Summary of WHERIFY WIRELESS INC

Item 6. Management's Discussion and Analysis or Plan of Operation.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report. The discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in "Risk Factors" and elsewhere in this report.

Wherify's auditor included a going concern paragraph in its audit report on Wherify's financial statements for each of last two fiscal years. Wherify's auditor has reported that Wherify has suffered net operating losses in the last two fiscal years and has a significant capital deficit that raises substantial doubt about its ability to continue as a going concern.

Introduction

On July 21, 2005, Wherify California, Inc. a California corporation (formerly known as Wherify Wireless, Inc.)("Wherify California") was merged with a special purpose subsidiary of Wherify, a Delaware corporation (formerly known as IQ Biometrix, Inc.). As a result of the merger, Wherify California became a wholly owned subsidiary of Wherify. Accordingly, our business operations include the business operations of both Wherify California and Wherify, although as discussed below, the former business operations of Wherify, consisting primarily the sale of FACES software and related services to law enforcement agencies and the security industry is not a significant part of the on-going business operations. The FACES software assets were sold in February 2008. Following is a summary of topics covered in this "Management Discussion and Analysis of Financial Conditions and Results of Operation".

A. Section 1 entitled "Merger" provides a general discussion regarding the merger.

B. Section 2 entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" provides a discussion and analysis of financial condition and results of operation of Wherify for the fiscal years ending June 30, 2008 and 2007.

C. Section 3 entitled "General" includes a discussion of certain accounting policies and other matters of general applicability.

1. Merger

As noted above, on July 21, 2005, Wherify California was merged with a transitory special purpose subsidiary of Wherify, a Delaware corporation, and as a result Wherify California became a wholly owned subsidiary of Wherify. Upon the completion of the merger, shareholders of Wherify California received 4.8021 shares of Wherify common stock for each share of Wherify California common or preferred stock, and Wherify California stock options were assumed by Wherify and converted into options to acquire a number of shares of Wherify common stock equal to the number of shares of Wherify California common stock underlying each such option multiplied by the exchange ratio of 4.8021. As a result, Wherify issued or reserved for the future issuance an aggregate of approximately 46 million shares of its common stock in consideration for all the outstanding shares, options and warrants issued by Wherify California, which represented approximately 78.8 % of the total number of shares of Wherify common stock calculated on a fully-diluted basis. Also subsequent to the merger, Wherify changed its name from "IQ Biometrix, Inc." to "Wherify Wireless, Inc." and shortly thereafter Wherify California changed its name from "Wherify Wireless, Inc." to "Wherify California, Inc."

The merger was treated as a reverse merger acquisition, pursuant to which Wherify California was treated as the acquirer of Wherify for financial reporting purposes. Consequently, following the consummation of the merger, the historical financial statements of Wherify California serve as the principal historical financial statements of the combined company.

Under applicable accounting rules, the purchase price of the acquisition (which is determined on the percentage of the combined company held by the pre-merger Wherify stockholders and the stock price of the combined company) is allocated to identifiable tangible and intangible assets, and then the excess of the purchase price over the amounts allocated to those assets is allocated to goodwill. During the quarter December 31, 2005, Wherify, with the assistance of a third party, completed the purchase price allocation and concluded that the value of the identifiable assets was $2.2 million and the total amount of goodwill was $67.5 million. Following the finalization of the purchase price allocation, Wherify concluded that the implied fair value of goodwill was $3.2 million resulting in an indicated impairment of $64.3 million, which was recorded by Wherify in the quarter ended September 30, 2005. As of June 30, 2006, we concluded that annual test of goodwill for impairment. As a result we determined that the carrying value of the goodwill at June 30, 2006 had become impaired and the remaining balance was written-off.

Our principal business activity consists primarily of the development and sale of wireless location products and services. The former business of Wherify, consisting primarily of the sale of security software and services, including facial composite software, to law enforcement agencies and the security industry, is not a significant part of the ongoing business operations of the combined company. The FACES software assets were sold in February 2008. Accordingly, historical financial information relating to the former business of Wherify is expected to have an only minimal significance to the future business of the combined company.

