as of December 31, 2006).


                                       10

<PAGE>

            On April 28, 2005 we issued an aggregate of $260,000 in principal
amount of a 10% note payable to an individual due on March 31, 2006. The Company
prepaid interest in the amount of $26,000 to the lender. The lender has the
right to convert the unpaid principal amount into shares of Company's common
stock at a price per share of $1.00 on a post-Reverse Split basis. The lender
cannot convert less than $25,000 at one time unless there remains less than
$25,000 due. The Company has contacted this lender to request conversion of the
note or to extend the maturity date.

ASSET ACQUISITIONS

            On March 31, 2005 the Company entered into an agreement to purchase
the data analysis software and monitoring technology for cash, debt, and
securities. The aggregate consideration to be paid for the technology is
$100,000 cash plus 1,522,000 shares of common stock, warrants to purchase an
additional 41.67% of the number of shares issued to such recipients of the stock
(representing 4.767% of the issued and outstanding common stock of the surviving
corporation), an assumption of debt totaling $127,000, and a convertible note
agreement for $260,000 as more fully described in Note 8. At December 31, 2005,
all amounts due in respect hereof were paid in full. The Company valued total
consideration for the software as follows:

Cash                  $  100,000
Stock valuation          805,522
Debt assumption          127,000
Convertible note         260,000
Warrants                     560
                      ----------
Total consideration   $1,293,082
                      ==========

            On August 29, 2005, the Company's wholly-owned subsidiary, InMotion
Biometrics, Inc. ("InMotion") entered into a license, development and share and
warrant issuance agreement with face2face animation, inc. ("face2face") on
August 29, 2005. The Company was granted an exclusive worldwide license
("License Agreement") to make, use, import and sell certain patents, hardware,
software and other technology related to the identification of persons and
facial recognition. InMotion also has limited right to sub-license the
technology and requires face2face to pay InMotion any royalties or fees due to
third parties that are related to the technology.

            As consideration for the license agreement, the Company was required
to issue shares of common stock and warrants pursuant to a share and warrant
issuance agreement as described further below. The term of the license is
perpetual.

            As part of the same transaction, InMotion also entered into a
non-exclusive Development Agreement ("Development Agreement") with face2face for
the joint development of hardware and software to be used for advanced
acoustical and visual speech recognition and facial recognition. The term of the
agreement is twelve months from the date of execution with an option to renew
for an additional six months. InMotion paid face2face $1,000 upon execution of
the development agreement and also provided other assurances regarding minimum
capitalization required for face2face to obtain grant funding from certain state
agencies.

            As part of the consideration for the License Agreement and the
Development Agreement described above, the Company, on August 29, 2005 also
closed on a Share and Warrant Issuance Agreement (the "Issuance Agreement") with
face2face. The Issuance Agreement was entered into as a condition precedent to
the performance obligations of the parties to each of the License Agreement and
the Development Agreement. As part of the consideration for face2face entering
into the License Agreement and the Development Agreement, The Company issued in
the name of face2face a total of 7,500,000 shares of our common stock (the
"Shares") which shall be delivered to face2face as follows: 2,500,000 Shares at
closing, 2,500,000 Shares upon acceptance of the Product by the Company under
the Development Agreement, and 2,500,000 Shares upon the closing of a sublicense
or other agreement between the Company and a customer relating to the Product.
The Company also issued a warrant, at closing, to face2face to purchase
1,000,000 shares of the Company's common stock at an exercise price of $1.00 per
share. At present the Company is in negotiations with face2face in respect of
amending the above referenced agreements regarding its obligation to deliver the
5,000,000 shares not delivered to date.


                                       11

<PAGE>

            Under EITF 96-18 Accounting for Equity Instruments that are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or
Services, the Company recorded the issuance and delivery of the 2,500,000 shares
of the Company's common stock and 1,000,000 warrants as an investment in the
licensed technology as the performance criteria of executing the agreement were
met as of December 31, 2005. The Company will record the remaining delivery of
5,000,000 shares of common stock as follows: 1) 2,500,000 shares upon acceptance
of the product by the Company at the fair value of the Company's stock at the
date of acceptance 2) 2,500,000 shares upon the closing of sublicense or other
agreement between the Company and a customer relating to the product at the fair
value of the Company's common stock at the date this requirement is met.
Accordingly, the Company has recorded this licensed technology of $2,545,806
under the caption "Intangibles" as of December 31, 2006.

            After further development of this technology, and/or at the
commencement of sales of products using this technology, the Company will begin
to amortize, under FASB Statement No. 142. Goodwill and Other Intangible Assets,
over the period which the asset is expected to contribute directly or indirectly
to the future cash flows of the technology.

            The Company valued total consideration for the software as follows:

Common Stock          $1,875,000
Warrants                 670,806
                      ----------
Total Consideration   $2,545,806
                      ==========

            We had approximately $116,000 in cash and cash equivalents as of
December 31, 2006. We will need to raise additional funds through additional
equity or debt financing or from other sources in order to develop, market and
sell our software and verification products.

            Because of our long-term capital requirements, we may seek to access
the public equity market whenever conditions are favorable, even if we do not
have an immediate need for additional capital at that time. Any additional
funding may result in significant dilution and could involve the issuance of
securities with rights, which are senior to those of existing stockholders. We
may also need additional funding earlier than anticipated, and our cash
requirements, in general, may vary materially from those now planned, for
reasons including, but not limited to, changes in our development and sales and
marketing efforts, competitive and technological advances and higher than
anticipated expenses and lower than anticipated revenues from the sale of our
products.

            There can be no assurances that we will raise adequate funds from
these or other sources, which may have a material adverse effect on our ability
to develop, market and sell our products.

OTHER ACQUISITIONS

            On January 31, 2007, we acquired a service business, Zelcom, LLC, an
Illinois limited liability company ("Zelcom") operated out of Schaumberg,
Illinois. Zelcom's staff consists of two principals, Robert Zelikson and Greg
Fasana (the "Zelcom Principals"), as well as another senior employee who
performs analysis for clients. The focus of Zelcom's business will be to provide
marketing and risk management analytics to small and mid-tier financial
companies. Zelcom is a start-up business founded in April, 2006 by its two
principals. The business has not generated any significant revenue to date.


                                       12

<PAGE>

      In consideration for the transfer of all of the membership interests in
Zelcom by the Zelcom Principals, we agreed to issue 750,000 shares of our common
stock. The consideration is issuable as follows: 356,250 shares to each of the
Zelcom Principals and 37,500 to the above-mentioned senior employee of Zelcom.
Of the amount issuable, one-half was issuable immediately upon Closing and the
remainder is contingent upon and issuable only if Zelcom achieves at least
break-even on a cash flow basis for a full 12-month period as evidenced by its
audited financials for such period. The shares issued at Closing are forfeitable
if, prior to the end of the second anniversary of the closing date, any of the
parties to which they were issued, (a) voluntarily terminates his employment
with Zelcom or (b) is terminated for cause.

      We agreed to make capital contributions to Zelcom during the eighteen
month period following closing. With the exception of the first contribution,
such capital contributions are conditioned, however, upon Zelcom not having
exceeded its budgeted expenditures by more than ten percent (10%) and having
substantially achieved its budgeted revenue projections during the relevant
period. The Zelcom Principals are entitled to receive a 25% profits interest in
the ongoing operations of Zelcom.

      In addition, as part of the compensation package to the Zelcom Principals,
each was given an employment agreement with Zelcom and warrants to acquire
500,000 shares of the common stock of Edentify at an exercise price of $1.00 per
share. The warrants vest equally at a rate of 1/36 per month over a three-year
period and are forfeitable, similarly to the stock described above, in the event
that prior to the end of the second anniversary of the closing date, any of the
parties to which they were issued, (a) voluntarily terminates his employment
with Zelcom or (b) is terminated for cause.

                                  RISK FACTORS

            The following cautionary statements identify important factors that
could cause our actual results to differ materially from those projected in the
forward-looking statements made in this Form 10-KSB. Among the key factors that
have a direct bearing on our results of operations are:

WE HAVE NOT YET COMMENCED SIGNIFICANT OPERATIONS AND MAY CONTINUE TO INCUR
SUBSTANTIAL LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN

            Significant operations have not yet commenced. As of December 31,
2006, the Company had $109,028 in earned revenue and our accumulated deficit was
approximately $12,548,000. We have not yet generated significant revenues from
our products and may incur substantial and increased losses in the future. The
timing of the deployment and integration of our data analysis solutions depends
heavily on the time and resources available from our customers and delays caused
thereby may impact the timing of our receipt of revenue. We cannot give any
assurance that we will ever achieve significant revenues from product sales or
become profitable. We require, and will continue to require, the commitment of
substantial financial and personnel resources to develop, market and sell our
products. The cost of obtaining outside financing to continue operations is very
costly. We cannot give any assurance that our product development, marketing and
selling efforts will be successfully completed or be profitable.

WE WILL REQUIRE ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE

      The development, marketing and sales of our products will require the
commitment of substantial resources to bring software products to market. As of
December 31, 2006, we had approximately $116,000 in cash and cash equivalents.
In the event that funds are not available from our operations to meet these
needs, we will need to raise additional funds through additional equity or debt
financing or from other sources in order to successfully develop, market and
sell our software products. Additional debt financing will be very costly and
additional equity financing may substantially dilute existing shareholders.
Moreover, there can be no assurances that we will be able to raise adequate
funds, and this may have a material adverse effect on our ability to develop,
market and sell our products and to continue operations.


                                       13

<PAGE>

WE HAVE RELATIONSHIPS WITH KEY VENDORS WHO HAVE PERMISSIBLE USE OF DATA WITHOUT
WHICH WE CANNOT PROVIDE OUR SERVICES

            The services and products we provide to customers require the use of
large amounts of data for analysis purposes. Each score result that we generate
for a customer on any one identity requires a scan of billions of records and it
is important that we maintain relationships with certain key data providers and
technology solution providers in the industry that are an integral part of our
solutions given regulation of use of consumer data and the number of vendors
with permissible use of such data, in accordance with current federal and state
privacy laws and regulations. Although they are reasonably interchangeable and
replacement of a current key vendor with a competitor would not impact the
quality of our product or services, the investment of time and financial
resources necessary to do such replacement would significantly impact our
ability to generate sales and, in the interim, would suspend our ability to
generate sales.

OUR DATA CENTER IS CONTROLLED BY A KEY VENDOR WHO PROVIDES HOSTING SERVICES FOR
OUR DATA CENTER AND WE MAY NOT BE ABLE TO CONTROL SECURITY BREACHES OF CLIENT
DATA.

      The services and products we provide for our customers requires an
automated analysis of individual identity information in a secure data center.
We have contracted with a vendor, currently Seisint (anticipated to be
transitioned to ChoicePoint within the next sixty (60) days). Our data center is
maintained by the outside vendor on our behalf on a contract basis and is
responsible for maintaining the data center in adherence with the highest
security standards. Although this vendor maintains a similar data center on
behalf of itself and other customers, there is no guarantee that they will not
be susceptible to breaches of security, which could greatly impact the relations
we have with our customers. We do, however, have confidentiality covenants and
an unrestricted indemnification from Seisint in respect to any failure by
Seisint to comply with applicable law and its use of confidential information
related to our customers to mitigate this risk. See also "Material Agreements,"
p-18 below.

OUR PARTNERING AGREEMENT WITH TRILEGIANT (AFFINION) PROVISION THAT MAY INHIBIT
ACQUISITION OFFERS BY COMPETITORS OF TRILEGIANT.

      The Marketing Agreement we are a party to with Trilegiant requires that,
upon receiving an acquisition offer from a competitor of Trilegiant, we are
required to give Trilegiant notice of the offer and the opportunity to tender
its own offer to acquire us within 20 days of our filing of an 8-K announcing
the initial offer. We do not believe that this right will significantly impact
acquisition offers as it is limited to offers by competitors of Trilegiant only,
and is extant for 20 days, even if such offer were made by a Trilegiant
competitor, which is well within the time period that is customarily afforded
for due diligence.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE

            Based on our business and industry, we expect to experience
significant fluctuations in our future quarterly operating results due to a
variety of factors, many of which are outside our control. Factors that may
adversely affect our quarterly operating results include:

      o     our ability to attract new customers at a steady rate and maintain
            customer satisfaction,


                                       14

<PAGE>

      o     the ability to manage a long and unpredictable sales cycle

      o     the demand for the products and services we intend to market,

      o     the amount and timing of capital expenditures and other costs
            relating to the expansion of our operations,

      o     the introduction of new or enhanced services by us or our
            competitors, and

      o     economic conditions specific to the Technology, Internet, e-commerce
            or all or a portion of the technology market.

OPERATING IN A HIGHLY COMPETITIVE INDUSTRY, WE DEPEND UPON THE ABILITY OF OUR
CURRENT BUSINESS PLAN TO REMAIN COMPETITIVE.

            The software industry is highly competitive, and has few barriers to
entry. Although there are few competitors who offer the same or similar services
of the type we offer, we can provide no assurance that additional competitors
will not enter markets that we intend to serve, particularly since the identity
fraud detection and prevention industry is one that is burgeoning and critical
to needs in the financial industry with regulatory agencies and present-day
commerce.

            We believe that our ability to compete depends on many factors both
within and beyond our control, including the following:

      o     the timing and market acceptance of our business model,

      o     our competitors' ability to gain market control,

      o     the success of our marketing efforts,

      o     acquisitions of companies with new technology,

      o     using current relations to extend all business sales and marketing,

      o     consumer dissatisfaction with, or problems caused by, the
            performance of our products and solutions, and

      o     changes in governmental regulation of use of consumer data.

WITH PRESENT LIMITED COMPANY SIZE, WE DEPEND ON CERTAIN KEY EMPLOYEES TO
CONTINUE OPERATIONS

            Our future performance will depend significantly on the continued
service and performance of our director and Chief Executive Officer, Terrence
DeFranco and our Chief Operating Officer, Thomas Harkins. The loss of the
services of either of these individuals could seriously impair our ability to
operate our business, compete in our industry and improve our products and
services.

AS WE EXPAND OUR OPERATIONS, WE MAY NEED THE SERVICES OF A FULLTIME CHIEF
FINANCIAL OFFICER, OTHERWISE IT MAY LEAD TO DIFFICULTY IN COMPLYING WITH
APPLICABLE REGULATIONS

            We presently rely on the services of an independent contractor, who
, in conjunction with our General Counsel and Controller, who is a fulltime
employee, to ensure that our financials accurately recorded, processed,
summarized and reported within the time periods specified by U.S. Securities and
Exchange Commission rules and regulations. As we expand our operations, we may
need the services of a fulltime Chief Financial Officer. If we are not able to
retain a fulltime Chief Financial Officer for any reason, it will become much
more difficult for us to comply with the applicable securities regulations.


                                       15

<PAGE>

WE MUST CONTINUE TO ATTRACT, TRAIN, MOTIVATE AND RETAIN PERSONNEL WITH TECHNICAL
EXPERTISE AND WITH EXPERIENCE IN THE REGULATED USE OF CUSTOMER DATA

            In order to be successful, especially given the highly competitive
nature of our industry, we must attract, train, motivate and retain highly
qualified personnel skilled in technology and the regulated use of consumer
information, particularly in the areas of sales and marketing. Because the
competition for qualified employees is intense, hiring, training, motivating,
retaining and managing employees with the strategic and technical skills we need
is both time-consuming and expensive. If we fail to attract, train and retain
key personnel, we may experience delays in marketing and commercialization of
our products and services.

BECAUSE OUR PRODUCTS RELY ON TECHNOLOGY THAT WE OWN, OUR BUSINESS WILL SUFFER IF
WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS TO THAT TECHNOLOGY AGAINST
INFRINGEMENT BY COMPETITORS

            To protect our intellectual property rights, we rely on a
combination of copyright and trade secret laws and restrictions on disclosure.
Despite our efforts to protect our proprietary rights, unauthorized parties may
copy or otherwise obtain and use our technology and solutions. Monitoring
unauthorized use of our solutions is difficult and the steps we have taken may
not prevent unauthorized use of our technology, particularly in foreign
countries where the laws may not protect our proprietary results as fully as in
the United States. If we fail to protect our intellectual property from
infringement, other companies may use our intellectual property to offer
competitive products at lower prices. If we fail to compete effectively against
these companies, we could lose customers and experience a decline in sales of
our solutions and revenues.

EFFORTS TO PROTECT OUR INTELLECTUAL PROPERTY OR OUR POTENTIAL INFRINGEMENT OF
THE INTELLECTUAL PROPERTY OF OTHERS MAY CAUSE US TO BECOME INVOLVED IN COSTLY
AND LENGTHY LITIGATION

            Although we are not currently involved in any intellectual property
litigation, we may become party to litigation in the future either to protect
our intellectual property or as a result of an alleged infringement by us of the
intellectual property of others. These claims and any resulting litigation could
subject us to significant liability or invalidate our ownership rights in the
technology used in our solutions. Litigation, regardless of the merits of the
claim or outcome, could consume a great deal of our time and money and would
divert management time and attention away from our core business.

            Any potential intellectual property litigation could also force us
to do one or more of the following:

      o     stop using the challenged intellectual property or selling our
            products or services that incorporate it

      o     obtain a license to use the challenged intellectual property or to
            sell products or services that incorporate it, which could be costly
            or unavailable

      o     redesign those products or services that are based on or incorporate
            the challenged intellectual property, which could be costly and time
            consuming or could adversely affect the functionality and market
            acceptance of our products

            If we must take any of the foregoing actions, we may be unable to
sell our solutions, which would substantially reduce our revenues.


                                       16

<PAGE>

WE MUST DEVELOP, PRODUCE AND ESTABLISH NEW PRODUCTS AND SERVICES THAT KEEP UP
WITH RAPID TECHNOLOGICAL CHANGE, ALL OF WHICH MAY REQUIRE TREMENDOUS AND
ADAPTABLE INTELLECTUAL CAPITAL AND RAPID, LARGE-SCALE INVESTMENT THAT MAY NOT BE
READILY AVAILABLE

            The market for Internet services, business-to-business e-commerce,
and risk management solutions is characterized by rapid technological changes,
frequent software changes, frequent new products and service introductions and
evolving industry standards. The introduction of services embodying new
processes and technologies and the emergence of new industry standards can
rapidly render existing services obsolete and unmarketable. Our success in
adjusting to rapid technological change will depend on our ability to:

      o     develop and introduce new services that keep pace with technological
            developments and emerging industry standards; and

      o     address the increasingly sophisticated and varied needs of
            customers.

            Due to inadequate technical expertise, insufficient finances or
other reasons, we may be unable to accomplish these tasks. Such failure would
have a material adverse effect on our operating results and financial condition.

THE MARKET PRICE OF OUR COMPANY STOCK HAS BEEN VOLATILE AND SUCH VOLATILITY MAY
INCREASE.

            The market price of our common stock has in the past been, and may
in the future continue to be, volatile. A variety of events may cause the market
price of our common stock to fluctuate significantly, including:

      o     quarter-to-quarter variations in operating results,

      o     adverse news announcements,

      o     the introduction of new products and services, and

      o     our common stock is listed for quotation on the Over-The-Counter
            (OTC) Bulletin Board.

            For the 12-month period ended December 31, 2006, the closing price
of our common stock has ranged from $0.48 to $1.90 per share. We expect the
price of our common stock to remain volatile in the near term. The average daily
trading volume of our common stock varies significantly. Our relatively low
average volume and low average number of transactions per day may affect the
ability of our stockholders to sell their shares in the public market at
prevailing prices and a more active market may never develop.

            In addition, the stock market in recent years has experienced
significant price and volume fluctuations that have particularly affected the
market prices of equity securities of many companies in our business and that
often have been unrelated to the operating performance of such companies. These
market fluctuations may adversely affect the price of our common stock.

WE WILL CONTINUE TO INCUR INCREASED COSTS RESULTING FROM ADDITIONAL FEDERAL,
STATE AND MARKETPLACE REGULATION THAT MAY, AT THE TIME OF THE IMPLEMENTATION, BE
A SIGNIFICANT PERCENTAGE IN RELATION TO OUR REVENUE

            As a public company, we will continue to incur significant legal,
accounting and other expenses. We also anticipate that we will continue to incur
legal and administrative costs associated with corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002, as
well as new rules implemented by the Securities and Exchange Commission and
NASDAQ. We expect these rules and regulations to increase our legal and
financial compliance costs and to make some activities more time-consuming and
costly. We also expect these rules and regulations may make it more difficult
and more expensive for us to obtain director and officer liability insurance and
we may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result,
it may be more difficult for us to attract and retain qualified individuals to
serve on our board of directors or as executive officers. We are currently
evaluating and monitoring developments with respect to these new rules, and we
cannot predict or estimate the amount of additional costs we may incur or the
timing of such costs.