2. Management's Discussion and Analysis of Financial Condition and Results of Operations

A. General

Wherify Wireless, Inc. ("Wherify" or the "Company") is a pioneering developer of patented wireless location products and services for family safety and business communications. Our portfolio of intellectual property includes our proprietary integration of the US Government's Global Positioning System (GPS) and wireless communication technologies; our patented back-end location service; the Wherifone™ GPS locator phone which provides real-time location information and lets families with pre-teens, seniors, or those with special medical needs, stay connected and in contact with each other. Our name, Wherify Wireless, reflects our mission and objective: verify the location of loved ones or possessions of value through wireless technology.

General and administrative expense includes general administrative, manufacturing, research and development, sales and marketing expenses. General administrative expense consists primarily of salaries and related expenses for executive, finance, accounting information technology, facilities and human resources personnel. Research and development expense consists primarily of salaries and related personnel expenses related to the design, development, testing and enhancement of products. Currently we are focusing attention on the development of our Location Based Service Software (Springboard). Sales and marketing expenses consists primarily of salaries, commissions and related expenses for personnel engaged in marketing, sales and customer support, as well as costs associated with promotional activities and related travel expenses.

B. Liquidity and Capital Resources

Wherify has incurred net operating losses from operations of approximately$10.7 million for the fiscal year ended June 30, 2008 and $17.1 million for fiscal year ended June 30, 2007. Net cash used for operating activities during the fiscal years ended June 30, 2008 and 2007 was $3.5 million and $10.0 million, respectively. We have accumulated deficit of $166.9 million as of June 30, 2008. These conditions, among others, raise questions about our ability to fund our cash requirements from operations in the future or to continue operations as a going-concern.

As of June 30, 2008, Wherify had cash and cash equivalents of approximately $50,000, net receivables in the amount of approximately $30,000, and other non-current assets for approximately $210,000. Wherify's net cash provided by investing activities was mainly from the sale of the FACES software assets for $150,000.

We have financed our operations through private offerings of our common stock, preferred stock, and debt borrowings.

On March 15, 2006, we filed a registration statement with the Securities and Exchange Commission (File No. 333-132461) to register 16.8 million shares of our common stock to be sold by us in a direct offering, on July 18, 2006 we were notified that this direct offering was effective, and on November 2, 2006 we announced that the direct offering was closed and that approximately 16.6 million shares had been sold raising approximately $4.2 million.

On February 22, 2007, we sold a $1.2 million 10% Senior Convertible Promissory Note which was converted into 12,000,000 shares in June 2008. In connection with the issuance of the Note we issued warrants to purchase 6,000,000 shares of common stock at $0.10 per share.

On April 11, 2007 and April 18, 2007 we sold an aggregate of 7,500 shares of Series A Convertible Preferred Stock convertible into 60,000,000 shares of common stock. In connection with this transaction we granted warrants to purchase 6,000,000 shares of common stock at a minimum exercise price of $0.16; but not greater than $0.20 at the conversion which, as of October 14, 2008, has not occurred. As a result of these financings Wherify received net proceeds of approximately $5.2 million.

On August 1, 2007 and August 31, 2007 we sold an aggregate of 1,129 shares of Series B Convertible Adjustable Preferred Stock which is convertible into 7,056,250 shares of common stock. In connection with this transaction we granted warrants to purchase 2,469,688 shares of common stock at a minimum exercise price of $0.16; but not greater than $0.20 at the conversion which, as of October 14, 2008, has not occurred. As a result of these financings Wherify received net proceeds of approximately $857,000.

On May 16, 2008, we borrowed $43,750 under a promissory note. This note bears interest at an annual rate of 12% and is convertible into common stock at $0.01 per share. Wherify also issued 437,500 five year warrants to the note holder exercisable at a price of $0.01.

On June 6, 2008 Wherify sold approximately $550,000 principal amount of its Senior Secured Convertible Promissory Bridge Notes ("Bridge Notes") of the anticipated amount of $800,000 principal amount to accredited investors. After the placement agent commission of $55,000 and other placement expenses, Wherify received net cash proceeds of approximately $440,000. The Bridge Notes bear interest at an annual rate of 12.5%, commencing on the date of issuance and paid monthly. If the Bridge Notes are not paid by August 31, 2008, or if the Company extends the maturity date to September 30, 2008, the interest will be increased to an annual rate of 17.5%. As of June 30, 2008 the principal amount outstanding was approximately $570,000 and approximately $5,000 in interest.