                                       17

<PAGE>

THE REGULATORY ENVIRONMENT FOR COMPANIES THAT PROCESS CONSUMER IDENTITY
INFORMATION MAY CREATE ADDITIONAL COSTS THAT MAY IMPACT OUR ABILITY TO GENERATE
REVENUE

            Because of the importance of protecting privacy and the ever
increasing regulatory restrictions placed on use (and re-use) of the data that
we utilize in processing our solutions, as well as the continual changes in such
restrictions, it is difficult to predict how such changes or additional
restrictions may impact our operating costs. These costs include, among others,
legal and administrative costs as well as additional or increased fees to
license the use of information as a result of sources of such information
becoming more limited as a result of regulatory restrictions. At present, the
management of such costs is permits commercially viable operations as
contemplated by our management. There is no assurance, however, that dramatic or
unexpected changes in such costs may not impact our ability to generate profit
or even permit our operations to generate revenue. Management is constantly
vigilant with respect to remaining current with respect to changes in law and
regulations that affect our business.

Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us, you should not place undue reliance on any such
forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made and we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.

ITEM 2. DESCRIPTION OF PROPERTY.

            Edentify leases approximately 2,819 square feet of space for its
headquarters at 74 West Broad Street, Suite 350, Bethlehem, Pennsylvania. The
lease commenced in May, 2005 and is for an initial term of three years with
monthly payments of rent and a proportionate share of building operating
expenses. Both the rent amount and the operating expense payments have
provisions for increases which are pro-rated per month for the remaining months
on the lease.

ITEM 3. LEGAL PROCEEDINGS.

            There are no existing or threatened legal proceedings involving the
Company or our subsidiaries.

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

            In accordance with Section 78.207 of the Nevada Revised Statutes, on
November 13, 2006, our Board of Directors, believing it to be in the best
interests of the Company and its stockholders, approved an amendment of our
charter to increase our authorized common stock from 50,000,000 to 100,000,000
shares (the "Charter Amendment"), conditioned upon approval by a majority of the
holders of our common stock. In accordance with Section 78.320 of the Nevada
Revised Statutes, following the mailing of an Information Statement (filed with
the Commission on December 4, 2006) to the shareholders of record as of November
16, 2006, on November 30, 2006, the proposed Charter Amendment was approved by
stockholders holding 15,874,166 shares of Common Stock, or approximately 62% of
the issued and outstanding shares of the Company by written consent. The Charter
Amendment was effective on or about December 24, 2006.


                                       18

<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

            In the last quarter of 2006, we issued 17,648 shares of common
stock, in the aggregate, to our directors in payment services rendered as board
members in accordance with our Board of Directors Compensation plan described
Part III of this report.

            In the first quarter of 2007, we issued 22,848 shares of common
stock, in the aggregate, to our directors in payment services rendered as board
members in accordance with our Board of Directors Compensation plan described
Part III of this report.

            The foregoing issuances of securities were private transactions and
exempt from registration under section 4(2) of the Securities Act and/or
regulation D rule 506 promulgated under the Securities Act.

            Our Common Stock is presently quoted, under the symbol "EDFY" on the
OTC Bulletin Board. Prior to July 2005, our symbol was "BUDH". In July 2005, the
symbol was changed as a result of our name change. Set forth below are the high
and low closing bid quotations for our common stock for each quarter of the last
two full fiscal years and a portion of the current year, as reflected on the
electronic bulletin board. The quotations listed below represent prices between
dealers and do not include retail mark-up, markdown or commission, and there can
be no assurance that they represent actual transactions.

    FISCAL YEAR 2006
-----------------------
Quarter    High    Low
-------   -----   -----
1st       $0.80   $0.56
2nd       $1.90   $0.65
3rd       $1.35   $0.65
4th       $0.90   $0.48

    FISCAL YEAR 2005
-----------------------
Quarter    High    Low
-------   -----   -----
1st       $0.81   $0.25
2nd       $0.75   $0.42
3rd       $1.18   $0.41
4th       $0.75   $0.56

            As of March 30, 2007, there were approximately 96 holders of record
of our common stock. Because a substantial portion of our shares are held by a
depository company in nominee name, we believe the number of beneficial owners
of the securities is substantially greater than this number.

            On March 30, 2007, the last sale price for our common stock on the
OTC BB was $0.58 per share.

            We have not paid any dividends on our common stock. Our notes
prohibit the payment of dividends. There are no plans to declare dividends in
the immediate future.


                                       19

<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion and analysis is related to our financial condition and
results of operations for the years ended December 31, 2006 and 2005. This
information should be read in conjunction with our consolidated financial
statements and related notes thereto beginning on F-1 of this Form 10-KSB.

STATEMENT OF FORWARD-LOOKING INFORMATION

            Certain statements in the section are "forward-looking statements."
You should read the information before Part I above, "Special Note" Regarding
Forward-Looking Statements" for more information about our presentation of
information.

COMPANY HISTORY

            Edentify, Inc. ("Edentify") was formed in August 2004 with the
objective of becoming the leading organization in the field of developing and
deploying data analysis technology solutions for preventing identity theft and
fraud. It is currently a later-stage development company and expects shortly to
begin a period of increased growth. Edentify will seek to fulfill its goals by
analyzing the means by which identity crimes are perpetrated and through the
development of new technologies and procedures to assist corporations, the
government and consumers in the fight against identity fraud and related crime.

            On February 29, 2005, BudgetHotels Networks, Inc. ("Budget") signed
an Agreement to acquire all of the issued and outstanding shares of Edentify,
Inc., a Delaware corporation ("Edentify").

            The operations regarding our subsidiary, InfoCenter, Inc. have been
accounted for as discontinued operations in accordance with accounting
principles generally accepted within the United States of America.

            The acquisition resulted in the owners and management of Edentify
having effective operating control of the combined entity after the acquisition,
with the existing Budget investors continuing as only passive investors.

            Under accounting principles generally accepted in the United States
(US GAAP), the above noted acquisition is considered to be a capital transaction
in substance, rather than a business combination. That is, the acquisition is
equivalent to the issuance of stock by Edentify for the net monetary assets of
Budget, accompanied by a recapitalization, and is accounted for as a change in
capital structure. Accordingly, the accounting for the acquisition is identical
to that resulting from a reverse acquisition, except that no goodwill intangible
is recorded. Under reverse takeover accounting, the post reverse-acquisition
comparative historical financial statements of the "legal acquirer" (Budget),
are those of the "legal acquiree" (Edentify) (i.e. the accounting acquirer).

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2006 VERSUS YEAR ENDED DECEMBER 31, 2005.

            Prior to the Reverse Acquisition, the primary operations of the
Company were conducted through its wholly-owned subsidiary, InfoCenter, Inc. and
its current operations, which differ significantly from those of InfoCenter,
Inc. are conducted through its new wholly-owned subsidiary, Edentify, Inc., a
Delaware corporation, and its subsidiary, InMotion Biometrics, Inc., a Delaware
corporation. Therefore, comparisons herein to the prior period may not present
an accurate view of the financial condition of the Company.


                                       20

<PAGE>

NET LOSS

            Our net loss from continuing operations was $8,396,322 and
$2,108,137 for the years ended December 31, 2006 and 2005, respectively. As
minimal revenue was generated for each of these periods and we are in the
development stage of our operations, the loss was primarily due to three
factors: 1) general and administrative expenses of approximately $3,359,679,
resulting primarily from implementation of FASB 123R requiring reporting of
stock based compensation in the amount of approximately $1,600,000, 2) costs
associated with the development of our fraud detection service totaling $621,455
and 3) financing costs and interest expense associated with amortization of debt
discount for convertible debentures and notes payable issued during 2006 in the
amount of approximately $1,900,000. Our net loss from discontinued operations
was approximately $246,000 for the year ended December 31, 2006 primarily due to
the discontinued operations of our InfoCenter, Inc. subsidiary. Net loss per
share from continuing operations was $(0.33) for the current year versus
$(0.09) for the prior year while the net loss per share from discontinued
operations was ($0.01) for the current year and ($0.00) for the prior year.

REVENUE

            Revenues for the years ended December 31, 2006 and 2005 were
$109,028 and $556, respectively.

            In December, 2005, we entered into a Scoring Services Agreement with
MyPublicInfo ('MPI") whereby MPI will provide us with identity information from
their proprietary database for the purpose of having us utilize proprietary
databases, processes and information developed by us and/or obtained from third
parties to produce an "Identity Score". We will provide MPI with a license to
use the "Identity Score" derived utilizing our proprietary scoring methodology,
which measures the level of suspicious identity manipulation activity and
potential fraud associated with each identity record provided by the Client.

            For grant of the license, MPI undertook to pay us a fee, in two
parts: (1) upon execution of the agreement and (2) upon the completion of the
60-day acceptance period which represents the time period allotted to provide a
secure interface between the two parties. The Client is entitled to a partial
refund of the license fee in the event acceptance is not met. In addition, MPI
will pay a fee per month for the scoring service commencing on the date of
acceptance and continuing for the term of the agreement. Upon execution of the
agreement, the entire license fee was recorded by us as deferred revenue. The
non-refundable portion of the up-front fee will be recognized as income ratably
over the service agreement term. Upon acceptance of the product or service, the
remaining balance of the license fee will also be recognized ratably over the
term of the agreement. As of December 31, 2005, we had received the amount due
upon execution of the agreement.

RESEARCH AND DEVELOPMENT EXPENSE

            Research and development for the years ended December 31, 2006 and
2005 were $621,455 and $83,333, respectively. These costs are mainly due to the
development, implementation and maintenance services provided by key vendors on
database and assessment servers, as well as costs incurred on the required
operating infrastructure within key vendor's facility. In addition, we incurred
costs for the initial run of our key generation and update service and identity
assessment processing service on these databases for the purpose of providing
identification fraud detection services to our customers.

SELLING EXPENSES

            Selling expenses for the years ended December 31, 2006 and 2005 were
$721,377 and $83,583, respectively. These costs primarily relate to the hiring
of sales and marketing manager-level staff in the beginning of 2006. We will
continue to market our technology directly and through channel partners. Our
future plans include the development of an integrated product that combines our
information-based ID manipulation detection capability with IMB's face
recognition technology, thereby enabling a defensibly-robust enrollment and
subsequent identity protection system.


                                       21

<PAGE>

GENERAL AND ADMINISTRATIVE EXPENSE

            General and administrative expense for the years ended December 31,
2006 and 2005 was $3,359,679 and $1,266,174, respectively. General and
administrative expenses consist mainly of salaries and wages, consulting fees,
and professional fees. Any remaining costs were from general operations.

DEPRECIATION AND AMORTIZATION

            Depreciation and amortization expense for the years ended December
31, 2006 and 2005 was $9,553 and $3,554, respectively. Depreciation and
amortization expense increased during this period primarily as a result of the
additions of computer equipment, computer software, and furniture and fixtures
during 2006.

FINANCING COSTS

            Non-cash financing costs for the years ended December 31, 2006 and
2005 were $1,640,068 and $560,417, respectively. Non-cash financing costs
represent the amortization of discount taken on our convertible debentures.
These charges are reflected in the Consolidated Statements of Operations under
the caption "Amortization of Debt Discount". These discounts are amortized over
the life of the debentures. Please see Note 8 in the consolidated financial
statements contained herein for more details on these transactions.

INTEREST EXPENSE

            Interest expense for the year ended December 31, 2006 was $272,426
versus $104,729 a year ago. Interest expense for this period represents interest
incurred on both our convertible debentures and note payable balances in 2006.

NET LOSS FROM DISCONTINUED OPERATIONS

            The loss from discontinued operations for the year ended December
31, 2006 was approximately $246,000. This loss represents the loss incurred on
our subsidiary, InfoCenter, Inc., through which Budget carried on its operating
business activities in the current period. Pursuant to the terms of the
Distribution Agreement noted above, the distribution of the InfoCenter, Inc.
subsidiary was required to be completed on or before January 31, 2006. On
January 30, 2006, we amended our Distribution Agreement with our subsidiary
InfoCenter, Inc. to change the date on which the requirement of filing a
registration statement for the distribution of such shares from "January 31,
2006" to "August 31, 2006". Inasmuch as the Board of Directors of InfoCenter was
not prepared to file a registration statement as of such date, management is
currently in discussions with the Board of Directors of InfoCenter regarding the
appropriate disposition of this obligation.

LIQUIDITY AND CAPITAL RESOURCES

            As of December 31, 2006, our principal source of liquidity consisted
of approximately $116,000 in cash and cash equivalents. In February 2007, we
secured an additional $815,000 in 6% Convertible Debentures. We will need to
raise additional funds through additional equity or debt financing or from other
sources in order to develop, market and sell our software and verification
products. We have also utilized approximately $5,370,000 in cash from operating
activities since inception. For these reasons, our independent auditors have
stated in their report that there is a substantial doubt as to the Company's
ability to continue as a going concern

            On February 29, 2005, Budget signed an agreement (the "Exchange
Agreement") to acquire all of the issued and outstanding shares of Edentify,
Inc., a Delaware corporation ("Edentify") in exchange for issuance of 21,000,000
shares of the Company's common stock and Share Rights Certificates entitling the
former stockholder of Edentify to receive the balance of the shares upon
consummation of a reverse 1-for 10 split of our common stock (the "Reverse
Split") or other corporate action making new shares available for issuance. The
agreement was effective on April 29, 2005 subject only to the approval of the
Reverse Split. Pursuant to the Exchange Agreement, Edentify deposited $75,000
into an escrow account for the benefit of Budget in conjunction with the
execution of the letter of intent, and paid an additional $75,000 to Budget
(with such amount to be assigned to InfoCenters, Inc.) on July 19, 2005. The
Reverse Split became effective on July 13, 2005 and an additional 19,510,255
shares of our common stock was then issuable to the former sole stockholder of
Edentify and his nominees associated with the Share Rights Certificate in order
for such persons to hold approximately 88.2%, in the aggregate of the
outstanding common stock of the Company at that time.


                                       22

<PAGE>

            As a result of the Exchange, we became the successor to Edentify's
obligations under agreements entered into prior to the Exchange. The primary
obligations assumed were those obligations resulting from the issuance of
convertible debentures by Edentify in December 31, 2004 and in April, 2005 as
part of private offerings completed by Edentify and the purchase of software and
verification technology for cash, debt, and securities from Edentification, Inc.
("Edentification"). Part of the obligations assumed in connection with the
Edentification acquisition included repayment of certain debts of Edentification
as set forth in the transaction documents.

            The aggregate consideration to be paid for the technology purchased
from Edentification was $100,000 cash plus 772,501 shares of common stock,
warrants to purchase an additional 160,873 shares of common stock of the Company
(the surviving corporation in the Acquisition transaction) exercisable at $2.50
per share and 160,873 shares of common stock of the Company exercisable at $5.00
per share; an assumption of debt totaling $127,000; and a convertible note
agreement for $260,000. Edentification was one of the nominees of Mr. DeFranco
designated to be issued shares as part of the Acquisition by Budget. In
connection with our purchase of software and verification technology from
Edentification, in September 2005, we entered into a note agreement with a
financial institution in the principal amount of $127,000. The note matures on
September 7, 2006, and we are required to make interest only payments initiating
on December 7, 2005. Interest is payable at the Prime rate of interest (6.75% as
of September 30, 2005). We were required to pay $127,000 into a cash collateral
account as required by the terms of the note agreement.

            To finance the repayment of the debts incurred pursuant to the
Edentification acquisition agreements, on April 28, 2005, Edentify issued an
aggregate of $260,000 in principal amount of a 10% note payable to an individual
due on March 31, 2006 and prepaid interest to this lender. As a result of the
assumption of this obligation from Edentify, the lender has the right to convert
the unpaid principal amount into shares of our common stock at a price per share
of $1.00 on a post-Reverse Split basis. The lender cannot convert less than
$25,000 at one time unless there remains less than $25,000 due.

            The December 2004 issuance by Edentify of $300,000 principal amount,
8% senior secured convertible debentures due on December 31, 2006 (as
subsequently extended by written agreement to December 31, 2007), and warrants
to receive an aggregate of 2,000,000 shares of our common stock (as a result of
the Acquisition) in a private placement, resulted in aggregate proceeds to the
Company of $300,000.The debenture is one of a series of 8% senior secured
convertible debentures. Interest is due quarterly at 8% of the outstanding
principal. Each debenture is convertible into shares of common stock at the
option of the holder equal to the principal amount converted divided by $0.15.
The warrants are to acquire an aggregate of 2,000,000 shares of common stock at
a price of $0.15 per share at any time commencing on December 31, 2004 through
December 31, 2009. In December 2005, the debenture holders exercised 2,000,000
warrants for which the Company received gross proceeds of $300,000. The
convertible debenture was issued with a $300,000 discount due to the fair value
ascribed to the detachable warrants utilizing the Black Scholes method. The
discount is being amortized as financing costs over the two year life of the
debenture.


                                       23

<PAGE>

            The April 2005 issuance by Edentify of $600,000 principal amount 8%
senior secured convertible debentures due on April 21, 2007 (as subsequently
extended by written agreement to December 31, 2007), and warrants to receive an
aggregate of 1,875,000 shares of our common stock (as a result of the
Acquisition) in a private placement, requires interest to be paid quarterly at
8% of the outstanding principal. The debenture is convertible into shares of
common stock at the option of the holder equal to the principal amount converted
divided by $0.32. The warrants are to acquire an aggregate of 1,875,000 shares
of common stock at a price of $0.32 per share at any time commencing on April
21, 2005 through April 21 2010. The convertible debenture was issued with a
$600,000 discount due to the fair value ascribed to the detachable warrants
utilizing the Black Scholes method. The discount is being amortized as financing
costs over the two year life of the debenture.

            Our August 2005 issuance of $1,000,000 principal amount, 6% senior
secured convertible debentures due on August 29, 2007, and warrants to receive
an aggregate of 2,000,000 shares of common stock of the Company in a private
placement, requires interest to be paid quarterly at 6% of the outstanding
principal. The debenture is convertible into shares of common stock at the
option of the holder equal to the principal amount converted divided by $0.50.
The warrants are to acquire an aggregate of 2,000,000 shares of common stock at
a price of $0.50 per share at any time commencing on August 29, 2005 through
August 29, 2010. The convertible debenture was issued with a $1,000,000 discount
due to the fair value ascribed to the detachable warrants utilizing the Black
Scholes method. The discount is being amortized as financing costs over the two
year life of the debenture.

            As a result of the transaction with face2face (See section entitled
"Asset Acquisitions" above), InMotion paid face2face $1,000 upon execution of
the Development Agreement and also provided other assurances regarding minimum
capitalization required for face2face to obtain grant funding from certain state
agencies and we became bound by an agreement to issue in the name of face2face a
total of 7,500,000 shares of our common stock (the "Shares") to be delivered to
face2face as follows: 2,500,000 Shares at closing of the transaction, 2,500,000
Shares upon acceptance by us of the product under the Development Agreement, and
2,500,000 Shares upon the closing of a sublicense or other agreement between us
and a customer relating to the product. We also were required to issue a
warrant, at closing, to face2face to purchase 1,000,000 shares of our common
stock at an exercise price of $1.00 per share.

            Under EITF 96-18, Accounting for Equity Instruments that are Issued
to Other Than Employees for Acquiring or in Conjunction with, Selling Goods or
Services, the Company recorded the issuance and delivery of the 2,500,000 shares
of the Company's common stock and 1,000,000 warrants as an investment in the
licensed technology as the performance criteria of executing the agreement were
met as of December 31, 2005. The Company will record the remaining delivery of
5,000,000 shares of common stock as follows: 1) 2,500,000 shares upon acceptance
of the product by the Company at the fair value of the Company's stock at the
date of acceptance 2) 2,500,000 shares upon the closing of s sublicense or other
agreement between the Company and a customer relating to the product at the fair
value of the Company's common stock at the date this requirement is met.
Accordingly, the Company has recorded this licensed technology of $2,545,806
under the caption "Intangibles" as of December 31, 2005.

            After further development of this technology, and/or at the
commencement of sales of products using this technology, the Company will begin
to amortize, under FASB Statement No. 142. Goodwill and Other Intangible Assets,
over the period which the asset is expected to contribute directly or indirectly
to the future cash flows of the technology.

            In conjunction with a consulting agreement entered into by us with
Redwood Consultants, LLC in September 2005, we agreed to issue 700,000 shares of
our common stock with the initial 350,000 shares being issued within ten (10)
business days of the date of the executed agreement and the remaining 350,000
issued not later than six (6) months from the date of the executed agreement
unless terminated earlier.

            Our December 2005 issuance of $1,050,000 principal amount, 6% senior
secured convertible debentures due on December 10, 2007, and warrants to receive
an aggregate of 2,100,000 shares of common stock of the Company in a private
placement, requires interest to be paid quarterly at a rate of 6% per annum on
the outstanding principal. The debenture is convertible into shares of common
stock at the option of the holder equal to the principal amount converted
divided by $0.50. The warrants are to acquire an aggregate of 2,100,000 shares
of common stock at a price of $0.50 per share at any time commencing on December
10, 2005 through December 10, 2010. The convertible debenture was issued with a
$1,050,000 discount due to the fair value ascribed to the detachable warrants
utilizing the Black Scholes method. The discount is being amortized as financing
costs over the two year life of the debenture.


                                       24

<PAGE>

            Our May 2006 issuance of $800,000 principal amount 6% senior secured
convertible debentures due on May 30, 2009, and warrants to receive an aggregate
of 1,600,000 shares of common stock of the Company in a private placement
requires interest to be paid quarterly at a rate of 6% per annum on the
outstanding principal. The debenture is convertible into shares of common stock
at the option of the holder equal to the principal amount converted divided by
$0.50. The warrants are to acquire an aggregate of 1,600,000 shares of common
stock at a price of $0.50 per share at any time commencing on May 30, 2006
through May 30, 2011. The convertible debenture was issued with a $800,000
discount due to the fair value ascribed to the detachable warrants utilizing the
Black Scholes method. The discount is being amortized as financing costs over
the three year life of the debenture.

            Our September 2006 issuance of convertible debentures in principal
of, 6% senior convertible debentures due on September 30, 2009, and warrants to
receive an aggregate of 1,000,000 shares of common stock of the Company in a
private requires interest to be paid quarterly at a rate of 6% per annum on the
outstanding principal. The debenture is convertible into shares of common stock
at the option of the holder equal to the principal amount converted divided by
$0.50. The warrants are to acquire an aggregate of 1,000,000 shares of common
stock at a price of $0.50 per share at any time commencing on September 30, 2006
through September 30, 2011. The convertible debenture was issued with a $500,000
discount due to the fair value ascribed to the detachable warrants utilizing the
Black Scholes method. The discount is being amortized as financing costs over
the three year life of the debenture.

            We received $1,102,000 principal amount in bridge financing in
November, 2006. These notes had interest payable at 6% per annum and were due on
June 30, 2007. A portion of this interest was capitalized with the notes and the
remainder for the period ending December 31, 2006 was paid in shares of our
common stock. These notes were subsequently converted to debentures and, in
conjunction therewith, we issued warrants to receive an aggregate of 1,000,000
shares of common stock of the Company.

            Our January-February 2007 issuance of $815,000 principal amount 6%
senior convertible debentures due on February 20, 2009, and warrants to receive
an aggregate of 1,630,000 shares of common stock of the Company in a private
placement requires interest to be paid quarterly at a rate of 6% per annum on
the outstanding principal. The debenture is convertible into shares of common
stock at the option of the holder equal to the principal amount converted
divided by $0.50. The warrants are to acquire an aggregate of 1,630,000 shares
of common stock at a price of $0.50 per share at any time commencing on February
20, 2007 through February 20, 2012. The convertible debenture was issued with a
$815,000 discount due to the fair value ascribed to the detachable warrants
utilizing the Black Scholes method. The discount is being amortized as financing
costs over the three year life of the debenture.

            As of March 31, 2007, debenture holders Whalehaven Capital Fund
Limited converted $20,000 into 40,000 shares of common stock and Gamma
Opportunity Capital Partners converted $25,000 into 166,667 shares of common
stock.

            Please see "Recent Financing and Asset Acquisitions" in Item 1.
Business above and Note 5 - "Software and Verification Technology Purchase";
Note 7 - "Other Intangible Assets, and Note 8 - "Long Term Debt" in the
consolidated financial statements contained herein for more details on our
acquisition of assets and debenture and stock financings.


                                       25

<PAGE>

            Because of our long-term capital requirements, we may seek to access
the public equity market whenever conditions are favorable, even if we do not
have an immediate need for additional capital at that time. Any additional
funding may result in significant dilution and could involve the issuance of
securities with rights, which are senior to those of existing stockholders. We
may also need additional funding earlier than anticipated, and our cash
requirements, in general, may vary materially from those now planned, for
reasons including, but not limited to, changes in our development and sales and
marketing efforts, competitive and technological advances and higher than
anticipated expenses and lower than anticipated revenues from the sale of our
products.

            There can be no assurances that we will raise adequate funds from
these or other sources, which may have a material adverse effect on our ability
to develop, market and sell our products.

GOING CONCERN

            We have not attained profitable operations and are dependent upon
obtaining financing to pursue any extensive business activities. For these
reasons our independent auditors have stated in their report that they have
substantial doubt as to whether we will be able to continue as a going concern.

NEW ACCOUNTING PRONOUNCEMENTS

            In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement clarifies the definition of fair market value,
establishes a framework for measuring fair value, and expands the disclosures on
fair value measurements. SFAS NO. 157 is effective for fiscal years beginning
after November 15, 2007. The Company is in the process of determining the
effects, if any, that adoption of SFAS No. 157 will have on its financial
statements.

            In February 2007, the FASB issued SFAS No. 159, "Establishing the
Fair Value Option for Financial Assets and Liabilities" to permit all entities
to choose to elect to measure eligible financial instruments at fair value. The
decision whether to elect the fair value option may occur for each eligible item
either on a specified election date or according to a pre-existing policy for
specified types of eligible items. However, that decision must also take place
on a date on which criteria under SFAS 159 occurs. Finally, the decision to
elect the fair value option shall be made on an instrument-by-instrument basis,
except in certain circumstances. An entity shall report unrealized gains and
losses on items for which the fair value option has been elected in earnings at
each subsequent reporting date, and recognize upfront costs and fees related to
those items in earnings as incurred and not deferred. SFAS No. 159 applies to
fiscal years beginning after November 15, 2007, with early adoption permitted
for an entity that has also elected to apply the provisions of SFAS No. 157,
Fair Value Measurements. An entity is prohibited from retrospectively applying
SFAS No. 159, unless it chooses early adoption. SFAS No. 159 also applies to
eligible items existing at November 15, 2007 (or early adoption date). The
Company is currently evaluating the implications of this Statement.

            In June 2006, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income
Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in a company's financial statements in accordance with FASB No. 109,
Accounting for Income Taxes. Specifically, the pronouncement prescribes a
recognition threshold and a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. This interpretation also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition of uncertain tax positions. The interpretation is
effective for fiscal years beginning after December 15, 2006. Adoption of FIN 48
is not expected to have a material effect on the Company's financial condition
or results of operations.


                                       26

<PAGE>

CRITICAL ACCOUNTING POLICIES

            Financial Reporting Release No. 60 requires all companies to include
a discussion of critical accounting policies or methods used in the preparation
of financial statements. Our significant accounting policies are described in
the Notes to the Consolidated Financial Statements. The significant accounting
policies that we believe are most critical to aid in fully understanding our
reported financial results are the following:

REVENUE RECOGNITION

            We recognize revenue in accordance with Statement of Position 97-2,
Software Revenue Recognition whereby: persuasive evidence of arrangement exists,
delivery of the product or service has occurred, the fee is fixed and
determinable, acceptance has occurred and collectibility is probable.

            We may enter into service agreements with our clients whereby we
will receive up-front license fees for granting use of the Company's proprietary
software. Any non-refundable portion of these license fees received upon
execution of these agreements would be recognized ratably over the service
agreement term. The remaining portion of the up-front license fee would also be
recognized ratable over the term of the agreement only after acceptance has
occurred. In the event the contract term is infinite, the up-front fee would be
recognized systematically over the period in respect of which fees are estimated
to be earned.

INTANGIBLES

            Intangible assets are stated at cost. Amortization is provided using
the straight-line method, under FASB Statement No. 142, Goodwill and Other
Intangible Assets, over the period which the asset is expected to contribute
directly or indirectly to the future cash flows of the technology. Amortization
will initiate upon the commencement of sales of products using our technology.
The carrying amount of intangibles is reviewed for recoverability when events or
changes in circumstances occur that indicate that the carrying value of the
assets may not be recovered.

CONVERTIBLE SECURITIES WITH BENEFICIAL CONVERSION FEATURES

            The debenture issuances and related embedded conversion features and
warrants issuances were accounted for in accordance with EITF 98-5: Accounting
for convertible securities with beneficial conversion features or contingency
adjustable conversion and with EITF No. 00-27: Application of issue No. 98-5 to
certain convertible instruments. The Company determined the fair values to be
ascribed to detachable warrants issued with the convertible debentures utilizing
the Black-Scholes method. Any discount derived from determining the fair value
of the warrants is amortized to financing costs over the remaining life of the
debenture. The unamortized discount upon the conversion of the debentures is
expensed to financing cost on a pro-rata basis.

ITEM 7. FINANCIAL STATEMENTS.

            The consolidated balance sheet as of December 31, 2006, and our
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 2006 and 2005 and for the period from
incorporation (August 27, 2004) through December 31, 2006, together with the
reports of WithumSmith + Brown, P.C. and Cinnamon, Jang, Willoughby & Company,
respectively, independent registered public accounting firms, are included
beginning at page F-1 at the end of this report. Reference is made to the "Index
to Financial Statements and Financial Statement Schedule" on page F-1.

ITEM8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES.

None.


                                       27

<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES.

            Our principal executive officer, who, is at present, also acting in
the capacity of principal financial officer, has evaluated the effectiveness of
our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period
covered by this report. Based on this evaluation, our principal executive
officer, who, at present, is also acting in the capacity of principal financial
officer, has concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report.

During the fiscal year ended December 31, 2006, we have made no change in our
internal controls over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.

ITEM 8B. OTHER INFORMATION.

None

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(a).

                                   MANAGEMENT

The current officers and directors of the Company are as follows:

NAME                 AGE                      POSITION
------------------   ---   ----------------------------------------------
Terrence DeFranco     40   Chairman, Chief Executive Officer, Director
Thomas J. Harkins     49   Chief Operating Officer
Kenneth R. Vennera    40   Chief Legal Officer/General Counsel, Secretary
Michael Preston       61   Director
Eric Gertler          44   Director
Mark Gelnaw           49   Director

Terrence M. DeFranco
Chairman and Chief Executive Officer

            Terrence DeFranco is currently the Chairman, Chief Executive Officer
and founder of Edentify, Inc. Prior to founding Edentify, Inc., Mr. DeFranco was
Chairman and CEO of Titan International Partners, a merchant banking and
research firm focused on providing corporate and strategic advisory services and
equity and debt financing to small-cap and middle market companies.

            His background is primarily in the area of corporate finance,
previously serving as head of investment banking for Baird, Patrick & Co., Inc.,
a 50-year old NYSE Member firm and head of investment banking and founding
partner of Burlington Securities Corp., a New York based investment banking and
institutional equity trading firm.

            Mr. DeFranco began his career on Wall Street in 1991 with
PaineWebber, Inc., now UBS PaineWebber. Mr. DeFranco has been an active
principal investor, senior manager and advisor to many early-stage companies and
has extensive experience in dealing with issues related to the management and
operations of small public companies. Mr. DeFranco is a graduate of the
University of North Carolina at Chapel Hill with a BA in Economics, has
completed coursework toward the Masters in Business Administration and Economic
Crime and Fraud Management at Utica College in New York, home of the Economic
Crime Institute, and is an Associate Member of the Association of Certified
Fraud Examiners.


                                       28

<PAGE>

Thomas J. Harkins
Chief Operating Officer

            Prior to his employment with Edentify, Inc. as Chief Operating
Officer, Mr. Harkins was the Vice President of Security and Risk Management at
MasterCard International, Inc., an international credit card company.

            While at MasterCard International, Inc., Mr. Harkins developed and
implemented the global Risk Assessment Management Program to improve member
profitability and decreased fraud losses. This program defined key metrics,
established stretch improvement standards and outlined change initiatives to
drive results. It is recognized as an industry benchmark. Prior to his promotion
to Vice President at MasterCard International, Mr. Harkins held the positions of
Finance and Risk Management Officer and Director of Risk Management.

            Mr. Harkins began his career at Citibank, N.A. with a series of
assignments involving finance, risk management and marketing. Mr. Harkins is a
graduate of Fordham University with a BS in Finance and Economics and is a prior
Board Member of the National Foundation for Consumer Credit.

Kenneth R. Vennera
Chief Legal Officer/General Counsel/Secretary

            Mr. Vennera has been General Counsel to the firm since January of
2006. He has been a practicing attorney since 1994 and is admitted to the bar in
Pennsylvania, New Jersey, Washington, DC and New York. He holds a Juris Doctor
degree from Widener University School of Law, 1994, where he was a Research
Editor for the Delaware Journal of Corporate Law and a member of the Moot Court
Honor Society. He also holds a Master of Laws in Taxation from Villanova School
of Law, 1997. Mr. Vennera graduated from the Wharton School of the University of
Pennsylvania with a Bachelor of Science degree in Economics in 1989.

            Prior to joining the Company, Mr. Vennera was a senior associate
with the law firm of Flamm, Boroff & Bacine, P.C. in Blue Bell, Pennsylvania for
over a year. Prior to this, Mr. Vennera was a senior associate with Reed Smith,
LLP in the Corporate and Securities Department of their Manhattan office. Mr.
Vennera also worked for PricewaterhouseCoopers in their Tax Consulting
Department prior to joining Reed Smith.

Michael D. Preston
Director

            Mr. Preston is a principal of Alberdale & Co., a corporate finance
company regulated by the Financial Services Authority in the United Kingdom,
Chief Executive Officer of Image Innovations Holdings, Inc., a publicly-traded
sports and entertainment art and collectibles business in the USA, and a
Director of Phosphagenics Limited, a biotechnology company whose shares are
traded on the Australian and UK stock markets.

            Prior to becoming a principal of Alberdale, Mr. Preston held senior
management positions with several middle market and small capitalization
companies, several of which he was a founder, with particular focus on corporate
strategy and finance. Mr. Preston became a Fellow of the Institute of Chartered
Accountants in England and Wales while employed at PriceWaterhouse & Co. in
England. Additionally, Mr. Preston is a graduate of Oxford University.

Eric J. Gertler
Director

            Mr. Gertler is the Chief Executive Officer of BlackBook Media
Corporation, the publisher of BlackBook Magazine and the BlackBook List guides
to New York, Los Angeles, San Francisco and Miami and is also the Managing
Partner of EJG Enterprises, a consulting firm to media companies and banks in
the area of privacy and individual personal security.

            Mr. Gertler is the author of Prying Eyes: Protect Your Privacy From
Those That Sell To You, Snoop on You, and Steal from You, July 2004, The Random
House Information Group. Previously, Mr. Gertler served as President and Chief
Executive Officer of Privista, a credit management and identity theft protection
company, and was President of U.S. News & World Report, Fast Company, and The
Atlantic Monthly.


                                       29

<PAGE>

            Mr. Gertler is a graduate of Brown University with an AB in
International Relations and Economics, received a graduate degree in Political
Science from Institut D'Etudes Politiques, Paris, France, received a graduate
law degree in international law from La Sorbonne, Universite de Paris, Paris,
France and received a JD from American University.

Mark Gelnaw
Director

      Mr. Gelnaw has over 25 years of experience in the financial services
industry having held senior positions at Deutsche Bank, Lehman Brothers, Salomon
Brothers and Andersen Consulting (currently known as Accenture). Most recently
Mr. Gelnaw has held positions of Global Head of Business Development and Head of
Strategic Funds for Deutsche Bank. Mr. Gelnaw also served as Chief Operating
Officer for Deutsche Bank's Asset Management and Deutsche Bank's Equity
divisions where he was involved in all aspects of the business including
structuring, marketing, investment management, due diligence as well as serving
as a liaison with all the service functions that interface with the business
processes. During Mr. Gelnaw's tenure as Chief Operating Officer of the Equity
Division the business grew in less than three years from a loss 40 million euros
to a net profit of over 2.5 billion euros. Mr. Gelnaw was responsible for the
acquisition of the NatWest Derivative businesses and played a lead role in the
acquisition of Bankers Trust. Mr. Gelnaw served on the Firm's Divisional
Executive Committees and was a member of the Firm's top 40 professional charged
with establishing the business mission and strategy.

      In addition to operating in the capacity of a Chief Operating Officer for
numerous Deutsche Bank businesses, Mr. Gelnaw held specific business
responsibilities including Global Head of Equity Finance and the Global Head of
Proprietary Trading for the Equity Division. The proprietary trading grew under
Mr. Gelnaw's leadership both in terms of revenues ($220 to over $500 million) by
increasing global reach while the Finance function grew from just $15 million in
revenues to over $245 million in less than two years.

      Mr. Gelnaw began his venture career while employed at Deutsche Bank in
1997. Mr. Gelnaw was the fund manager for the Angel Fund, a focused fund which
captured emerging technology ventures in cooperation with Stanford University.
Mr. Gelnaw later combined this fund together with other DB alternative funds to
form the "Strategic Funds" which were marketed to investors through the bank's
Private Client Group and Asset Management divisions.

      Mr. Gelnaw is a graduate of Georgetown University where he earned a BSBA
in Accounting. Mr. Gelnaw currently serves on the board of various companies and
charities. In particular, Mr. Gelnaw focuses on supporting charities whose
mission is to cure diseases that primarily afflict children.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

            Section 16(a) of the Exchange Act requires our officers and
directors, and persons who own more than ten percent of a registered class of
equity securities, to file reports with the Securities and Exchange Commission
reflecting their initial position of ownership on Form 3 and changes in
ownership on Form 4 or Form 5. Based solely on a review of the copies of such
Forms received by us, we believe that, during the fiscal year ended December 31,
2006, all of our officers, directors and ten percent stockholders complied with
all applicable Section 16(a) filing requirements on a timely basis.


                                       30

<PAGE>

AUDIT COMMITTEE

            Presently, the Board of Directors acts as the Audit Committee as
permitted by the rules of the Securities & Exchange Commission. We plan to
establish an Audit Committee consisting of three independent directors as soon
as practical as the board is expanded.

CODE OF ETHICS

            On March 10, 2006, the Company adopted a Code of Business Conduct
and Ethics that applies to all employees, including the Company's principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions.

ITEM 10. EXECUTIVE COMPENSATION.

            The summary compensation table below sets forth the aggregate
compensation paid or accrued by us for the fiscal year ended December 31, 2006,
to our Chief Executive Officer, Chief Operating Officer and Chief Legal
Officer/General Counsel who were serving as executive officers at the end of the
last completed fiscal year and whose total annual salary and bonus exceeded
$100,000 (collectively, the "Named Executives"). The summary of the employment
agreements with our executives are described below.

                         SUMMARY EXECUTIVE COMPENSATION

<TABLE>
<CAPTION>
                                                                         OPTION
                                                                         AWARDS     ALL OTHER
    NAME AND PRINCIPAL                  SALARY                STOCK       ($)     COMPENSATION    TOTAL
         POSITION            YEAR(1)     ($)     BONUS($)   AWARDS($)    (2)(3)        ($)        ($)(2)
--------------------------   -------   -------   --------   ---------   -------   ------------   -------
<S>                            <C>     <C>        <C>         <C>       <C>            <C>       <C>
Terrence M. DeFranco,          2006    150,000    15,000      56,000        -0-        -0-       221,000
  Chief Executive Officer
Thomas J. Harkins,             2006    150,000    12,500      56,000        -0-        -0-       218,500
  Chief Operating Officer
Kenneth R. Vennera,            2006    115,000       -0-       7,200    494,547        -0-       616,547
  General Counsel/
  Chief Legal Officer
</TABLE>

Notes

(1)   The Company does not have any non-equity incentive plans or nonqualified
      deferred compensations.

(2)   None of the options were in the money as of year-end and have a current
      value of -0-.

(3)   Using a Black-Scholes valuation formula.

               Outstanding Equity Awards at Fiscal Year-End (2006)

<TABLE>
<CAPTION>
                                            Option Awards(1)                                      Stock Awards(2)
                    ------------------------------------------------------------  -----------------------------------------
                     Number of     Number of                                      No. of  Market                Market or
                     Securities    Securities                                     Shares   Value              Payout Value
                     Underlying    Underlying     Equity                            of      of      Equity      of Equity
                    Unexercised   Unexercised   Incentive    Option     Option    Stock   Shares  Incentive     Incentive
                    Options (#)   Options (#)      Plan     Exercise  Expiration    Not     Not      Plan      Plan Awards
Name                Exercisable  Unexercisable    Awards   Price ($)     Date     Vested  Vested  Awards(3)  Not Vested ($)
------------------  -----------  -------------  ---------  ---------  ----------  ------  ------  ---------  --------------
<S>                   <C>           <C>             <C>       <C>       <C>          <C>     <C>   <C>             <C>
Terrence DeFranco     833,333       416,667         --        (2)       1/01/10      0       0     100,000         0
Thomas J. Harkins     625,000       625,000         --        (2)       7/29/12      0       0     100,000         0
Kenneth R. Vennera    500,000       500,000         --        --        1/01/11      0       0           0         0
</TABLE>

(1)   1/3 of the options have an exercise price of $0.75 per share, 1/3 have an
      exercise price of $2.00 per share and 1/3 have an exercise price of $5.00
      per share. The options held by Mr. Harkins vest with the lowest exercise
      price vesting first.