We intend to pursue various sources of public and private financing to provide us greater flexibility and certainty with respect to our financing needs.

Net cash used in operating activities was $3.5 million, mainly from changes in operating assets caused by: increases in accounts payable and accrued charges totaling $0.6 million, increase in prepaid and other assets totaling $0.4 million, decreased in inventory value of $2.2 million; offset by operating losses of $10.7 million, decreased deferred revenue of $0.1 million,; offset by depreciation charge by $3.5 million and bad debt expense of $0.6 million.

In order for the Company to continue operations and to properly execute the business model it has on hand, the Company has to raise money very quickly in order to cover its expenses and its obligations to creditors.

Wherify currently does not have any credit facility available to it. Wherify has financed its operations to date primarily through the issuance of shares of common and preferred stock and convertible debentures. There is going concern in auditors' reports for the fiscal year ended June 30, 2007 and 2006. We continue in the process of locating financing sources to meet our financial needs and to provide a greater flexibility and certainty to our financing needs. Adequate funds may not be available on terms acceptable to us. If additional funds are raised through the issuance equity securities, we will need to amend our certificate of incorporation and increase the number of authorized shares of common stock. If funding is insufficient at any time in the future, we may be unable to continue the development of our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could have material adverse effect on our financial position, results of operations and cash flows, or we may be unable to continue operations.

We do not have material capital leases or material commitments for capital expenditures but we have anticipated payments to note holders and contractual arrangements made to vendors and third parties for payments of services that are substantial thus impacting our cash position severely.

We expect operating losses and negative operating cash flows to continue for at least the next-nine to twelve months on the assumption that we continue our business plan to successfully launch our Location Based Service Software (Springboard) in fiscal 2009. During this time leading up to new product launches we expect our operating costs to increase because of expected new product launch expenses not previously incurred that are related to new product brand development, marketing and other promotional activities; targeted increases in personnel to support our critical new development launch activities; the expansion of our billing and collections infrastructure and customer support services concurrent with our growth in new product sales, strategic relationship development software developers ,and the working capital requirements needed to initially launch our Location Based Services Software (Springboard).

On August 12, 2008, Wherify Wireless and certain of its subsidiaries, Wherify Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of Wherify ("Merger Sub"), LY Holdings, LLC, a Kentucky corporation ("LY Holdings"), Lightyear Network Solutions, LLC, a Kentucky limited liability company ("Lightyear") and certain of LY Holdings' affiliates entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Merger Sub will merge with and into LY Holdings (the "Merger"), with LY Holdings continuing as the surviving company. LY Holdings will become a subsidiary of Wherify following the Merger. Sherman Henderson, President and Chief Executive Officer of Lightyear, will serve as Chief Executive Officer of the combined entity, which will be headquartered in Louisville, Kentucky.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, Wherify will be obligated to issue to the holders of outstanding membership interests of LY Holdings a number of shares of a newly created series of preferred stock (the "Merger Shares") pursuant to an exchange ratio that is intended to result in LY Holdings members and LY Holdings noteholders holding 51% of Wherify's fully diluted outstanding common stock at the effective time of the Merger on an as converted basis, in exchange for all outstanding membership interests of LY Holdings and restructuring of existing Lightyear debt.

The Shares are being issued in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and Rule 506 of Regulation D promulgated under the Act and are subject to restrictions on resale thereunder. Each Merger Share will be convertible into common stock in amount to be determined which is intended to result in LY Holdings members and LY Holdings noteholders holding 51% of Wherify's common stock on a fully diluted basis after the effective time of the Merger. Holders of the Merger Shares will vote with the holders of Wherify's common stock as one class, except as otherwise required by Delaware law, and will receive one vote per share on an as converted to common stock basis on all matters except for the election of members of the Board of Directors. Holders of Merger Shares will have 1.3 votes per share on an as converted to common stock basis on the election of members to the Board of Directors.