                                       31

<PAGE>

(2)   no shares were issued to any executive officer in 2005. In 2006, Terrence
      DeFranco and Thomas Harkins received 100,000 shares each as bonus for
      2005. In addition, Terrence DeFranco received shares of common stock in
      2006 as director compensation (see Director Compensation table below).

(3)   Number of shares of common stock.

EMPLOYMENT AGREEMENTS

            Effective April 29, 2005, we assumed the employment contract with
Terrence DeFranco, who was appointed by our Board as the Chief Executive Officer
and Chairman effective upon the closing of the Acquisition. The term of the
agreement is for a period of three years and is terminable for cause. In
connection with his employment, Mr. DeFranco was granted options to purchase a
total of 1,250,000 shares of our common stock, at exercise prices varying from
$0.75 to $5.00 per share vesting over a period of three years at a rate of
1/36th per month, with all options being fully vested in 36 months and is
eligible for such benefits as are provided to other executives of the Company.
Pursuant to the terms of his employment agreement with the Company, Mr. DeFranco
may not engage in any competitive activity for a period of two years following
the termination of his employment with the Company.

            On July 29, 2005, we entered into an employment agreement with
Thomas Harkins to be our Chief Operating Officer. Edentify agrees to pay Mr.
Harkins $12,500 per month plus any increases or bonuses as determined by the
Company. In connection with his employment, Mr. Harkins was granted options to
purchase a total of 1,250,000 shares of our common stock at exercise prices
varying from $0.75 to $5.00 per share, vesting at a rate of 1/36th of the amount
granted per month, with all options being fully vested in 36 months. In the
event Mr. Harkins' employment is terminated for any reason other than for cause,
Edentify will continue to pay Mr. Harkins' salary and other employee benefits
for a three month severance period. Pursuant to the terms of his employment
agreement with the Company, Mr. Harkins may not engage in any competitive
activity for a period of two years following the termination of his employment
with the Company.

            On January 1, 2006, we entered into an employment agreement to
engage Kenneth Vennera as general counsel for the Company with the title of
Chief Legal Officer. The term of the agreement is for a period of three years
and is terminable for cause. In connection with his employment, Mr. Vennera was
issued stock and granted options to purchase a total of 1,000,000 shares of our
common stock, at exercise prices varying from $0.75 to $4.00 per share, vesting
over a period of two years at a rate of 1/24th per month, with all options being
fully vested in 24 months and is eligible for such benefits as are provided to
other executives of the Company. Mr. Vennera was also appointed by the Board of
Directors as Secretary of the Company by the Board of Directors.

Board Compensation

            As approved by our board in March, 2006 and retroactive to January
1, 2006, our directors receive the following compensation for serving on our
board:

1. The sum of $2,000 per month (the "Total Due") of actual service on the Board
payable (for the calendar year 2006) as follows:

      (a) 50% of the Total Due for such period by check and

      (b) such number of restricted shares of the common stock of the Company
equal to 50% of the Total Due for such period divided by the closing price of
the Company's common stock as quoted on the OTC Bulletin Board on the last
trading day of the respective quarter.


                                       32

<PAGE>

2. Reimbursement of reasonable expenses not in excess of $750 per quarter
(without prior approval by the Chief Executive Officer of the Company).

3. Payment in respect of amounts due pursuant to paragraphs 1 or 2 above is made
in arrears on the last business day of each respective calendar quarter of
service (or the next business day if such day is a Saturday, Sunday or federal
holiday).

4. For each year of actual service, one (1) warrant, with an expiration date 5
years after issuance, to purchase 50,000 shares of common stock of the Company,
issued on the first day of the year in which service is to take place, with an
exercise price equal to 110% of the closing price of the Company's common stock
as quoted on the OTC Bulletin Board on the first trading day of the calendar
year in which such service takes place, provided however, that such warrant may
only be exercised, in part, once per quarter, on or after the last business day
of each quarter of actual service, for no more than 12,500 shares per quarter.

5. Additional compensation to be granted to those board members serving on Audit
and Compensation Committees in the sole discretion of the Board.

                              Director Compensation
                                (FY 2006) (1)(2)

<TABLE>
<CAPTION>
                    Fees Earned                                             Total ($)
                     or Paid in   Stock Awards     Option                 Compensation
Name                Cash ($)(3)     ($)(4)(5)    Awards ($)   All other        ($)
-----------------   -----------   ------------   ----------   ---------   ------------
<S>                    <C>           <C>            <C>          <C>         <C>
Terrence DeFranco      $9,000        $9,000         None         None        $18,000
Mark Gelnaw            $6,000        $6,000         None         None        $12,000
Eric Gertler           $9,000        $9,000         None         None        $18,000
Michael Preston        $9,000        $9,000         None         None        $18,000
</TABLE>

(1)   No compensation was paid to directors in 2005.

(2)   We do not have a non-equity incentive plan or nonqualified deferred
      compensation plan for directors.

(3)   represents 3 quarters of 2006. The fourth quarter was paid in January of
      2007 (i.e., an additional $3,000 per director in cash.

(4)   represents 3 quarters of 2006. Shares for the fourth quarter were issued
      in January of 2007 (i.e., an additional 4,348 shares with a market value
      at the time of issuance of $3,000 per director).

(5)   Total shares issued to directors as of December, 2006: Terrence
      DeFranco-11,412, Mark Gelnaw-7,412, Eric Gertler-11,412, and Michael
      Preston-11,412 (see note 4 above).

COMPENSATION COMMITTEE

            Presently, the Board of Directors acts as the Compensation Committee
as permitted by the rules of the Securities & Exchange Commission. We plan to
establish a Compensation Committee consisting of three independent directors as
soon as practical as the board is expanded.


                                       33

<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

            The following table sets forth--

            o     each person who is known by us to be the owner of record or
                  beneficial owner of more than 5% of its outstanding Common
                  Stock;

            o     each of our directors and each of our executive officers;

            o     all of our directors and executive officers as a group; and

            o     the number of shares of Common Stock beneficially owned by
                  each such person and such group and the percentage of the
                  outstanding shares owned by each such person and such group.

            As used in the table below and elsewhere in this Form 10KSB, the
term beneficial ownership with respect to a security consists of sole or shared
voting power, including the power to vote or direct the vote and/or sole or
shared investment power, including the power to dispose or direct the
disposition, with respect to the security through any contract, arrangement,
understanding, relationship, or otherwise, including a right to acquire such
power(s) during the next 60 days following the date of this Memorandum. Except
as otherwise indicated, the stockholders listed in the table have sole voting
and investment powers with respect to the shares indicated.

            Except as otherwise noted below, the address of each of the persons
in the table is c/o 74 West Broad Street, Bethlehem, PA 18018.

NAME OF BENEFICIAL OWNER (1)                       NUMBER OF SHARES (3)    OWNED
----------------------------                       --------------------   ------
Terrence DeFranco (2, 3)                                 8,374,166         32.7%
Face2face, Inc.                                          7,500,000         29.3%
Thomas Harkins (2)                                         100,000           (5)
Kenneth Vennera (2)                                         12,000           (5)
Mark Gelnaw (3)                                             11,412           (5)
Eric Gertler (3)                                            11,412           (5)
Michael Preston (3)                                         11,412           (5)
All of our directors and executive officers as a
  group (6 persons)                                      8,520,402         33.2%

----------
(1)   Each of Bushido Capital Master Fund, L.P., Gamma Capital Opportunity
      Partners, L.P., Class A Gamma Capital Opportunity Partners, L.P., Class C
      and Whalehaven Capital, LP own Convertible debentures and warrants of the
      Company that contain provisions that prohibit the conversion or exercise
      of such debenture or warrant, if such conversion or exercise would cause
      any of them to own 4.99% or more of the outstanding shares of common stock
      of the Company. As a result none of the forgoing beneficially own more
      than 5% of our shares of common stock.

(2)   Executive Officer

(3)   Director

(4)   Does not include exercise of vested options to purchase shares of Common
      Stock and conversion of debentures into Common Stock. Mr. DeFranco
      currently has options vested entitling him to acquire 416,667 Shares of
      Common Stock.

(5)   Less than 1%


                                       34

<PAGE>

Description of Securities.

GENERAL

            At the date hereof the Company is authorized by our certificate of
incorporation to issue an aggregate of 100,000,000 shares of Common Stock, par
value $.001.

COMMON STOCK

            Holders of Common Stock are entitled to one vote for each share held
of record on each matter submitted to a vote of stockholders. There is
cumulative voting for the election of directors. Subject to the prior rights of
any class or series of preferred stock which may from time to time be
outstanding, if any, holders of Common Stock are entitled to receive ratably,
dividends when, as, and if declared by our board of directors out of funds
legally available for that purpose and, upon our liquidation, dissolution, or
winding up, are entitled to share ratably in all assets remaining after payment
of liabilities and payment of accrued dividends and liquidation preferences on
the preferred stock, if any. Holders of Common Stock have no preemptive rights
and have no rights to convert their Common Stock into any other securities. The
outstanding Common Stock is validly authorized and issued, fully-paid and
nonassessable. In the event we were to elect to sell additional shares of Common
Stock following this Offering, investors in this Offering would have no prior
right to purchase additional shares. As a result, their percentage equity
interest in the Company would be diluted.

            Except as otherwise required by Delaware law, all stockholder action
is taken by the vote of a majority of the outstanding shares of Common Stock
voting as a single class present at a meeting of stockholders at which a quorum
consisting of a majority of the outstanding shares of Common Stock is present in
person or proxy.

WARRANTS

            The Company has issued the following warrants to acquire the
following number of shares of the Company's common stock: (1) 12,175,000 in
connection with offerings of convertible debentures to investors (see
"Convertible Debentures" below), of which 2,000,000 have been exercised to
acquire 2,000,000 shares of our Common Stock; (2) 1,000,000 to face2face
animation, Inc. in connection with the license and development agreements
described in detail under the heading "Material Agreements" above and (3)
187,500, in the aggregate, to our directors as part of the Board Compensation
Plan described in the section titled Board Compensation" above.

CONVERTIBLE DEBENTURES

            The Company has issued seven series of convertible debentures.

            Each series of convertible debentures has the following material
common terms (qualified, in their entirety by the specific terms outlined in the
form of documents attached as exhibits to this Registration Statement).

1. Interest on the debentures is payable in cash or in kind. Late fees payable
at a rate of 18% (if allowed by law).

2. Conversions of the debentures are restricted such that no investor may,
individually, be deemed to hold more than 4.99% of the outstanding common stock
of the company.


                                       35

<PAGE>

3. The debentures are subject to redemption by the company at a price equal to
125% of the principal amount plus accrued interest and are subject to forced
conversion if the stock is trading, not earlier than 1 year after the closing
date, at or above $1.50 per share for 30 consecutive trading days and the
average trading volume equals or exceeds $150,000.

4. The following are events of default under the debentures:

      o     Non-payment of principal and/or interest;

      o     Failure to perform any covenant;

      o     The making of any materially untrue or incorrect representation or
            warranty or any other written statement in a transaction document;

      o     A voluntary or involuntary bankruptcy by the company;

      o     A default by the company on any obligation in excess of $150,000;

      o     The company is a party to any change of control transaction or
            fundamental transaction;

      o     Failure to have the registration statement required pursuant to the
            Registration Rights Agreement, executed simultaneously with the
            debenture, declared effective within 180 days from the closing date
            on the offering in which they were acquired by investors. This
            provision was waived in writing by our investors, however.

      o     Inability of the investors to resell registrable securities acquired
            in the offering for more than 10 consecutive trading days or 15
            non-consecutive trading days in any 12-month period;

      o     Failure of the company to deliver stock certificates prior to the
            5th trading day after a conversion.

      o     Any breach under the transaction documents.

      In the event of default, as would only be finally determined judicially,
      we would be required to pay to investors, the "Mandatory Prepayment
      Amount" which would equal the sum of (i) the greater of: (A) 250% of the
      principal amount of debentures to be prepaid, plus all accrued and unpaid
      interest thereon, or (B) the number of shares issuable upon conversion of
      the debenture in full on (x) the date the Mandatory Prepayment Amount is
      demanded or otherwise due or (y) the date the Mandatory Prepayment Amount
      is paid in full, whichever is less, multiplied by the Closing Price on (x)
      the date the Mandatory Prepayment Amount is demanded or otherwise due or
      (y) the date the Mandatory Prepayment Amount is paid in full, whichever is
      greater, and (ii) all other amounts, costs, expenses and liquidated
      damages due in respect of the debentures.

            Those terms that are specific to a series are described in the
respective paragraphs detailing each series below.

            The December, 2004 issuance of convertible debentures (assumed from
Edentify, Inc.) consisted of the issuance of an aggregate of $300,000 in
principal amount of 8% senior secured convertible debentures due on December 31,
2006 (as subsequently extended by written agreement to December 31, 2007), and
warrants to receive an aggregate of 2,000,000 shares of common stock of the
Company in a private placement. Interest is due quarterly at the rate of 8% per
annum of the outstanding principal. Each debenture is convertible into shares of
common stock at the option of the holder equal to the principal amount converted
divided by $0.15. The warrants are to acquire an aggregate of 2,000,000 shares
of common stock at a price of $0.15 per share at any time commencing on December
31, 2004 through December 31, 2009.


                                       36

<PAGE>

            The April, 2005 issuance of convertible debentures (assumed from
Edentify, Inc.) consisted of an aggregate of $600,000 in principal amount of 6%
senior secured convertible debentures due on April 21, 2007 (as subsequently
extended by written agreement to December 31, 2007), and warrants to receive an
aggregate of 1,875,000 shares of common stock of the Company in a private
placement. Interest is due quarterly at the rate of 8% per annum of the
outstanding principal. The debenture is convertible into shares of common stock
at the option of the holder equal to the principal amount converted divided by
$0.32. The warrants are to acquire an aggregate of 1,875,000 shares of common
stock at a price of $0.32 per share at any time commencing on April 21, 2005
through April 21, 2010.

            The August, 2005 issuance consisted of $1,000,000 in principal
amount of 6% senior secured convertible debentures due on August 29, 2007, and
warrants to receive an aggregate of 2,000,000 shares of common stock of the
Company in a private placement. Interest is due quarterly at the rate of 6% Per
annum of the outstanding principal. The debenture is convertible into shares of
common stock at the option of the holder equal to the principal amount converted
divided by $0.50. The warrants are to acquire an aggregate of 2,000,000 shares
of common stock at a price of $0.50 per share at any time commencing on August
29, 2005 through August 29, 2010.

            The December, 2005 issuance consisted of $1,050,000 in principal
amount of 6% senior secured convertible debentures due on December 10, 2008, and
warrants to receive an aggregate of 2,100,000 shares of common stock of the
Company in a private placement. Interest is due quarterly at the rate of 6% Per
annum of the outstanding principal. The debenture is convertible into shares of
common stock at the option of the holder equal to the principal amount converted
divided by $0.50. The warrants are to acquire an aggregate of 2,100,000 shares
of common stock at a price of $0.50 per share at any time commencing on December
10, 2005 through December 10, 2010.

            The May, 2006 issuance consisted of $800,000 in principal amount of
6% senior secured convertible debentures due on May 15, 2009, and warrants to
receive an aggregate of 1,600,000 shares of common stock of the Company in a
private placement. Interest is due quarterly at the rate of 6% per annum of the
outstanding principal. The debenture is convertible into shares of common stock
at the option of the holder equal to the principal amount converted divided by
$0.50. The warrants are to acquire an aggregate of 1,600,000 shares of common
stock at a price of $0.50 per share at any time commencing on May 15, 2006
through May 15, 2011.

            The September, 2006 issuance consisted of $500,000 in principal
amount of 6% senior secured convertible debentures due on September 29, 2009,
and warrants to receive an aggregate of 1,000,000 shares of common stock of the
Company in a private placement. Interest is due quarterly at the rate of 6% per
annum of the outstanding principal. The debenture is convertible into shares of
common stock at the option of the holder equal to the principal amount converted
divided by $0.50. The warrants are to acquire an aggregate of 1,000,000 shares
of common stock at a price of $0.50 per share at any time commencing on
September 29, 2006 through September 29, 2011.

            By agreement with the lenders of our November, 2006 bridge
financing, we issued $1,102,000 in principal amount of 6% debentures due June
30, 2007, and warrants to receive an aggregate of 1,000,000 shares of common
stock of the Company in a private placement. This financing was originally a
bridge loan to the Company, however, the terms converting it to a debenture were
not finalized until February, 2007, with an effective date of November 27, 2007.
Interest is due quarterly at the rate of 6% per annum of the outstanding
principal. The warrants are to acquire an aggregate of 2,000,000 shares of
common stock at a price of $0.50 per share at any time commencing on November
29, 2006 through November 29, 2011.


                                       37

<PAGE>

            The January-February 2007 issuance of $815,000 principal amount 6%
convertible debentures due on February 20, 2010, and warrants to receive an
aggregate of 1,630,000 shares of common stock of the Company in a private
placement resulted in aggregate proceeds to the Company of $815,000. Interest is
due quarterly at a rate of 6% per annum on the outstanding principal. The
debenture is convertible into shares of common stock at the option of the holder
equal to the principal amount converted divided by $0.50. The warrants are to
acquire an aggregate of 1,630,000 shares of common stock at a price of $0.50 per
share at any time commencing on February 20, 2007 through February 20, 2012.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

      A. Certain Relationships and Related Transactions.

            The acquisition of Edentify, Inc. by Budgethotels Network, Inc. by
means of a share exchange (the "Acquisition") as described above was effective
as of March 29, 2005. As a result of the Acquisition, certain institutional
investors of Edentify in the offerings described below became our shareholders.

            Our December, 2004 issuance of securities (assumed from Edentify,
Inc.) consisted of the issuance of an aggregate of $300,000 in principal amount
of 8% senior convertible debentures due on December 31, 2006, and warrants to
receive an aggregate of 2,000,000 shares of common stock of the Company in a
private placement to two institutional investors. These warrants were exercised
for cash in December, 2005. The investors were granted registration rights for
the shares underlying their conversion of the debentures and the exercise of the
warrants.

            Our April 2005 issuance of securities (assumed from Edentify, Inc.)
consisted of an aggregate of $600,000 in principal amount of 6% senior
convertible debentures due on April 21, 2007, and warrants to receive an
aggregate of 1,875,000 shares of common stock of the Company in a private
placement to two institutional investors from the December, 2004 offering as
well as another institutional investor.

            These same institutional investors were also the most significant
investors in our August, 2005 private offering as well as participating in our
December, 2005 private offering.

            Our August, 2005 issuance of securities consisted of $1,000,000 in
principal amount of 6% senior convertible debentures due on August 29, 2007, and
warrants to receive an aggregate of 2,000,000 shares of common stock of the
Company in a private placement to the same institutional investors that invested
in the December 2004 offering (and who participated in the April 2005 offering).

            Our December, 2005 issuance of securities consisted of $1,050,000 in
principal amount of 6% senior convertible debentures due on December 10, 2007,
and warrants to receive an aggregate of 2,100,000 shares of common stock of the
Company in a private placement that included one of the institutional investors
from the December, 2004, April 2005 and August 2005 offerings. The other
investors were unrelated third party accredited investors.

            Our November, 2006 issuance of securities (finalized in February
2007) consisted of $1,102,000 in principal amount of 6% senior convertible
debentures due on November 29, 2008, and warrants to receive an aggregate of
2,000,000 shares of common stock of the Company in a private placement that
included one of the institutional investors from the December, 2004, April 2005,
August 2005 and December, 2005 offerings. The other investor is an unrelated
third party accredited investor.


                                       38

<PAGE>

            Craig DeFranco, our Controller, and an employee of the Company, is a
family member of our Chief Executive Officer and receives a salary of $70,000
annually for his services.

      B. Director Independence

      General.

      We currently use the definition of independence adopted by inter-dealer
      quotation system of the National Association of Securities Dealers.
      According to this definition, Messrs. Gelnaw, Gertler and Preston are
      independent directors. Mr. DeFranco is also the Chief Executive Officer,
      an employee of the Company, and is not independent according to this
      definition. All decisions requiring review of his compensation or other
      matters requiring independent review are taken with Mr. DeFranco
      abstaining.

      Board Meetings and Committees.

      During 2006, the Company held four regular quarterly meetings of the board
      of directors and two special meetings of the Board. All of the incumbent
      Board members attended at least 75% of the total number of meetings held
      by the Board. The Company does not have any standing audit, nominating,
      and compensation committees as yet. Our entire Board of Directors acts as
      the audit committee, as well as performing the functions of nominating and
      compensation committee. It is the view of the Board that, given the size
      of the Company and the size of the Board of Directors (four members), that
      the functions of these separate committees can best be accomplished
      without the formality of separate committees. As the Company grows in size
      and, commensurate therewith, increases the size of the Board, the Board
      will create such committees when appropriate. When voting on matters for
      which there may be a conflict of interest with a particular board member,
      the appropriate person abstains from voting on such matter.

      In particular, as the Company does not have a separate audit committee, it
      does not, at present, have an audit committee charter. The Board, acting
      in the audit committee function, has discussed with the Company's
      independent auditors, the matters required to be discussed by statement on
      Auditing Standards No. 61, as amended, and has received the written
      disclosures and the letter required by Independence Standards Board
      Standards No.1 from the Company's independent accountants. Michael
      Preston, who is independent member of the Board, acts as Company's
      financial expert with the attributes described in Item 407 (d)(5)(ii) for
      purposes of fulfilling this requirement for the Board when performing its
      audit committee function.

      Also, in respect of the compensation committee function, only Messrs.
      Gelnaw, Gertler and Preston participate in the consideration of the
      compensation of our executive officers, whereas all board members
      participate in the decision regarding compensation of directors.

      Shareholder Communications.

      As our outside shareholders are a relatively small group, the Board does
      not have a formal process for shareholders to send communications to the
      Board, however, all shareholders are encouraged to send any such
      communications to the Company's general counsel and secretary via email,
      regular mail or facsimile.


                                       39

<PAGE>

ITEM 13. EXHIBITS

Unless otherwise indicated filed herewith are the following exhibits:

Exhibit No.   Description of Document
-----------   ------------------------------------------------------------------
2.1           Share Exchange Agreement by and between BudgetHotels Network, Inc.
              and Edentify, Inc. attached as an exhibit to the Company's 8-K
              filed on May 5, 2005

2.3           Asset Acquisition Agreement by and between Edentify, Inc. and
              Edentification, Inc. made as of March 31, 2005 filed as an exhibit
              to the Company's registration statement on Form SB-2 on January
              18, 2006

3.1(a)        Certificate of Incorporation attached as an exhibit to the
              Company's Form 10 filed with the Securities and Exchange
              Commission on March 24, 2000

3.1(b)        Certificate of Correction to Amendment to Certificate of
              Incorporation dated July 15, 2005 filed as an exhibit to the
              Company's registration statement on Form SB-2 on January 18, 2006

3.1(c)        Amendment to Certificate of Incorporation dated July 13, 2005
              filed as an exhibit to the Company's registration statement on
              Form SB-2 on January 18, 2006

3.1(d)        Amendment to Certificate of Incorporation dated August 14, 2001
              filed as an exhibit to the Company's registration statement on
              Form SB-2 on January 18, 2006

3.2           By-laws attached as an exhibit to the Company's Form 10 filed with
              the Securities and Exchange Commission on March 24, 2000

4.2           Form of Securities Purchase Agreement dated as of December 31,
              2004 filed as an exhibit to the Company's registration statement
              on Form SB-2 on January 18, 2006

4.3           Form of Convertible Debenture dated as of December 31, 2004 filed
              as an exhibit to the Company's registration statement on Form SB-2
              on January 18, 2006

4.4           Form of Warrant dated as of December 31, 2004 filed as an exhibit
              to the Company's registration statement on Form SB-2 on January
              18, 2006

4.5           Form of Registration Rights Agreement dated as of December 31,
              2004 filed as an exhibit to the Company's registration statement
              on Form SB-2 on January 18, 2006

4.6           Form of Security Agreement dated as of December 31, 2004 filed as
              an exhibit to the Company's registration statement on Form SB-2 on
              January 18, 2006

4.7           Form of Securities Purchase Agreement dated as of April 21, 2005
              filed as an exhibit to the Company's registration statement on
              Form SB-2 on January 18, 2006.

4.7(a)        Letter Agreement by and between the Company and Bushido Capital,
              Gamma Capital, and Bridges & Pipes LLC dated as of April 29, 2005
              amending the April 21, 2005 Investment terms filed as an exhibit
              to the Company's registration statement on Form SB-2 filed on June
              16, 2006.


                                       40

<PAGE>

4.8           Form of Convertible Debenture dated as of April 21, 2005 filed as
              an exhibit to the Company's registration statement on Form SB-2 on
              January 18, 2006

4.9           Form of Warrant dated as of April 21, 2005 filed as an exhibit to
              the Company's registration statement on Form SB-2 on January 18,
              2006

4.10          Form of Registration Rights Agreement dated as of April 21, 2005
              filed as an exhibit to the Company's registration statement on
              Form SB-2 on January 18, 2006

4.11          Form of Security Agreement dated as of April 21, 2005 filed as an
              exhibit to the Company's registration statement on Form SB-2 on
              January 18, 2006

4.12          Form of Securities Purchase Agreement dated as of August 29, 2005
              filed as an exhibit to the Company's registration statement on
              Form SB-2 on January 18, 2006

4.13          Form of Convertible Debenture dated as of August 29, 2005 filed as
              an exhibit to the Company's registration statement on Form SB-2 on
              January 18, 2006

4.14          Form of Warrant dated as of August 29, 2005 filed as an exhibit to
              the Company's registration statement on Form SB-2 on January 18,
              2006

4.15          Form of Registration Rights Agreement dated as of August 29, 2005
              filed as an exhibit to the Company's registration statement on
              Form SB-2 on January 18, 2006

4.16          Form of Security Agreement dated as of August 29, 2005 filed as an
              exhibit to the Company's registration statement on Form SB-2 on
              January 18, 2006

4.17          Form of Securities Purchase Agreement dated as of December 10,
              2005 filed as an exhibit to the Company's registration statement
              on Form SB-2 on January 18, 2006

4.18          Form of Convertible Debenture dated as of December 10, 2005 filed
              as an exhibit to the Company's registration statement on Form SB-2
              on January 18, 2006

4.19          Form of Warrant dated as of December 10, 2005 filed as an exhibit
              to the Company's registration statement on Form SB-2 on January
              18, 2006

4.20          Form of Registration Rights Agreement dated as of December 10,
              2005 filed as an exhibit to the Company's registration statement
              on Form SB-2 on January 18, 2006

4.21          Form of Security Agreement dated as of December 10, 2005 filed as
              an exhibit to the Company's registration statement on Form SB-2 on
              January 18, 2006


                                       41

<PAGE>

10.1          Patent and Technology License Agreement, Development Agreement,
              and Share and Warrant Issuance Agreement by and between face2face
              animation, Inc. and the Company dated as of May 27, 2005 attached
              as an exhibit to the Company's Form 8-K filed with the Securities
              and Exchange Commission on August 30, 2005.

10.2          Master Services Agreement, Scope of Work 1 and Scope of Work 2
              entered into by and between the Company and Seisint, Inc. as of
              October 3, 2005 attached as an exhibit to the Company's Form 8-K
              filed with the Securities and Exchange Commission on October 27,
              2005.

10.3          Employment Agreements by and between the Company and Terrence
              DeFranco filed as an exhibit to the Company's registration
              statement on Form SB-2 on January 18, 2006.

10.4          Employment Agreement by and between the Company and Thomas J.
              Harkins filed as an exhibit to the Company's registration
              statement on Form SB-2 on January 18, 2006.

10.5          Employment Agreement by and between the Company and Kenneth R.
              Vennera filed as an exhibit to the Company's registration
              statement on Form SB-2 on January 18, 2006.

14.1          Code of Ethics filed as an exhibit to the Company's Form 10-KSB
              filed with the Commission on March 30, 2006.

31.1          Certification Pusuant to Section 302

32.1          Certification Pusuant to Section 906

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

            All audit and professional services provided by our independent
registered public accounting firms are approved by the Board of Directors. The
following table shows the aggregate fees billed to us by our independent
registered public accounting firms for professional services rendered during the
years ended December 31, 2006 and December 31, 2005.

DESCRIPTION OF FEES     2005(1)     2006(2)
-------------------   ----------   --------
Audit Fees              $25,000    $108,561
Audit-Related Fees        3,500       4,655
Tax Fees                     --      21,155
All Other Fees              -0-         -0-
                        -------    --------
  Total                 $28,500    $134,371
                        =======    ========

(1)   Audit fees in 2005 relate to our previous auditors, Cinnamon Jang
      Willoughby & Company

(2)   Audit fees in 2006 relate to our current auditors, WithumSmith + Brown,
      P.C.

Audit Fees

            Represents fees for professional services provided for the audit of
our annual financial statements and review of our financial statements included
in our quarterly reports and services in connection with statutory and
regulatory filings.


                                       42

<PAGE>

Audit-Related Fees

            Represents the fees for assurance and related services that are
reasonably related to the performance of the audit or review of our financial
statements.

Tax Fees

            Represents the fees for preparation of the federal, state and local
income tax returns for the Company and its subsidiaries, and related services.

            The Board of Directors pre-approve all auditing services and the
terms thereof (which may include providing comfort letters in connection with
securities underwriting) and non-audit services (other than non-audit services
prohibited under Section 10A(g) of the Exchange Act or the applicable rules of
the SEC or the Public Company Accounting Oversight Board) to be provided to us
by the independent auditor; provided, however, the pre-approval requirement is
waived with respect to the provisions of non-audit services for us if the "de
minimus" provisions of Section 10A (i)(1)(B) of the Exchange Act are satisfied.
This authority to pre-approve non-audit services may be delegated to one or more
members of the Audit Committee, who shall present all decisions to pre-approve
an activity to the full Audit Committee at its first meeting following such
decision.

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        Edentify, Inc.


Date: April 16, 2007                    /s/ Terrence DeFranco
                                        ----------------------------------------
                                        Terrence DeFranco
                                          Chief Executive Officer and Principal
                                          Financial Officer, Director


                                        /s/ Craig DeFranco
                                        ----------------------------------------
                                        Craig DeFranco
                                        Controller


                                        /s/ Michael Preston
                                        ----------------------------------------
                                        Michael Preston
                                        Director


                                        /s/ Eric Gertler
                                        ----------------------------------------
                                        Eric Gertler
                                        Director


                                       43

<PAGE>

                         EDENTIFY, INC AND SUBSIDIARIES
                        (a Development Stage Enterprise)

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
Report of Independent Registered Public Accounting Firm,
  WithumSmith+Brown, P.C., December 31, 2006                                 F-1

Report of Independent Registered Public Accounting Firm, Cinnamon Jang
  Willoughby & Company, Chartered Accountants, December 31, 2005             F-2

Consolidated Balance Sheet as at December 31, 2006                           F-3

Consolidated Statements of Operations for the years ended December 31,
  2006 and 2005 and for the period from incorporation (August 27, 2004)
  to December 31, 2006                                                       F-4

Consolidated Statements of Stockholders' Equity (Deficiency) for the
  period from incorporation (August 27, 2004) to December 31, 2006           F-5

Consolidated Statements of Cash Flows for the years ended December 31,
  2006 and 2005 and for the period from incorporation (August 27, 2004)
  to December 31, 2006                                                       F-6

Notes to Consolidated Financial Statements                                   F-7

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
Edentify, Inc.. and Subsidiaries:

We have audited the accompanying consolidated balance sheet of Edentify, Inc.
and Subsidiaries (a development stage enterprise) as of December 31, 2006, and
the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for the year then ended, and for the period from
August 27, 2004 (date of inception) to December 31, 2006. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The Company's consolidated financial statements
as of and the period from August 27, 2004 (date of inception) through December
31, 2005 were audited by other auditors whose report, dated March 10, 2006 (July
19, 2006 as to the effects of the restatements described in note 14 to the 2005
financial statements), expressed an unqualified opinion on those statements. The
consolidated financial statements for the period from August 27, 2004 (date of
inception) through December 31, 2005 reflect total revenues and net loss of $556
and $2,129,590, respectively, of the related totals. The other auditors' report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for such prior periods, is based solely on the report of such other
auditors.

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

In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Edentify, Inc. and
Subsidiaries as of December 31, 2006, and the consolidated results of their
operations and their cash flows for the year then ended, and for the period from
August 27, 2004 (date of inception) to December 31, 2006, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 4 to the accompanying consolidated financial statements,
effective January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123(R), "Share Based Payment."

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 4 to the
accompanying consolidated financial statements, the Company is currently in the
development stage, had a net loss of approximately $8,642,000 for the year ended
December 31, 2006 and had a deficit accumulated under the development stage of
approximately $12,548,000 as of December 31, 2006. Further, the Company had
utilized, from inception, approximately $5,370,000 of cash from operating
activities. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 4. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.


/s/ WithumSmith+Brown, P.C.
Princeton, New Jersey
April 12, 2007


                                       F-1

<PAGE>

[HLB COMPANY LOGO] CINNAMON JANG WILLOUGHBY & COMPANY

Chartered Accountants
A PARTNERSHIP OF INCORPORATED PROFESSIONALS

            Report of Independent Registered Public Accounting Firm

To the stockholders of Edentify, Inc. and Subsidiaries (A Development Stage
Enterprise):

      We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficiency) and cash flows of Edentify, Inc. and
subsidiaries (A Development Stage Enterprise) for the year ended December 31,
2005 and for the period of inception (August 27, 2004) through December 31,
2005. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Edentify, Inc. and Subsidiaries for the year ended December
31, 2005 and for the period of inception (August 27, 2004) to December 31, 2005
in conformity with generally accepted accounting principles in the United
States.

      As described in note 14 to the 2005 consolidated financial statements, the
consolidated financial statements of Edentify, Inc. as of and for the year ended
December 31, 2005 have been restated. Such amended financial statements were
filed as part of a Form 10-KSB/A that was filed with the Securities and Exchange
Commission on August 4, 2006.


                                        /s/ "Cinnamon Jang Willoughby & Company"
                                        ----------------------------------------
                                        Chartered Accountants

Burnaby, Canada
March 10, 2006 (July 19, 2006 as to the effects of the restatements described in
note 14 to the amended 2005 consolidated financial statements)

MetroTower II - Suite 900 - 4720 Kingsway, Burnaby, BC Canada V5H 4N2.
Telephone: +1 604 435 4317. Fax: +1 604 435 4319.

HLB Cinnamon Jang Willoughby & Company is a member of HLB International. A
WORLD-WIDE ORGANIZATION OF ACCOUNTING FIRMS AND BUSINESS ADVISORS.


                                       F-2

<PAGE>

                         EDENTIFY, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                     December 31,
                                                                         2006
                                                                     ------------
<S>                                                                  <C>
                              Assets

Current assets:
  Cash and cash equivalents                                          $    115,549
  Prepaid expenses                                                         44,351
  Data implementation                                                     202,778
  Other current assets                                                    133,249
                                                                     ------------
    Total current assets                                                  495,927

Property and equipment, net                                             1,281,979

Other assets:
  Intangibles                                                           2,545,806
                                                                     ------------

Total assets                                                         $  4,323,712
                                                                     ============
               LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                   $    142,980
  Line of credit                                                          127,160
  Notes payable                                                           260,000
  Payroll taxes payable                                                        14
  Deferred revenue                                                         34,642
  Liabilities of discontinued operations                                  321,090
  Accrued interest                                                        328,127
  Accrued expenses and other current liabilities                          166,058
  Current portion of long-term debt, net of discount of $1,377,905      1,624,097
                                                                     ------------
    Total current liabilities                                           3,004,168
                                                                     ------------
Long-term liabilities:
  Deferred revenue - long term                                             10,556
  Long-term debt, net of discount of $1,773,611                           576,389
                                                                     ------------
Total long-term liabilities                                               586,945
                                                                     ------------
Total Liabilities                                                       3,591,113
                                                                     ------------
Stockholders' equity:
  Common stock, $0.001 par value; 100,000,000 shares authorized;
    18,490,081 shares issued and outstanding                               18,490
  Common stock subscribed; 7,122,990 shares                                 7,123
  Additional paid-in capital                                           13,254,972
  Deficit accumulated during the development stage                    (12,547,986)
                                                                     ------------
    Total stockholders' equity                                            732,599
                                                                     ------------
Total liabilities and stockholders' equity                           $  4,323,712
                                                                     ============
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       F-3

<PAGE>

                         EDENTIFY, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                                 Cumulative Period
                                                                                                  August 27, 2004
                                                      For the year ended   For the year ended   (inception) through
                                                       December 31, 2006    December 31, 2005    December 31, 2006
                                                      ------------------   ------------------   -------------------
<S>                                                       <C>                  <C>                  <C>
Revenues:
  Sales, net                                              $   109,028          $       556          $    109,584
Cost of sales                                               1,328,951                8,483             1,337,434
                                                          -----------          -----------          ------------
Gross profit (loss)                                        (1,219,923)              (7,927)           (1,227,850)
                                                          -----------          -----------          ------------
Operating expenses:
  Research and development                                    621,455               83,333               708,250
  Selling expenses                                            721,377               83,583               873,775
  General and administrative expenses                       3,359,679            1,266,174             4,568,324
  Depreciation and amortization                                 9,553                3,554                13,107
  Impairment of data implementation asset                     555,556                   --               555,556
                                                          -----------          -----------          ------------
Total operating expenses                                    5,267,620            1,436,644             6,719,012
                                                          -----------          -----------          ------------
Loss from operations                                       (6,487,543)          (1,444,571)           (7,946,862)
                                                          -----------          -----------          ------------
Other income / (expense):
  Other income / (expense)                                     (1,770)                (162)               (1,932)
  Amortization of debt discount                            (1,640,068)            (560,417)           (2,200,485)
  Interest income                                               5,485                1,742                 7,227
  Interest expense                                           (272,426)            (104,729)             (377,155)
                                                          -----------          -----------          ------------
Total other income / (expense)                             (1,908,779)            (663,566)           (2,572,345)
                                                          -----------          -----------          ------------
Loss from continuing operations                            (8,396,322)          (2,108,137)          (10,519,207)
Loss from discontinued operations                            (245,798)              (6,705)             (252,503)
                                                          -----------          -----------          ------------
Net loss                                                  $(8,642,120)         $(2,114,842)         $(10,771,710)
                                                          ===========          ===========          ============
Basic and diluted net loss per common share:
  Continuing operations                                   $     (0.33)         $     (0.09)
  Discontinued operations                                       (0.01)                  --
                                                          -----------          -----------
Net loss per common share                                 $     (0.34)         $     (0.09)
                                                          ===========          ===========

Weighted average shares of common stock outstanding        25,274,934           24,596,217
                                                          ===========          ===========
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       F-4

<PAGE>

                         EDENTIFY, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
    FOR THE PERIOD FROM AUGUST 27, 2004 (INCEPTION) THROUGH DECEMBER 31, 2006