The initial Board of Directors of the combined company at the effective time of the Merger will consist of seven persons - five directors chosen by LY Holdings (one of which will be approved by Wherify), one director chosen by Wherify, and one director chosen by GPS Associates, LLC.

The Merger is subject to a number of closing conditions, including, but not limited to, (i) obtaining a minimum of $15 million in new equity capital, (ii) the restructuring of Wherify's existing debt, (iii) the conversion of Wherify's Series A and Series B preferred stock, (iv) the elimination of any conversion features currently underlying the Yorkville Associates debt, and (v) receipt of applicable regulatory approvals.

Under the agreement, $2.5 million of the new equity capital is anticipated to be used to restructure approximately $18 million of Wherify's current unsecured liabilities. An additional $2.5 million of the new capital is anticipated to be used to restructure Wherify's secured debt with Yorkville Associates. Upon completion of the merger and financing, Wherify will retain approximately $2.5 million of secured debt with Yorkville, which shall no longer be convertible into shares of Wherify, in addition to approximately $17.5 million of existing long-term Lightyear debt. Wherify is anticipated to net approximately $6.5 million in working capital from the financing, from which approximately $1.6 million in termination fees from Lightyear debt will be paid.

The Merger Agreement contains customary representations and warranties by Wherify, Merger Sub, LY Holdings and Lightyear. The Merger Agreement also contains customary covenants and agreements, including with respect to the operation of the business of each of Wherify and Lightyear and their respective subsidiaries between signing and closing, restrictions on solicitation of proposals with respect to alternative transactions, governmental filings and approvals, public disclosures and similar matters.

The Merger Agreement contains certain termination rights for Wherify and LY Holdings, and further provides that if the Merger Agreement is terminated or the parties fail to close the transactions set forth in the Merger Agreement, except where the Merger Agreement is terminated or the transactions do not close because of a material breach of the Merger Agreement by LY Holdings, Wherify will be required to pay LY Holdings a termination fee of approximately $100,000.

As of June 30, 2008, Wherify had cash of approximately $50,000. As of October 3, 2008, we had cash of approximately $42,000. We believe that our cash balance will not be adequate to continue our current business plan into November 2008.

We require additional capital in order to successfully operate our business. Significant additional funding will be required throughout 2008 and 2009 to continue operations. There is no guarantee that we will be able to obtain future funding, the merger will be completed or if we do obtain future funds they will be adequate to continue our operations.

Results of Operations

Year Ended June 30, 2008 Compared to Year Ended June 30, 2007

Net revenues for the year ended June 30, 2008 were $1.4 million and were primarily generated by Wherifone and related products of $1.3 million and $0.1 million for FACES. Net revenues for year ended June 30, 2007 was $0.9 million and were primarily generated by the sales of Wherifone and related products.

Operating expenses for the year ended June 30, 2008 were $8.1 million versus $14.5 million for the year ended June 30, 2007. The decrease in expenses was primarily due to the downsizing and refocusing of our business model from a hardware company to a location based services software provider.

Engineering and development expenses were $0.8 million for June 30, 2007 versus $1.4 million for year ended June 30, 2007. The decrease in expenses in the year ended 2008 was primarily a result of costs associated with the product development of Wherifone™ in the year ended 2007.

General and administrative expenses for the year ended June 30, 2008 was $6.0 million compared to $9.6 million June 30, 2007. The decrease in expenses were caused by the following:

a) Decreased promotion and marketing expenses by approximately $1.1 million;

b) Decreased sales and marketing salaries by approximately $1.2 million;

c) Decreased consulting and legal fees by approximately $0.7 million;

d) Year 2007 write-off of capitalized legal and audit costs related to the SEDA financing of $0.6 million;

e) Decreased customer service and stock option expense by approximately $0.6 million, and offset by;

f) Increased bad debt expense by approximately $0.6 million

Amortization and depreciation decreased by $1.7 million due to the amortization of deferred financing costs related to the debt financing.

We evaluated the application of EITF 00-19-2 for all its financial instruments and determined that certain warrants to purchase common stock issued by Wherify associated with the secured convertible debentures in March 2006 no longer qualified to be classified as derivative liabilities. No derivative gain or loss was recorded in the fiscal year ended June 30, 2008.