<TABLE>
<CAPTION>
                                                                                                       Deficit
                                                                       Common Stock                  Accumulated      Total
                                                  Common Stock          Subscribed      Additional   During the    Stockholders'
                                               -------------------  -----------------    paid-in-    Development      Equity
                                                 Shares     Amount    Shares   Amount    capital        Stage      (Deficiency)
                                               ----------  -------  ---------  ------  -----------  ------------  -------------
<S>                                            <C>         <C>      <C>        <C>     <C>          <C>            <C>
Balance - August 27, 2004                           1,000  $    --         --  $   --  $     5,000  $         --   $     5,000
Recapitalization for  retroactive effect of
  reverse acquisition                          17,377,435   17,378  7,122,990   7,123    1,511,437    (1,776,276)     (240,338)
Net loss for the period ended
  ended December 31, 2004                              --       --         --      --           --       (14,748)      (14,748)
                                               ----------  -------  ---------  ------  -----------  ------------   -----------
Balance - December 31, 2004                    17,378,435   17,378  7,122,990   7,123    1,516,437    (1,791,024)     (250,086)
                                               ----------  -------  ---------  ------  -----------  ------------   -----------
Fair value ascribed to debenture beneficial
  conversion features and related warrants             --       --         --      --      300,000            --       300,000
Fair value ascribed to debenture beneficial
  conversion features and related warrants             --       --         --      --      600,000            --       600,000
Fair value ascribed to debenture beneficial
  conversion features and related warrants             --       --         --      --    1,000,000            --     1,000,000
Fair value ascribed to debenture beneficial
  conversion features and related warrants             --       --         --      --    1,050,000            --     1,050,000
Warrants exercised in connection with
  convertible debenture                                --       --         --      --      300,000            --       300,000
Fair value ascribed to license agreement and
  share and warrant issuance agreement with
  face2face                                            --       --         --      --    2,545,806            --     2,545,806
Fair value ascribed to software and
  verification technology purchased                    --       --         --      --      806,082            --       806,082
Issuance of Common Stock
   for investor relations fees                    350,000      350         --      --      254,800            --       255,150
Warrants issued for services provided                  --       --         --      --       86,164            --        86,164
Net loss for the year ended December 31, 2005          --       --         --      --           --    (2,114,842)   (2,114,842)
                                               ----------  -------  ---------  ------  -----------  ------------   -----------
Balance as of Decmber 31, 2005                 17,728,435   17,728  7,122,990   7,123    8,459,289    (3,905,866)    4,578,274
                                               ----------  -------  ---------  ------  -----------  ------------   -----------
Stock options issued to employees
as compensation                                        --       --         --      --    1,499,908            --     1,499,908
Stock options issued to consultants                    --       --         --      --      209,201            --       209,201
Fair value ascribed to debenture beneficial
  conversion features and related warrants             --       --         --      --      800,000            --       800,000
Fair value ascribed to debenture beneficial
  conversion features and related warrants             --       --         --      --      500,000            --       500,000
Fair value ascribed to debenture beneficial
  conversion features and related warrants             --       --         --      --    1,102,000            --     1,102,000
Warrants issued to board of directors                  --       --         --      --      124,838            --       124,838
Issuance of Common Stock for investor
  relations fees                                  350,000      350         --      --      251,650            --       252,000
Shares issued to employees as compensation        269,998      270         --      --      210,228            --       210,498
Shares issued to advisory board                   100,000      100         --      --       64,900            --        65,000
Issuance of Common stock for Directors' fees       41,648       42         --      --       32,958            --        33,000
Net loss for the year ended December 31, 2006          --       --         --      --           --    (8,642,120)   (8,642,120)
                                               ----------  -------  ---------  ------  -----------  ------------   -----------
Balance as of December 31, 2006                18,490,081  $18,490  7,122,990  $7,123  $13,254,972  $(12,547,986)  $   732,599
                                               ==========  =======  =========  ======  ===========  ============   ===========
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       F-5

<PAGE>

                         EDENTIFY, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                          Cumulative Period
                                                                                                           August 27, 2004
                                                               For the year ended   For the year ended   (inception) through
                                                                December 31, 2006    December 31, 2005    December 31, 2006
                                                               ------------------   ------------------   -------------------
<S>                                                                <C>                  <C>                  <C>
Cash flows from operating activities:
  Net loss                                                          (8,642,120)          (2,114,842)          (10,771,710)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
  Depreciation and amortization of property and equipment               74,207                3,554                77,761
  Impairment of data implementation asset                              555,556                   --               555,556
  Loss on impairment of business                                       150,000                   --               150,000
  Amortization of debt discount                                      1,640,068              560,417             2,200,485
  Stock options issued to employees as compensation                  1,499,908                   --             1,499,908
  Stock options issued to consultants                                  209,201                   --               209,201
  Warrants issued to board of directors                                124,838                   --               124,838
  Common stock issued for investor relations fees                      252,000              255,150               507,150
  Common stock issued to employees as compensation                     210,498                   --               210,498
  Common stock issued to advisory board                                 65,000                   --                65,000
  Common stock issued for directors' fees                               33,000                   --                33,000
  Warrants issued for services provided                                     --               86,164                86,164
  Changes in assets and liabilities:
  Prepaid expenses                                                     432,012           (1,009,419)             (599,908)
  Data implementation                                                 (202,778)                  --              (202,778)
  Other current assets                                                  (2,288)            (130,961)             (133,249)
  Accounts payable                                                     220,267             (156,062)               78,729
  Payroll taxes payable                                                (19,646)              19,660                    14
  Deferred revenue                                                      25,754               19,444                45,198
  Accrued interest                                                     254,013               74,114               328,127
  Accrued expenses and other current liabilities                      (383,295)             549,359               166,064
                                                                   -----------          -----------          ------------
Net cash used in operating activities                               (3,503,805)          (1,843,422)           (5,369,952)
                                                                   -----------          -----------          ------------
Cash flows from investing activities:
  Purchase of software and verification technology                      (3,619)            (487,000)             (490,619)
  Purchase of property and equipment                                   (21,252)             (36,445)              (63,040)
                                                                   -----------          -----------          ------------
Net cash used in investing activities                                  (24,871)            (523,445)             (553,659)
                                                                   -----------          -----------          ------------
Cash flows from financing activities:
  Proceeds from borrowings                                           2,402,000            3,237,160             5,739,160
  Proceeds from exercising of warrants                                      --              300,000               300,000
                                                                   -----------          -----------          ------------
Net cash provided by financing activities                            2,402,000            3,537,160             6,039,160
                                                                   -----------          -----------          ------------
Net increase (decrease) in cash and cash equivalents                (1,126,676)           1,170,293               115,549
Cash and cash equivalents at beginning of period                     1,242,225               71,932                    --
                                                                   -----------          -----------          ------------
Cash and cash equivalents at end of period                         $   115,549          $ 1,242,225          $    115,549
                                                                   ===========          ===========          ============
Supplemental disclosures of non-cash investing and financing
  activities:
  Acquisition of intangible                                        $        --          $ 2,545,806          $  2,545,806
                                                                   ===========          ===========          ============
  Common stock issued for acquisition of software technology       $        --          $   806,082          $    806,082
                                                                   ===========          ===========          ============
  Exchange of bridge notes into debentures                         $ 1,102,000          $        --          $  1,102,000
                                                                   ===========          ===========          ============
  Common stock warrants issued as a debt discount                  $ 2,402,000          $ 3,250,000          $  5,652,000
                                                                   ===========          ===========          ============
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       F-6

<PAGE>

                                  EDENTIFY, INC
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   Notes to Consolidated Financial Statements

NOTE 1: COMPANY DESCRIPTION

            Edentify, Inc. ("Edentify") was formed in August 2004 with the
objective of becoming a leader in the development and deployment of data
analysis technology-based solutions for the prevention of identity theft and
fraud. It is currently a development stage company. Edentify seeks to accomplish
its goals by analyzing the means through which these crimes are perpetrated and
through the development of new technologies and procedures to assist
corporations, government agencies and consumers in the fight against identity
fraud and related crime.

            The Company carries out its data analysis and monitoring through our
wholly-owned subsidiary, Edentify, Inc. (Delaware), using a patented
information-based technology that analyzes identity data information for
individuals in large databases and is capable of detecting and scoring
incidences of identity manipulation and potential theft (Identity Integrity
Index(TM)). The forerunner of this technology is currently used in screening
identities used for new checking account applications at nearly every major bank
in the U.S. Edentify will continue to market this technology to other areas of
the financial services industry, as well as to large healthcare organizations
and local, state and federal governments.

            The biometric technology, presently still under development, would
be marketed through, the Company's wholly-owned subsidiary, InMotion Biometrics,
Inc. ("IMB"). The present plans for this technology are based on a set of
algorithms, combining face and voice recognition techniques for authenticating
the identity of an individual. The Company's agreement for the development of
the IMB technology is with face2face, Inc., a character animation company that
was spun off from Lucent Technologies, Inc. in 2000. The core capability of this
technology is its facial analysis system that contains highly evolved algorithms
for obtaining the inner lip contour, which can accurately measure for optimal
visual speech-recognition performance. Additionally, the IMB system is designed
as a multi-modal platform capable of combining the reading of two or more
biometric technologies simultaneously

            Edentify is marketing its data analysis technology directly and
through channel partners. The biometric technology is currently under
development and, upon completion will be marketed through strategic partners as
OEMs or value-added resellers. Future plans include the development of an
integrated product that combines the Company's information-based ID manipulation
detection capability with IMB's face recognition technology, thereby enabling a
defensively-robust enrollment and subsequent identity protection system.

NOTE 2: REORGANIZATION

            On February 29, 2005, BudgetHotels Networks, Inc., a Nevada
corporation ("Budget") signed an Agreement to acquire all of the issued and
outstanding shares of Edentify, Inc., a Delaware corporation ("Edentify") in
exchange for the issuance of 21,000,000 shares of its common stock and Share
Rights Certificates entitling the former stockholder of Edentify to acquire
additional shares upon consummation of a reverse 1-for-10 split or other
corporate action making new shares available for issuance, so that ultimately
the former Edentify stockholder and nominees would own a total of 88.2% of the
outstanding common stock of Budget (hereinafter, the foregoing transaction being
the "Acquisition"). Pursuant to the Agreement, Edentify deposited $75,000 into
an escrow account for the benefit of Budget in conjunction with the execution of
the letter of intent (which amount was subsequently released to Budget), and was
required to pay an additional $75,000 to Budget (with such amount to be assigned
to InfoCenters, Inc., its subsidiary, hereinafter referred to as "InfoCenter")
on or before July 31, 2005. This amount was paid to Budget in July 2005.


                                       F-7

<PAGE>

            The Company subsequently effected the reverse 1-for-10 split and
upon its effectiveness, Budget issued a total of 19,510,255 shares of its common
stock to the former stockholder of Edentify and his nominees associated with the
Share Rights Certificate in order for such persons to hold approximately 88.2%
of the outstanding common stock of the Company. After the reverse split and
subsequent issuance under the Share Rights Certificates, Edentify, formerly
Budget, had a total of approximately 24,501,000 shares of common stock
subscribed, although approximately 7,122,990 of these shares have not, as yet,
been issued due to ministerial delays. The Exchange resulted in the owners and
management of Edentify having effective operating control of the combined entity
after the Acquisition, with the existing Budget investors continuing as only
minority investors.

            Under accounting principles generally accepted in the United States
of America(US GAAP), the above noted acquisition is considered to be a capital
transaction in substance, rather than a business combination. That is, the
acquisition is equivalent to the issuance of stock by Edentify for the net
monetary assets of Budget, accompanied by a recapitalization, and is accounted
for as a change in capital structure. Accordingly, the accounting for the
Acquisition is identical to that resulting from a reverse acquisition, except
that no goodwill intangible is recorded. Under reverse takeover accounting, the
post reverse-acquisition comparative historical financial statements of the
"legal acquirer" (Budget), are those of the "legal acquiree" (Edentify) (i.e.
the accounting acquirer).

NOTE 3: BASIS OF PRESENTATION

            The above mentioned financial statements include the accounts of
Edentify, Inc., (the "Company") a Nevada corporation, and its subsidiaries. All
significant inter-company accounts and transactions have been eliminated.

            The operations of our subsidiary, InfoCenter, Inc. have been
accounted for as discontinued operations in accordance with accounting
principles generally accepted in the United States of America (See Note 5).

NOTE 4: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

            The preparation of financial statements in conformity with
Accounting Principles Generally Accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

REVENUE RECOGNITION

            The Company recognizes revenue in accordance with Statement of
Position 97-2, Software Revenue Recognition, whereby persuasive evidence of
arrangement exists, delivery of the product or service has occurred, the fee is
fixed and determinable, acceptance has occurred and collectibility is probable.

            The Company may enter into service agreements with its clients
whereby the Company will receive up-front license fees for granting use of the
Company's proprietary software. Any non-refundable portion of these license fees
received upon execution of these agreements would be recognized ratably over the
service agreement term. The remaining portion of the up-front license fee would
also be recognized ratably over the term of the agreement only after acceptance
has occurred. In the event the contract term is infinite, the up-front fee would
be recognized systematically over the period fees are estimated to be earned.


                                       F-8

<PAGE>

DEVELOPMENT STAGE

      The Company is in the development stage as defined in Financial Accounting
Standards No. 7. The Company is devoting substantially all of its present
efforts to establish a new business. All losses accumulated since inception have
been considered as part of the Company's development stage activities.

GOING CONCERN AND LIQUIDITY CONSIDERATIONS

      The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates,
among other things, the realization of assets and satisfaction of liabilities in
the normal course of business. For the year ended December 31, 2006, the Company
has a net loss of $8,642,120 and an accumulated deficit of $12,547,986 and has
incurred an accumulated operating cash flow deficit of $5,369,952 since
inception. The Company intends to fund operations through either sales, debt or
equity financing arrangements, which may be insufficient to fund its capital
expenditures, working capital and other cash requirements for the following
year.

      Thereafter, the Company will be required to seek additional funds, either
through sales and/or debt and/or equity financing, to finance its long-term
operations. The successful outcome of future activities cannot be determined at
this time, and there is no assurance that, if achieved, the Company will have
sufficient funds to execute its intended business plan or generate positive
operating results. These factors, among others, raise substantial doubt about
the Company's ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

CASH AND CASH EQUIVALENTS

            For purposes of cash flow, cash consists of unrestricted cash
balances held in banks.

RESTRICTED CASH

            Included in other current assets is restricted cash in the amount of
$130,000 which is held in an interest bearing certificate of deposit used as
collateral for a loan.

PROPERTY AND EQUIPMENT

            Property and Equipment is stated at cost. Depreciation and
amortization are provided using the straight-line method over the estimated
useful life of the assets (3 to 10 years).

LONG-LIVED ASSETS

      Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets might not be
recoverable or at least at the end of each reporting period. Conditions that
would necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, management measures fair
value based on discounted estimates of future cash flows.

INTANGIBLES

            Intangible assets are stated at cost. Amortization is provided using
the straight-line method, under FASB Statement No. 142, Goodwill and Other
Intangible Assets, over the period which the asset is expected to contribute
directly or indirectly to the future cash flows of the technology. The Company
has not yet begun utilizing the benefit of the intangible asset. As a result,
the Company has not commenced amortization of the cost of this asset.


                                      F-9

<PAGE>

            After further development of this technology, and / or at the
commencement of sales of products using this technology, the Company will begin
to amortize the asset over the period which the asset is expected to contribute
directly or indirectly to the future cash flows of the technology.

INCOME TAXES

            The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". Under SFAS No. 109, deferred income tax assets and liabilities
are determined based on differences between the financial statement reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws in effect when the differences are expected to reverse. The
measurement of deferred income tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits, which are not expected to be realized.
The effect on deferred income tax assets and liabilities of a change in tax
rates is recognized in the period that such tax rate changes are enacted.

            Under the Tax Reform Act of 1986, the utilization of a corporation's
net operating loss carry-forward is limited following a greater than 50% change
in ownership. Due to the Company's prior and current equity transactions, the
Company's net operating loss carry-forwards may be subject to an annual
limitation generally determined by multiplying the value of the Company on the
date of the ownership change by the federal long-term tax exempt rate. Any
unused annual limitation may be carried forward to future years for the balance
of the net operating loss carry-forward period.

            Deferred income taxes reflect the net tax effects of temporary
differences between carrying amounts of assets and liabilities for financial
reporting purposes and the carrying amounts used for income tax purposes. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Due to
the uncertainty of the Company's ability to recognize the benefit of this tax
deferred asset, the deferred tax asset is fully offset by a valuation allowance
at December 31, 2006.

RESEARCH AND DEVELOPMENT COSTS

      Research and development costs are expensed as incurred.

STOCK BASED COMPENSATION

            Prior to the Company's January 1, 2006 adoption of FAS 123(R), the
Company applied the intrinsic value-based method to measure compensation expense
in accordance with Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Under
this method, compensation expense, if any, was recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. Under the provisions of APB No. 25, there was no compensation expense
resulting from the issuance of stock options by the Company where the exercise
price was equivalent to the fair market value at the date of grant.

            Effective January 1, 2006, the Company adopted the provisions of
SFAS No. 123(R), "Share Based Payment") ("SFAS 123(R)") and considered the
related guidance of the Securities and Exchange Commission ("SEC") included in
Staff Accounting Bulletin ("SAB") No. 107. The Company adopted the provisions of
FAS 123R using a modified prospective application, as permitted by SFAS 123R
and, accordingly, did not restate its financial results for prior periods based
on this. Under this transition method, stock-based compensation expense for the
year ended December 31, 2006 includes compensation expense for all stock-based
compensation awards granted prior to, but not yet vested as of January 1, 2006
(based on the grant date fair value estimated in accordance with the original
provisions of SFAS 123 and previously presented in the pro forma footnote
disclosures), and compensation cost for all stock-based payments granted
subsequent to January 1, 2006 (based on the grant-date fair value estimated in
accordance with the new provisions of SFAS 123(R)).


                                      F-10

<PAGE>

            Because the Company previously adopted only the pro forma disclosure
provisions of SFAS 123, it recognized compensation cost relating to the unvested
portion of awards granted prior to the date of adoption using the same estimate
of the grant-date fair value and the same attribution method used to determine
the pro forma disclosures under SFAS 123. The cumulative effect of applying
forfeiture rates to this calculation was not material.

      For equity instruments issued to non-employees, the Company measures fair
value of the equity instruments using the Black-Scholes method (e.g. warrants)
or the value of the common stock if these values are more reliably measurable
than the fair value of consideration or services received.

BASIC AND DILUTED NET LOSS PER SHARE

            The Company computes net loss per share in accordance with FSAS No.
128 "Earnings per Share" and SEC Accounting Bulletin No. 98. SFAS No. 128
requires presentation of both basic and diluted earnings per share (EPS) on the
face of the operating statement. Basic EPS is computed by dividing net income
(loss) available to common shareholders (numerator) by the weighted average
number of shares outstanding (denominator) during the period. Diluted EPS gives
effect to all dilutive potential common shares outstanding during the period
using the treasury method and convertible preferred shares using the
if-converted method. In computing diluted EPS, the average share price for the
period is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants. Diluted EPS excludes all dilutive
potential shares if their effect is anti-dilutive.

            For the years ended December 31, 2006 and 2005, a total of
$29,603,055 and $21,210,000, respectively, of common stock equivalent shares
were excluded from the computation of diluted net loss per share as follows:

                               Years ended December 31,
                             ----------------------------
                                 2006            2005
                             ------------    ------------
Options                      $  7,665,555    $  5,660,000
Warrants                       11,362,500       7,575,000
Conversion of Debentures       10,575,000       7,975,000
                             ------------    ------------
  Total                      $ 29,603,055    $ 21,210,000
                             ============    ============

FINANCIAL INSTRUMENTS

            The fair values of cash, accounts receivable, accounts payable,
notes payable, line of credit, and long-term debt approximate their carrying
values due to either the immediate or short-term maturity of these financial
instruments or due to the fact that such instruments carry terms and conditions
that would be currently available to the Company.

CONVERTIBLE SECURITIES WITH BENEFICIAL CONVERSION FEATURES

            The debenture issuances and related embedded conversion features and
warrants issuances were accounted for in accordance with EITF 98-5: Accounting
for convertible securities with beneficial conversion features or contingency
adjustable conversion and with EITF No. 00-27: Application of issue No. 98-5 to
certain convertible instruments. The Company determined the fair values to be
ascribed to detachable warrants issued with the convertible debentures utilizing
the Black-Scholes method. Any discount derived from determining the fair value
of the warrants is amortized over the remaining life of the debenture. The
unamortized discount upon the conversion of the debentures is expensed on a
pro-rata basis.


                                      F-11

<PAGE>

RISKS AND UNCERTAINTIES

            The Company operates in an emerging industry that is subject to
market acceptance and technological change. The Company's operations are subject
to significant risks and uncertainties, including financial, operational,
technological and other risks associated with operating an emerging business,
including the potential risk of business failure. There can be no assurance that
the Company will be successful in entering this emerging industry.

RECENT ACCOUNTING PRONOUNCEMENTS

            In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement clarifies the definition of fair market value,
establishes a framework for measuring fair value, and expands the disclosures on
fair value measurements. SFAS NO. 157 is effective for fiscal years beginning
after November 15, 2007. The Company is in the process of determining the
effects, if any, that adoption of SFAS No. 157 will have on its financial
statements.

            In February 2007, the FASB issued SFAS No. 159, "Establishing the
Fair Value Option for Financial Assets and Liabilities" to permit all entities
to choose to elect to measure eligible financial instruments at fair value. The
decision whether to elect the fair value option may occur for each eligible item
either on a specified election date or according to a pre-existing policy for
specified types of eligible items. However, that decision must also take place
on a date on which criteria under SFAS 159 occurs. Finally, the decision to
elect the fair value option shall be made on an instrument-by-instrument basis,
except in certain circumstances. An entity shall report unrealized gains and
losses on items for which the fair value option has been elected in earnings at
each subsequent reporting date, and recognize upfront costs and fees related to
those items in earnings as incurred and not deferred. SFAS No. 159 applies to
fiscal years beginning after November 15, 2007, with early adoption permitted
for an entity that has also elected to apply the provisions of SFAS No. 157,
Fair Value Measurements. An entity is prohibited from retrospectively applying
SFAS No. 159, unless it chooses early adoption. SFAS No. 159 also applies to
eligible items existing at November 15, 2007 (or early adoption date). The
Company is currently evaluating the implications of this Statement.

            In June 2006, the Financial Accounting Standards Board
("FASB")issued Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in
Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in a company's financial statements in accordance with FASB No. 109,
Accounting for Income Taxes. Specifically, the pronouncement prescribes a
recognition threshold and a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. This interpretation also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition of uncertain tax positions. The interpretation is
effective for fiscal years beginning after December 15, 2006. Adoption of FIN 48
is not expected to have a material effect on the Company's financial condition
or results of operations.

NOTE 5: DISCONTINUED OPERATIONS

            In connection with the acquisition transaction with BudgetHotels
Network ("Budget"), as described in Note 2, Budget executed a Distribution
Agreement with its subsidiary, InfoCenter, Inc. ("InfoCenter") through which
Budget carried on its then-current operating business activities, pursuant to
which, Budget agreed to distribute the shares of InfoCenter to the stockholders
of record of Budget as of March 29, 2006. The distribution is intended, but not
required to be made through the filing of a registration statement with the U.S.
Securities and Exchange Commission by the directors of InfoCenter. Under the
terms of the Distribution Agreement, as amended, the distribution was required
to be completed by August 31, 2006.


                                      F-12

<PAGE>

            The total loss related to the discontinued operations of InfoCenter
was $245,798 and $6,705 for the years ended December 31, 2006 and 2005,
respectively. The loss for 2006 includes an impairment loss of $150,000. There
were no revenues from the operations of InfoCenter in either year.

            The liabilities of InfoCenter as of December 31, 2006 consist
primarily of accounts payable.

            The operations of our subsidiary, InfoCenter have been accounted for
as discontinued operations in accordance with accounting principles generally
accepted within the United States of America.

NOTE 6: PROPERTY AND EQUIPMENT

            Property and equipment at cost, consisted of the following at
December 31, 2006:

                                        December 31,
                                            2006
                                        ------------
Computer equipment and software          $   39,645
Furniture and fixtures                       18,680
Office equipment and telephone system         8,333
Verification technology                   1,293,082
                                         ----------
  Total                                   1,359,740
Accumulated depreciation
  and amortization                          (77,761)
                                         ----------
  Total net assets                       $1,281,979
                                         ==========

            Depreciation and amortization expense was $74,207 and $3,554 for the
years ended December 31, 2006 and 2005, respectively.

            On March 31, 2005 the Company entered into an agreement to purchase
software and verification technology for cash, debt, and securities. The
aggregate consideration paid for the technology was $100,000 cash plus
approximately 1,522,000 shares of our common stock, an assumption of debt
totaling $127,000 (See Note 10), and a convertible note agreement for $260,000
as more fully described in Note 9. At December 31, 2006, all amounts due in
respect hereof were paid in full. The Company valued total consideration for the
software as follows:

Cash                  $  100,000
Stock valuation          805,522
Debt assumption          127,000
Convertible note         260,000
Warrants                     560
                      ----------
Total consideration   $1,293,082
                      ==========

NOTE 7: OTHER INTANGIBLE ASSETS

            On August 29, 2005, the Company's wholly-owned subsidiary, InMotion
Biometrics, Inc. ("InMotion") entered into a license, development and share and
warrant issuance agreement with face2face animation, inc. ("face2face"). The
Company was granted an exclusive worldwide license ("License Agreement") to
make, use, import and sell certain patents, hardware, software and other
technology related to the identification of persons and facial recognition.
InMotion also has limited right to sub-license the technology and requires
InMotion to pay face2face any royalties or fees that may be due to third parties
in relation to the use of the technology.


                                      F-13

<PAGE>

            As consideration for the license agreement, the Company was required
to issue shares of common stock and warrants pursuant to a share and warrant
issuance agreement as described further below. The term of the license is
perpetual.

            As part of the same transaction, InMotion also entered into a
non-exclusive Development Agreement ("Development Agreement") with face2face for
the joint development of hardware and software to be used for advanced
acoustical and visual speech recognition and facial recognition. The term of the
agreement is twelve months from the date of execution with an option to renew
for an additional six months. InMotion paid face2face $1,000 upon execution of
the development agreement and also provided other assurances regarding minimum
capitalization required for face2face to obtain grant funding from certain state
agencies.

            As part of the consideration for the License Agreement and the
Development Agreement described above, the Company, on August 29, 2005 also
closed on a Share and Warrant Issuance Agreement (the "Issuance Agreement") with
face2face. The Issuance Agreement was entered into as a condition precedent to
the performance obligations of the parties to each of the License Agreement and
the Development Agreement. As part of the consideration for face2face entering
into the License Agreement and the Development Agreement, the Company issued in
the name of face2face a total of 7,500,000 shares of our common stock (the
"Shares") which shall be delivered to face2face as follows: 2,500,000 Shares at
closing, 2,500,000 Shares upon acceptance of the Product by the Company under
the Development Agreement, and 2,500,000 Shares upon the closing of a sublicense
or other agreement between the Company and a customer relating to the Product.
The Company also issued a warrant, at closing, to face2face to purchase
1,000,000 shares of the Company's common stock at an exercise price of $1.00 per
share. At present the Company is in negotiations with face2face in respect of
amending the above referenced agreements regarding its obligation to deliver the
5,000,000 shares not delivered to date.

            Under EITF 96-18, Accounting for Equity Instruments that are Issued
to Other Than Employees for Acquiring, or in Conjunction with, Selling Goods or
Services, the Company recorded the issuance and delivery of the 2,500,000 shares
of the Company's common stock and 1,000,000 warrants as an investment in the
licensed technology as the performance criteria of executing the agreement were
met as of December 31, 2005. The Company determined the fair values to be
ascribed to the warrants utilizing the Black-Scholes method. If the conditions
precedent to same occur, the Company will record the remaining delivery of
5,000,000 shares of common stock as follows: 1) 2,500,000 shares upon acceptance
of the product by the Company at the fair value of the Company's stock at the
date of acceptance 2) 2,500,000 shares upon the closing of s sublicense or other
agreement between the Company and a customer relating to the product at the fair
value of the Company's common stock at the date this requirement is met.
Accordingly, the Company has recorded this licensed technology of $2,545,806
under the caption "Intangibles" as of December 31, 2006.

            The Company valued total consideration for the software as follows:

Common Stock          $1,875,000
Warrants                 670,806
                      ----------
Total Consideration   $2,545,806
                      ==========


                                      F-14

<PAGE>

NOTE 8: LONG TERM DEBT

Long-term notes payable at December 31, 2006 consisted of the following:

Convertible Debentures                   $ 5,352,002
Unamortized discounts                     (3,151,516)
                                         -----------
Total debt, net                            2,200,486
Current portion of long-term debt, net    (1,624,097)
                                         -----------
Total long-term debt, net                $   576,389
                                         ===========

            On December 31, 2004, the Company issued an aggregate of $300,000 in
principal amount of 8% senior secured convertible debentures originally due on
December 31, 2006(and as subsequently extended by written agreement to December
31, 2007) and warrants to receive an aggregate of 2,000,000 shares of common
stock of the Company in a private placement for aggregate proceeds of $300,000.
The debenture is one of a series of 8% senior secured convertible debentures.
Interest is due quarterly at 8% of the outstanding principal. Each debenture is
convertible into shares of common stock at the option of the holder equal to the
principal amount converted divided by $0.15. The warrants are to acquire an
aggregate of 2,000,000 shares of common stock at a price of $0.15 per share at
any time commencing on December 31, 2004 through December 31, 2009. On December
10, 2005, the debenture holders exercised 2,000,000 warrants for which the
Company received gross proceeds of $300,000. The convertible debenture was
issued with a $300,000 discount due to the fair value ascribed to the detachable
warrants utilizing the Black Scholes method. The discount was amortized as
financing costs over the two year life of the debenture.

            On April 21, 2005, the Company issued an aggregate of $600,000 in
principal amount of 8% senior secured convertible debentures originally due on
April 21, 2007 (and as subsequently extended by written agreement to December
31, 2007), and warrants to receive an aggregate of 1,875,000 shares of common
stock of the Company in a private placement for aggregate proceeds of $600,000.
The debenture is one of a series of 8% senior secured convertible debentures.
Interest is due quarterly at 8% of the outstanding principal. The debenture is
convertible into shares of common stock at the option of the holder equal to the
principal amount converted divided by $0.32. The warrants are to acquire an
aggregate of 1,875,000 shares of common stock at a price of $0.32 per share at
any time commencing on April 21, 2005 through April 21 2010. The convertible
debenture was issued with a $600,000 discount due to the fair value ascribed to
the detachable warrants utilizing the Black Scholes method. The discount is
being amortized as financing costs over the two year life of the debenture.

            On August 29, 2005, the Company issued an aggregate of $1,000,000 in
principal amount of 6% senior secured convertible debentures due on August 29,
2007, and warrants to receive an aggregate of 2,000,000 shares of common stock
of the Company in a private placement for aggregate proceeds of $1,000,000. The
debenture is one of a series of 6% senior secured convertible debentures.
Interest is due quarterly at 6% of the outstanding principal. The debenture is
convertible into shares of common stock at the option of the holder equal to the
principal amount converted divided by $0.50. The warrants are to acquire an
aggregate of 2,000,000 shares of common stock at a price of $0.50 per share at
any time commencing on August 29, 2005 through August 29, 2010. The convertible
debenture was issued with a $1,000,000 discount due to the fair value ascribed
to the detachable warrants utilizing the Black Scholes method. The discount is
being amortized as financing costs over the two year life of the debenture.

            On December 10, 2005, the Company we issued an aggregate of $
1,050,000 in principal amount of 6% senior secured convertible debentures due on
December 10, 2008, and warrants to receive an aggregate of 2,100,000 shares of
common stock of the Company in a private placement. Interest is due quarterly at
6% of the outstanding principal. The debenture is convertible into shares of
common stock at the option of the holder equal to the principal amount converted
divided by $0.50. The warrants are to acquire an aggregate of 2,100,000 shares
of common stock at a price of $0.50 per share at any time commencing on December
10, 2005 through December 10, 2010. The convertible debenture was issued with a
$1,050,000 discount due to the fair value ascribed to the detachable warrants
utilizing the Black Scholes method. The discount is being amortized as financing
costs over the three year life of the debenture.


                                      F-15

<PAGE>

            On May 15, 2006, the Company issued an aggregate of $ 800,000 in
principal amount of 6% senior secured convertible debentures due on May 15,
2009, and warrants to receive an aggregate of 1,600,000 shares of common stock
of the Company in a private placement. Interest is due quarterly at 6% of the
outstanding principal. The debenture is convertible into shares of common stock
at the option of the holder equal to the principal amount converted divided by
$0.50. The warrants are to acquire an aggregate of 1,600,000 shares of common
stock at a price of $0.50 per share at any time commencing on May 15, 2006
through May 15, 2011. The convertible debenture was issued with an $800,000
discount due to the fair value ascribed to the detachable warrants utilizing the
Black Scholes method. The discount is being amortized as financing costs over
the three year life of the debenture.

            On September 29, 2006, the Company issued an aggregate of $500,000
in principal amount of 6% senior secured convertible debentures due on September
29, 2009, and warrants to receive an aggregate of 1,000,000 shares of common
stock of the Company in a private placement for aggregate proceeds of $500,000.
The debenture is one of a series of 6% senior secured convertible debentures.
Interest is due quarterly at 6% of the outstanding principal. The debenture is
convertible into shares of common stock at the option of the holder equal to the
principal amount converted divided by $0.50. The warrants are to acquire an
aggregate of 1,000,000 shares of common stock at a price of $0.50 per share at
any time commencing on October 29, 2006 through October 29, 2011. The
convertible debenture was issued with a $500,000 discount due to the fair value
ascribed to the detachable warrants utilizing the Black Scholes method. The
discount is being amortized as financing costs over the two year life of the
debenture.

            As of November 27, 2006, the Company issued $1,102,000 principal
amount of 6% debentures due June 30, 2007, and 5-year warrants to receive an
aggregate of 1,000,000 shares of common stock of the Company in a private
placement resulted in aggregate proceeds to the Company of $1,100,000.
Originally these funds were advanced to the Company as two bridge loans (one in
the amount of $400,000 on November 2, 2006, $600,000 on November 27, 2006 and an
additional $100,000 on December 31, 2006), however, the terms were not finalized
until February, 2007. Interest is due quarterly at a rate of 6% per annum on the
outstanding principal.

            The Senior Secured Convertible Debentures issued by the Company in
its securities offerings in December, 2004, April, 2005, September, 2005 and
December, 2005 contained a provision that mandated the effectiveness of a
registration statement registering the common stock issuable to the investors
upon conversion of the debentures and in connection with the exercise of the
warrants issued in each offering. This provision was subsequently waived in
writing by the affected investors. The Company's registration statement filed
pursuant to the Securities Act of 1933 Act to register the resale of this common
stock has been declared effective by the U.S. Securities and Exchange Commission
("SEC"), effective October 6, 2006 and as amended on February 14, 2007.

      The Senior Secured Convertible Debentures are secured by all of the assets
of the Company.

      The convertible debentures noted above were accounted for in accordance
with EITF 98-5: Accounting for convertible securities with beneficial conversion
features or contingency adjustable conversion and with EITF No. 00-27:
Application of issue No. 98-5 to certain convertible instruments. The Company
determined the fair values to be ascribed to detachable warrants issued with the
convertible debentures utilizing the Black-Scholes method.

NOTE 9: NOTES PAYABLE

            On April 28, 2005 the Company issued an aggregate of $260,000 in
principal amount of a 10% note payable to an individual due on March 31, 2006.
The Company prepaid interest in the amount of $26,000 to the lender. The lender
has the right to convert the unpaid principal amount into shares of Company's
common stock at a price per share of $1.00 on a post-1-for-10 reverse split
basis. The lender cannot convert less than $25,000 at one time unless there
remains less than $25,000 due. The Company has attempted to contact the lender
regarding conversion or payment.


                                      F-16

<PAGE>

NOTE 10: LINE OF CREDIT

            In connection with the Company's purchase of software and
verification technology (See Note 6 above), the Company, in September 2005
entered into a note agreement with a financial institution in the principal
amount of $127,000. The note matures on December 15, 2007, and the Company is
required to make interest only payments initiating on December 7, 2005. Interest
is payable at the Prime rate of interest (6.0% as of December 31, 2006). The
company was required to pay $127,000 into a cash collateral account as required
by the terms of the note agreement. The Company has classified this amount as an
"other current asset" as of December 31, 2006.

NOTE 11 STOCK OPTIONS AND STOCK BASED COMPENSATION

At December 31, 2006, the Company did not have a specific company-wide stock
option plan. Options are granted on a case by case basis by the Company's Board
of Directors.

The following table summarizes the Company's option activity for the years ended
December 31, 2006 and 2005:

                                                  Weighted-
                                   Number of      Average
                                    Options    Exercise Price
                                   ---------   --------------
Outstanding at January 1, 2005            --           --
Granted                            5,910,000        $2.62
Exercised                                 --           --
Cancelled                           (250,000)       $2.62
                                   ---------        -----
Outstanding at December 31, 2005   5,660,000        $2.62
Granted                            2,725,000        $2.69
Exercised                                 --           --
Cancelled                           (719,445)       $3.14
                                   ---------        -----
Outstanding at December 31, 2006   7,665,555        $2.65
                                   =========
Exercisable at December 31, 2006   5,295,660        $2.57
                                   =========
Exercisable at December 31, 2005   1,719,722        $2.62
                                   =========


                                      F-17

<PAGE>

The following table summarizes information about the Company's stock options
outstanding as of December 31, 2006:

<TABLE>
<CAPTION>
                                                      Weighted-Average
                                   Weighted-Average       Remaining      Aggregate
                        Number         Exercise          Contractual     Intrinsic
Exercise Price       Outstanding        Price           Life (years)       Value
------------------   -----------   ----------------   ----------------   ---------
<S>                   <C>               <C>                 <C>             <C>
    $0.75             2,150,000         $0.75               3.81
    $1.00               363,889         $1.00               3.40
    $2.00             2,100,000         $2.00               3.81
    $2.50               595,833         $2.50               3.37
    $4.00               200,000         $4.00               3.00
    $5.00             2,255,833         $5.00               3.88
                      ---------
  Totals              7,665,555
                      =========
Ending exercisable    5,295,660         $2.57               4.21           $-0-
                      =========         =====               ====           ====
</TABLE>

                    Number     Weighted-Average
Exercise Price   Exercisable    Exercise Price
--------------   -----------   ----------------
    $0.75         1,538,889         $0.75
    $1.00           324,480         $1.00
    $2.00         1,613,889         $2.00
    $2.50           314,757         $2.50
    $4.00           166,667         $4.00
    $5.00         1,336,978         $5.00
                  ---------
    Totals        5,295,660
                  =========

The aggregate intrinsic value in the table above represents the total pretax
intrinsic value (i.e. the difference between the Company's closing stock price
on the last trading day, December 29, 2006, and the exercise price times the
number of shares) that would have been received by the option holders had all
option holders exercised in the money options on December 29, 2006. This amount
changes based on the fair market grant date fair value of the Company's stock.

The weighted-average grant date fair value of options granted during 2006 and
2005 was $2.39 and $2.62, respectively.

The following table sets forth the total stock-based compensation expense
resulting from stock options granted to employees that are included in the
Company's consolidated statement of operations for the year ended December 31,
2006:

General and administrative   $  874,879
Selling                         331,104
Research and development        293,925
                             ----------
  Total                      $1,499,908
                             ==========


                                      F-18

<PAGE>

The above amount of $1,499,908, represents the effect of the Company's adoption
of FAS 123R for the year ended December 31, 2006. This amount increased the
Company's loss per share by $0.06.

As of December 31, 2006, approximately $1,413,000 of total unrecognized
compensation expense related to stock options is expected to be recognized by
the Company over a weighted average period of 4.21 years.

Prior to the adoption of SFAS 123R, the Company applied SFAS 123, as amended by
SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
which allowed companies to apply the existing accounting rules under APB 25 and
other Interpretations. In general, as the exercise price of the options granted
under these plans was equal to the market price of the underlying common stock
on the grant date, no stock-based employee compensation cost was recognized in
the Company's net income (loss). As required by SFAS 148 prior to the adoption
of SFAS 123R, the company provided pro forma net income (loss) per common share
disclosures for stock-based awards, as if the fair-value-based method defined in
SFAS 123 had been applied.

The following illustrates the effect on net loss after tax and net loss per
common share if the Company had applied the fair value recognition provisions of
SFAS 123 to stock- based compensation during the year ended December 31, 2005:

Net loss, as reported                                              $(2,114,482)

Deduct: stock based employee
  compensation expense included
  in reported net loss                                                      --

Add: Stock based compensation determined under
  fair value based method for all awards,
  net of related tax effects                                          (569,462)
                                                                   -----------

Pro forma net loss                                                 $(2,683,944)
                                                                   ===========

Basic and diluted loss
per share - as reported                                            $     (0.09)
                                                                   ===========

Basic and diluted loss
per share - pro forma                                              $     (0.11)
                                                                   ===========

The weighted average assumptions used for the year presented are as follows:

                                                                       2005
                                                                   -----------
Risk-free interest rate                                                   4.37%
Expected dividend yield                                                     --
Expected lives                                                         3 years
Expected volatility                                                        196%


                                      F-19

<PAGE>

In addition to the stock options to employees as described above, the Company
also granted common stock and warrants to certain employees and to directors.
These equity instruments vest immediately. A summary of such stock awards for
2006 is as follows:

                                                                 2006
                                                               --------
Common stock issued to employees as compensation               $210,498
Common stock issued for directors' fees                          33,000
Warrants issued to Members of the Board of Directors            124,838
                                                               --------
  Total                                                        $368,336
                                                               ========

NOTE 12: EQUITY TRANSACTIONS

            In addition to the equity transactions involving face2face
animation, Inc. (see Note 7), the acquisition of verification technology (see
Note 6), warrants issued with the Company's convertible debentures (see Note 8),
and stock based compensation to directors and employees (see Note 11), the
Company also issued 350,000 shares of its common stock to Redwood Consultants,
LLC in both 2006 and 2005 for investor relations fees 100,000 shares of its
common stock to its advisory board in 2006 and warrants for services rendered in
2005.