Interest and other expense increased by approximately $1.0 million from the prior year period amount primarily due to costs and interest charges related to secured debentures of $5.0 million issued in March 2006 and for the Notes Payable issued in February and June 2006 for an aggregate total of $2.0 million. Interest expense accrued on the $2.0 million loan to-date is $482,877.

3. General

A. Critical Accounting Policies

Long-Lived Intangible Assets

The Company accounts for long-lived assets under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which requires the Company to review for impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related asset's carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based on discounted cash flows or appraised value, depending on the nature of the asset.

Long-lived intangible assets consist of acquired customer lists and acquired software and software intellectual property, and development of new software products and enhancements to existing software products. Until technological feasibility is established, costs associated with software development, including costs associated with the acquisition of intellectual property relating to software development is expensed as incurred. After technological feasibility is established computer software costs that are then incurred are capitalized in accordance with the provisions of SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed". Amortization of these capitalized costs is provided using the greater of the ratio of revenues generated in the period over total future revenues of the product, or the straight-line method over the estimated market life of the related products, generally three years, commencing when the product becomes generally available to customers.

Revenue Recognition

Wherify adopted revenue recognition policies to comply with the guidance of Staff Accounting Bulletin ("SAB") No. 104, Revenue Recognition, SAB Topic 13, Revenue Recognition, FASB's Emerging Issues Task Force ("EITF") Issue -00-21, Revenue Arrangements With Multiple Deliverables, and AICPA Statement of Position ("SOP") 97-2, arrangement exists, the delivery and acceptance of the equipment has occurred or services have been rendered, the price is fixed or determinable, and the collectability of payment is reasonably assured. The application of this guidance requires management to exercise judgment in evaluating these factors in light of the terms and conditions of its customer contracts and other existing facts and circumstances to determine appropriate revenue recognition. Application of 97-2 requires determining whether a software arrangement includes multiple elements, and if so, whether vendor -specific objective evidence (VSOE) of fair value exists for those elements. Change to the elements in a software arrangement, the ability to identify VSOE for those elements, the fair value of the respective elements, and changes in a product's estimated life cycle, could materially impact the amount of earned and unearned revenue, Judgment is also required to assess whether future releases of certain software represent new products or upgrades and enhancements to existing products. Applications of EITF 00-21 requires determining whether a revenue arrangements includes multiple revenue-generating activities, such as product sale and services, and if so whether allocation of the arrangement's consideration is required to more than one unit of accounting.

Wherify has two types of revenue: hardware revenue and subscription revenue and consists of shipped customer orders and completed services. Hardware revenue is recognized at the later of shipment date or upon satisfying contractual requirements or obligations under the sales contract, whichever is later. Subscription revenue is recognized at completion of performance. Prior to September 2006, the Company recognized revenues primarily from the sale of FACES software and subscription. Starting in September 2006 recognized revenues are primarily from the sale of wireless location devices and services. Revenues are also offset with a reserve for any price refunds and consumer rebates consistent with the EITF Issue 01-09. Accounting for Consideration Given by a Vendor to a Customer, as appropriate.

Hardware sales currently consist principally of revenues from the sale of GPS-enabled wireless location devices, primarily Wherify's handsets plus accessories to new subscribers and to agents and other third-party distributors. The revenue and related expenses associated with the sale of wireless handsets and accessories through our indirect sales channels are recognized when the products from the sales channels are recognized when the products are delivered and accepted by the agent or third party distributor, as this is considered to be a separate earnings process from the sale of wireless services and the probability of collection is likely. Shipping and handling costs for wireless handsets sold to agents and to other third-party distributors are classified a s costs of equipment sales.

Subscription revenues are earned by providing to Wherify's wireless GPS-enable location services network (activation revenue) and for usage of its wireless telecommunications system enhanced GPS-enabled locates (airtime revenue). Activation revenue from postpaid subscribers is billed either in advance or arrears and recognized ratably over the service period. Airtime revenue, including locates, call time, roaming revenue and long-distance revenue, is billed in arrears based on minutes of use and is recognized when the service is . . .