            As of December 31, 2006 the Company had the following warrants
outstanding and exercisable:

                                      Exercise
                           Amount      Price       Expiration Date
                         ----------   --------   ------------------

2004 debenture holders      600,000    $0.50      December 19, 2010
2005 debenture holders    1,875,000     0.32         April 21, 2010
2005 debenture holders    2,000,000     0.50      September 8, 2010
2005 debenture holders    2,100,000     0.50      December 23, 2010
2006 debenture holders    1,600,000     0.50           May 31, 2011
2006 debenture holders    1,000,000     0.50     September 30, 2011
2006 debenture holders    1,000,000     0.50      November 27, 2010
face2face                 1,000,000     1.00        August 29, 2010
Warrants issued
to directors                187,500      .75        January 1, 2011
                         ----------
  Total                  11,362,500
                         ==========

As of December 31, 2006, the Company had reserved shares of common stock for
issuance as follows:

Exercise of warrants held by debenture holders
  and face2face                                  11,175,000

Conversion of debentures                         10,575,000
                                                 ----------
                                                 21,750,000
                                                 ==========


                                      F-20

<PAGE>

      In accordance with Section 78.207 of the Nevada Revised Statutes, on
November 13, 2006, the Company's Board of Directors, believing it to be in the
best interests of the Company and its stockholders, approved an amendment of our
charter to increase our authorized common stock from 50,000,000 to 100,000,000
shares (the "Charter Amendment"), conditioned upon approval by a majority of the
holders of our common stock. In accordance with Section 78.320 of the Nevada
Revised Statutes, following the mailing of an Information Statement (filed with
the Commission on December 4, 2006) to the shareholders of record as of November
16, 2006, on November 30, 2006, the proposed Charter Amendment was approved by
stockholders holding 15,874,166 shares of Common Stock, or approximately 62% of
the issued and outstanding shares of the Company by written consent. The Charter
Amendment was effective on or about December 24, 2006.

            Included in the Company's total stock outstanding is 7,122,990
shares (consisting of 5,000,000 shares subscribed by face2face animation, Inc.
and 2,122,990 subscribed to by the former sole shareholder of Edentify and his
nominees) that have been subscribed for but which have not been issued due to
ministerial delays.

NOTE 13: INCOME TAXES

      Significant components of the Company's deferred tax assets and
liabilities are as follows:

                                              December 31,
                                        ------------------------
                                            2006         2005
                                        -----------   ----------
Deferred tax assets:
  Net operating loss carryforwards ..   $ 4,303,000   $  847,000
  Valuation allowance ...............    (4,303,000)    (847,000)
                                        -----------   ----------
Deferred tax assets, net ............   $       -0-          -0-
                                        ===========   ==========

      At December 31, 2006, the Company had net operating loss carry-forwards
for federal and state income tax purposes of $10,757,000 which expire through
2026. The potential future benefit of these losses have not been recognized by
the Company due to the uncertainty of their realization. When the future
utilization of some portion of the carry-forwards is determined not to be "more
likely than not to be realized," a valuation allowance is provided to reduce the
recorded tax benefits from such assets. For the year ended December 31, 2006,
the valuation allowance increased by $3,456,000.

NOTE 14: COMMITMENTS AND CONTINGENCIES

      The Company entered into an operating lease for office facilities that
expires over the next two years. The facilities were occupied on May 23, 2005,
and the lease expires on May 31, 2008. Future minimum rental payments required
under operating leases that have remaining lease terms in excess of one year as
of December 31, 2006 are as follows:

YEAR ENDING DECEMBER 31:
-------------------------
2007.....................     43,401
2008.....................     21,330
2009.....................      1,665
2010.....................      1,328
                            --------
TOTAL....................   $ 67,724
                            ========


                                      F-21

<PAGE>

Rent expense was $ 34,423 and $19,733 for the years ended December 31, 2006 and
2005, respectively.

NOTE 15: EMPLOYMENT AGREEMENTS

            Effective on April 29, 2005, we assumed the employment contract with
Terrence DeFranco, who was appointed by our Board as the Chief Executive Officer
and Chairman effective upon the closing of the Acquisition. The term of the
agreement is for a period of three years and is terminable for cause. In
connection with his employment, Mr. DeFranco was granted options to purchase a
total of 1,250,000 shares of our common stock, at exercise prices varying from
$0.75 to $5.00 per share vesting over a period of three years at a rate of
1/36th per month, with all options being fully vested in 36 months.

            On July 29, 2005, Edentify, Inc. entered into an employment
agreement with Thomas Harkins to be our Chief Operating Officer. Under the terms
of his employment agreement, Mr. Harkins has agreed to devote his full time
effort to Edentify and will not engage in any competitive work for a period of
two years. Edentify agrees to pay Mr. Harkins $12,500 per month plus any
increases or bonuses as determined by the Company. In addition to a salary, Mr.
Harkins will receive options to purchase a total of 1,250,000 shares of the
common stock of the Company at varying exercise prices from $0.75 to $5.00 per
share. The options vest at a rate of 1/36 of the amount granted per month, with
all options being fully vested in 36 months.

            On January 1, 2006, the Company entered into an employment agreement
to engage Kenneth Vennera as general counsel for the Company with the title of
Chief Legal Officer. The term of the agreement is for a period of three years
and is terminable for cause. In connection with his employment, Mr. Vennera was
issued stock and granted options to purchase a total of 1,000,000 shares of our
common stock, at exercise prices varying from $0.75 to $4.00 per share, vesting
over a period of two years at a rate of 1/24th per month, with all options being
fully vested in 24 months and is eligible for such benefits as are provided to
other executives of the Company. Mr. Vennera was also appointed by the Board of
Directors as Secretary of the Company by the Board of Directors.

NOTE 16: DEVELOPMENT (DATA IMPLEMENTATION) AND SERVICES AGREEMENTS

ChoicePoint

            The Company entered into a Services Agreement ("Services Agreement")
and Scope of Work ("SOW 1") with ChoicePoint Public Records, Inc. as of October
24, 2006. This Services Agreement provides for ChoicePoint to provide certain
services and for Edentify to perform certain duties as outlined in SOW 1 all in
connection with supporting our ongoing efforts to assist our customers in the
areas of detection and prevention of identification fraud. The Services
Agreement also provides that a fee will be paid to ChoicePoint as specified in a
separate SOW. The term of the Services Agreement begins as October 24, 2006 and
continues for a term of three years, renewable for successive one-year terms
unless the non-renewing party notifies the other in writing of such non-renewal
at least 90 days prior to the expiration of the respective term. Upon expiration
of the term, all licenses granted pursuant to the Agreement or any SOW will
terminate. The Services Agreement also provides for an indemnification by each
of the parties of the other party under conditions set forth in detail in the
Services Agreement. Except with respect to the indemnification obligations of
the parties, liability under the Services Agreement is limited to the amount
payable under the Services Agreement. This agreement also provides for
confidentiality with respect to the information and technology being exchanged
and developed. The Services Agreement further requires us to maintain general
liability insurance with coverage of no less than $1,000,000 per claim and
$2,000,000 aggregate.


                                      F-22

<PAGE>

            Pursuant to the first SOW ("SOW 1"), executed simultaneously with
the Services Agreement, ChoicePoint is to provide all hardware, operating
software (excluding certain assessment modules provided by Edentify) and data
center needs necessary for the development, implementation and maintenance of
servers that shall perform identification fraud detection services to our
customers. Edentify is to provide the assessment modules for processing to
develop a key that will allow for the detection of identification fraud. The
term of SOW 1 begins as of October 24, 2006 and continues for three (3) years,
renewable for successive one year terms unless the non-renewing party notifies
the other in writing of such non-renewal at least 90 days prior to the
expiration of the respective term. Edentify also grants to ChoicePoint a
revocable (to the extent that SOW 1 is terminable), world-wide,
non-transferable, royalty-free restricted license without the right to
sublicense to use the assessment modules and key generation modules solely for
the purpose of performing the services contemplated by SOW 1.

            In consideration for the development and implementation of the
Company's database server, assessment server(s), and required operating
infrastructure within ChoicePoint, and the initial run of the Company's key
generation and update service and identity assessment processing service, the
Company agreed to pay to ChoicePoint a $300,000 fee (the "Implementation Fee").
Such Implementation Fee is payable in two equal installments, with the first
payment delivered on the effective date of the agreement, and the second payment
due upon the acceptance or production use of the system by Edentify. The Company
paid the first payment due upon execution of the agreement. SOW 1 also requires
us to pay ChoicePoint a monthly service fee in the amount of $83,000 billed
monthly in advance and payable within 35 days of the invoice. There is also a
termination fee payable to ChoicePoint in the event that the Company terminates
the SOW 1 or Services Agreement at any time prior to 14 months when service fees
are payable, unless such termination is as a result of a change in ChoicePoint
policy or an uncured breach by ChoicePoint.

      The Company paid $150,000 of the $300,000 on October 24,2006. In
consideration for the ongoing services provided to the Company, including the
maintenance of the Company's database server and assessment server(s) and all
subsequent runs of the Company's key generation and update service and identity
assessment processing services, the Company agreed to pay to ChoicePoint fees
for 2007, 2008 and 2009, respectively.

Seisint

            The Company entered into a Master Services Agreement (the "Services
Agreement") with Seisint, Inc. ("Seisint") effective October 3, 2005. This
Services Agreement provides for Seisint to provide certain services and for
Edentify to perform certain duties as outlined in a separate Scope of Work
("SOW") all in connection with supporting our ongoing efforts to assist our
customers in the areas of detection and prevention of identification fraud. The
Master Services Agreement also provides that a fee will be paid to Seisint as
specified in a separate SOW. The term of the Master Services Agreement begins as
of the Effective Date and continues until December 31, 2008, renewable for
successive one-year terms unless the non-renewing party notifies the other in
writing of such non-renewal at least 90 days prior to the expiration of the
respective term. Upon expiration of the term, all licenses granted pursuant to
the Agreement or any SOW will terminate. The Master Services Agreement also
provides for an indemnification by each of the parties of the other party under
conditions set forth in detail in the Master Services Agreement. Except with
respect to the indemnification obligations of the parties, liability under the
Master Services Agreement is limited to the amount payable under the Master
Services Agreement. This agreement also provides for confidentiality with
respect to the information and technology being exchanged and developed. The
Master Services Agreement further requires us to maintain general liability
insurance with coverage of no less than $1,000,000 per claim and $2,000,000
aggregate.


                                      F-23

<PAGE>

            In consideration for the development and implementation of the
Company's database server, assessment server(s), and required operating
infrastructure within Seisint, and the initial run of the Company's key
generation and update service and identity assessment processing service, the
Company agreed to pay to Seisint a fee (the "Implementation Fee"). Such
Implementation Fee is payable in two equal installments, with the first payment
delivered on the effective date of the agreement, and the second payment
delivered on or before 30 days from the date of the December 31, 2005 invoice
from Seisint. Pursuant to the agreement, the Company paid the first payment due
upon execution of the agreement and has also paid the second payment that was
due December 31, 2005. The Company recorded the entire fee as a prepaid expense
as of December 31, 2005 and will amortize these costs over the three year
contract term as cost of sales. In consideration for the ongoing services
provided to the Company, including the maintenance of the Company's database
server and assessment server(s) and all subsequent runs of the Company's key
generation and update service and identity assessment processing services, the
Company agreed to pay to Seisint fees for 2006, 2007 and 2008, respectively.

            Pursuant to the first SOW ("SOW 1"), executed simultaneously with
the Master Services Agreement, Seisint is to provide all hardware, operating
software (excluding certain assessment modules provided by Edentify) and data
center needs necessary for the development, implementation and maintenance of
servers that shall perform identification fraud detection services to our
customers. Edentify is to provide the assessment modules for processing to
develop a key that will allow for the detection of identification fraud. The
term of SOW 1 begins as of the Effective Date and continues until December 31,
2008, renewable for successive one year terms unless the non-renewing party
notifies the other in writing of such non-renewal at least 90 days prior to the
expiration of the respective term. Edentify also grants to Seisint a revocable
(to the extent that SOW 1 is terminable), world-wide, non-transferable,
royalty-free restricted license without the right to sublicense to use the
assessment modules and key generation modules solely for the purpose of
performing the services contemplated by SOW 1. SOW 1 also sets forth a schedule
of fees payable by Edentify to Seisint, increasing annually for each of the
three years of the term and a revenue sharing formula, whereby Seisint receives
a percentage of the gross revenue derived from the sale by Edentify of the
product developed from the services performed under SOW 1 based on a stepped
rate over the three year initial term of the agreement. SOW 1 also provides that
the parties will cooperate on product development and shall negotiate in good
faith on rights to resell the products jointly developed. Each party retains
their respective rights in the intellectual property originated by such party
and used in conjunction with the performance of the services contemplated by the
agreement.

            Pursuant to the second SOW ("SOW 2"), also executed simultaneously
with the Master Services Agreement, Edentify is to be compensated a percentage
of receipts from sales of Seisint services for which Edentify originated the
customer lead and was a procuring cause. The term of SOW 2 begins as of the
Effective Date and continues until December 31, 2008, renewable for successive
one year terms unless the non-renewing party notifies the other in writing of
such non-renewal at least 90 days prior to the expiration of the respective
term.

            As a result of mutual disagreements between the parties, on November
1, 2006, we amended our Master Services Agreement with Seisint, Inc. (the
"Master Services Amendment"). Pursuant to the Master Services Amendment, we paid
Seisint $300,000 on November 2, 2006 with an additional payment of $400,000 on
November 30, 2006. These amounts are in lieu of the payments previously required
under the Master Services Agreement, representing a reduction in potential
obligations to Seisint (as reflected in a reduction of our cost of sales) in the
amount of approximately $225,000. In addition, we are required to pay Seisint
$25,000 per month for each of November, December and January for continued
services during each of those months. The Amendment supersedes and replaces the
payment obligations previously agreed to by the parties in the original Master
Services Agreement. After January 31, 2007, upon meeting all of our obligations
under the Amendment, the Master Services Agreement and SOW with Seisint will
terminate, unless the parties are able to negotiate a new agreement. As a result
of this Amendment, the Company recognized an impairment loss of $555,555 on the
carrying value of the data implementation asset for the year ended December 31,
2006.


                                      F-24

<PAGE>

NOTE 17: LICENSE AGREEMENTS

            On December 9, 2005, the Company entered into a Scoring Services
Agreement ("SS Agreement") with a consumer and credit products company
("Client") whereby the Company's client will provide the Company with identities
from Client's proprietary subscriber database for the purpose of having the
Company utilize proprietary databases, processes and information developed by
the Company and/or obtained from third parties to produce an "Identity Score".
The Company will provide the "Identity Score" using its proprietary scoring
methodology, which measures the level of suspicious identity manipulation
activity and potential fraud associated with each identity record provided by
the Client.

            For grant of the license, the Client paid the Company the sum of
$30,000 payable as follows: $20,000 upon execution of the SS Agreement and
$10,000 upon the completion of the 60 day acceptance period which represents the
time period allotted to provide a secure interface between the two parties. In
addition, the Client will pay a minimum of $2,500 per month for the Scoring
service for a term of three years. Upon execution of the SS Agreement, the
Company recorded the entire $30,000 as deferred revenue. The up-front fee of
$30,000 ($20,000 of which was non-refundable upon payment and $10,000 that
became non-refundable upon acceptance) is being recognized into income ratably
over the term of the SS Agreement.

NOTE 18: MARKETING AGREEMENT

            On April 7, 2006 (the "Effective Date"), the Company entered into a
Marketing Agreement (the "Marketing Agreement") with Trilegiant Corporation (an
Affinion group member) whereby Trilegiant agrees to market, on a non-exclusive
basis, our products to members of its membership programs (including, but not
limited to, PrivacyGuard, PC Safety, ID Secure, Identity Sweep, Hotline and any
program(s) established by Trilegiant on or subsequent to the Effective Date).
The term of the agreement is for five (5) years, renewable for successive twelve
month terms thereafter. Trilegiant is obligated to pay the Company a license
fee, in part payable within thirty (30) days of the Effective Date; and an equal
amount payable on each anniversary date of the Effective Date during the Term.
In addition, Trilegiant is required to pay the Company, on the fifteenth (15th)
business day of each calendar month during the term, monthly fees in respect of
active Members of Trilegiant Edentify Programs as of the immediately preceding
calendar month. The Marketing Agreement provides for a mutual non-compete and
non-solicitation provisions that prevents either the Company or Trilegiant from
selling directly to certain specified customers and competitors of the
respective parties. The Company is required to meet certain service level
standards described in more detail in the Marketing Agreement. The Marketing
Agreement also contains a provision protecting the confidentiality of
proprietary information of the parties. Customer service for Trilegiant members
is to be provided through Trilegiant's customer service department. The
Marketing Agreement also provides for customary indemnification provisions and
protection of intellectual property rights. Liability for either party under the
Marketing Agreement, related to breaches, performance, non-performance, acts or
omissions is limited to a monetary cap.

NOTE 19: SUBSEQUENT EVENTS

            In January-February 2007, the Company issued $815,000 principal
amount 6% senior convertible debentures due on February 20, 2009, and warrants
to receive an aggregate of 1,630,000 shares of common stock of the Company in a
private placement resulted in aggregate proceeds to the Company of $815,000.
Interest is due quarterly at a rate of 6% per annum on the outstanding
principal. The debenture is convertible into shares of common stock at the
option of the holder equal to the principal amount converted divided by $0.50.
The warrants are to acquire an aggregate of 1,630,000 shares of common stock at
a price of $0.50 per share at any time commencing on February 20, 2007 through
February 20, 2012.


                                      F-25

<PAGE>

            On January 31, 2007, the Company acquired a service business,
Zelcom, LLC, an Illinois limited liability company ("Zelcom") operated out of
Schaumberg, Illinois. Zelcom's staff consists of two principals, Robert Zelikson
and Greg Fasana (the "Zelcom Principals"), as well as another senior employee
who performs analysis for clients. The focus of Zelcom's business will be to
provide marketing and risk management analytics to small and mid-tier financial
companies. Zelcom is a start-up business founded in April, 2006 by its two
principals. The business has not generated any significant revenue to date. In
consideration for the transfer of all of the membership interests in Zelcom by
the Zelcom Principals, the Company agreed to issue 750,000 shares of its common
stock. The consideration is issuable as follows: 356,250 shares to each of the
Zelcom Principals and 37,500 to the above-mentioned senior employee of Zelcom.
The fair market value of the 375,000 shares on the date of issuance was $0.62
and therefore the value in the aggregate was $232,500. Of the amount issuable,
one-half was issuable immediately upon Closing and the remainder is contingent
upon and issuable only if Zelcom achieves at least break-even on a cash flow
basis for a full 12-month period as evidenced by its audited financials for such
period. The shares issued at Closing are forfeitable if, prior to the end of the
second anniversary of the closing date, any of the parties to which they were
issued, (a) voluntarily terminates his employment with Zelcom or (b) is
terminated for cause. The Company agreed to make capital contributions to Zelcom
during the eighteen month period following closing. With the exception of the
first contribution, such capital contributions are conditioned, however, upon
Zelcom not having exceeded its budgeted expenditures by more than ten percent
(10%) and having substantially achieved its budgeted revenue projections during
the relevant period. The Zelcom Principals are entitled to receive a 25% profits
interest in the ongoing operations of Zelcom. In addition, as part of the
compensation package to the Zelcom Principals, each was given an employment
agreement with Zelcom and warrants to acquire 500,000 shares of the common stock
of Edentify at an exercise price of $1.00 per share. The warrants vest equally
at a rate of 1/36 per month over a three-year period and are forfeitable,
similarly to the stock described above, in the event that prior to the end of
the second anniversary of the closing date, any of the parties to which they
were issued, (a) voluntarily terminates his employment with Zelcom or (b) is
terminated for cause.

            In January, 2007, the Company issued a total of 477,384 shares of
its common stock as payment in kind of accrued interest due through December 31,
2006 (issuing, pro rata to the investors holding outstanding debentures with
interest due through such date, such debentures, that number of shares equal to
the amount of interest due divided by the closing stock price as of that date)
and from October 1, 2006 through December 31, 2006 (issuing, pro rata to the
investors holding outstanding debentures with interest due through such date,
such debentures, that number of shares equal to the amount of interest due
divided by the closing stock price as of December 31, 2006).

            During the first quarter 2007, debenture holders Whalehaven Capital
Fund Limited converted $20,000 into 40,000 shares of common stock and Gamma
Opportunity Capital Partners converted $25,000 into 166,667 shares of common
stock.

      On or about January 11, 2007 the Company issued 4,438 shares of its common
stock to each of its directors (17,382 shares in the aggregate) pursuant to the
Board Compensation plan.

      On or about April 2, 2007 the Company issued 5,712 shares of its common
stock to each of its directors (22,848 shares in the aggregate) pursuant to the
Board Compensation plan.

      On April 3, 2007, one of the Company's investors, Falcon International
Trading LLC, partially converted its debentures and was issued 50,000 shares of
the Company's common stock.


                                      F-26