**UNITED      STATES **

**SECURITIES      AND EXCHANGE COMMISSION **

**FORM      10-KSB**

**x      ANNUAL REPORT UNDER      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**o      TRANSITION REPORT UNDER      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT **
**OF      1934 **

*Commission      File Number: 000-50329 *

**TRACEGUARD      TECHNOLOGIES, INC.**

| Nevada                                                                      | 98-0370398                                           |
|-----------------------------------------------------------------------------|------------------------------------------------------|
| State                or other jurisdiction of incorporation or organization | I.R.S.                Employer Identification Number |

----

**FORM      10-KSB**

**FOR      THE FISCAL YEAR ENDED DECEMBER 31, 2005**

**INDEX      **

|                                                                                                                                                                             | Page   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                             |   |
| STATEMENT                REGARDING FORWARD-LOOKING STATEMENTS                                                                                                                    | 3      |
| PART                I                                                                                                                                                            | 4      |
| ITEM                1. DESCRIPTION OF BUSINESS                                                                                                                                   | 4      |
| ITEM                2. DESCRIPTION OF PROPERTY                                                                                                                                   | 12     |
| ITEM                3. LEGAL PROCEEDINGS                                                                                                                                         | 12     |
| ITEM                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS                                                                                                        | 12     |
| PART                II                                                                                                                                                           | 13     |
| ITEM                5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS                AND                SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES | 13     |
| ITEM                6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF                OPERATION                                                                                  | 14     |
| ITEM                7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                                                               | 18     |
| ITEM                8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND                FINANCIAL DISCLOSURE                                                       | 40     |
| ITEM                8A. CONTROLS AND PROCEDURES                                                                                                                                  | 40     |
| ITEM                8B. OTHER INFORMATION                                                                                                                                        | 40     |
| PART                III                                                                                                                                                          | 41     |
| ITEM                9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT                            | 41     |
| ITEM                10. EXECUTIVE COMPENSATION                                                                                                                                   | 43     |
| ITEM                11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                AND                RELATED STOCKHOLDER MATTERS                             | 47     |
| EQUITY                COMPENSATION PLAN INFORMATION                                                                                                                              | 48     |
| ITEM                12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                                                           | 48     |
| ITEM                13. EXHIBITS                                                                                                                                                 | 50     |
| ITEM                14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                                                   | 51     |

----

----

**PART      I**

**Organizational      History**

**Market      Overview and Operating Environment**

----

**Technology      and Product Suite**

**CompactSafe:**

**CarrySaf**
**e**
**:      **

----

**HoldSafe:**

**CargoSafe:      **

**Suppliers      and Production Process**

**Distribution**

|   | a) | Distribution                through a licensing agreement with a strategic partner that is a                leader in                the explosives detection/HLS field.  This partner would have a                marketing, training and maintenance capability in place and would                already                have conducted sales and procurement with relevant customers in the                US and                European government agencies. The advantage of this strategy is lower                setting up costs of the marketing arm; however, the potential revenue                for                this method could be lower since it is based on royalties instead                of                direct sales. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | TraceGuard                would set up its own apparatus for marketing, training and maintenance                purposes (either directly or by subcontractors) for the explosives                detection/HLS market. This will involve a presence in the US, Europe                and                other select target countries, recruitment of sales people, setting                up                training protocols, and utilizing maintenance contracts for the various                equipment that will be procured by the various government agencies.                 While this model potentially offers the company higher revenues,                the                initial investment costs are considerably                higher. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Intellectual      Property **

|   | x | PCT/IL03/00041,                covering the usage of a conformal flexible enclosure coupled with                mechanical agitation to enhance the efficiency of collecting traces                of                substances, therefore increasing the probability of detection of                illicit                substances when used with suitable chemical analyzers. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | x | PCT/IL2004/000011,                covering additional aspects of trace collection using the conformal                flexible enclosure taking advantage of additional enhancements for                increasing the efficiency of trace collection, in view of detection                using                suitable chemical analyzers. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Competition      **

**Government      Regulation**

**Research      and Development**

**Employees      **

**Risk      Factors**

*Our      Company Has A History Of Losses And We Expect To Incur Losses For The      Foreseeable Future.*

----

*TraceGuard      is a Development Stage Company with a Non-Commercialized Technology and Little      Experience in the Operation of its Business. There is a Risk that TraceGuard's      Business May Fail. *

|  | · | substantial                  delays and expenses related to testing, development, and production                  of                  TraceGuard's products, |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | unanticipated                  difficulties relating to the production and marketing of a new                  product in                  the marketplace, |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | competition                  from larger and more established companies |
|--|--------|-------------------------------------------------------------------------|

|  | · | lack                  of market acceptance of TraceGuard's new products and technologies. |
|--|--------|-------------------------------------------------------------------------------------------|

*TraceGuard      Licenses its Technology From a Third Party and Such Technology May Not be      Adequately Protected From Unauthorized Use by Others or may infringe on Others’Proprietary Technologies, Which Could Increase TraceGuard's Litigation Costs      and      Delay the Introduction of its Products to the Marketplace. *

----

*TraceGuard      May Experience Difficulties in the Introduction of Its Products that Could      Result in TraceGuard Having to Incur Significant Unexpected Expenses or Delay      the Launch of New Products. *

*TraceGuard      May Need to Raise Capital to Fund its Operations, and its Failure to Obtain      Funding When Needed may Force TraceGuard to Delay, Reduce or Eliminate its      Product Development Efforts. *

*TraceGuard      is Dependent Upon Key Personnel. *

*There      is a Risk that Products Developed by Competitors Will Reduce TraceGuard's      Profits or Force It Out of Business.*

*TraceGuard      May Be Subject to Government Approvals and Regulations that Reduce its Ability      to Commercialize its Products, Increase TraceGuard's Costs of Operations and      Decrease its Ability To Generate Income. *

----

*TraceGuard      May Have Difficulties Managing Growth Which Could Lead to Higher Losses.*

*TraceGuard's      Principal Research and Development Facility is Located in Israel, Which Has      Historically Experienced Military and Political Unrest. *

*Because      All of TraceGuard's Officers and Directors are Located in Non-U.S.      Jurisdictions, You May Have No Effective Recourse Against the Management for      Misconduct and May Not Be Able to Enforce Judgment and Civil Liabilities Against      TraceGuard's Officers, Directors, Experts and Agents. *

*Your      Percentage Ownership Will Be Diluted By Options and other stock-based      compensation instruments, TraceGuard Intends To Grant To Management, Employees,      Directors And Consultants. *

*Shares      that are eligible for sale in the future may affect the market price of our      common stock*
* *

----

*Compliance      with Israeli securities law*

----

**PART      II**

|   |   |   |                         | **2005**  |   |
|--------|--------|--------|------------------------------|-----------|--------|
|   |   |   |                         | **High*** |   | **Low*** |   |
|   |   |   |                         |      |   |   |   |
| 2005   |   |   | 4th                  Quarter |      |   | 4.59 |   |   | 0.70 |   |
| 2006   |   |   | 1st                  Quarter |      |   | 2.15 |   |   | 1.38 |   |
|   |   |   | 2nd                  Quarter |      |   | 1.70 |   |   | 1.05 |   |
|   |   |   | 3rd                  Quarter |      |   | 1.54 |   |   | 0.71 |   |
|   |   |   | 4th                  Quarter |      |   | 1.07 |   |   | 0.40 |   |

**Dividends**

**Recent      Sales of Unregistered Securities. **

----

** **

**General**

**Cash      Requirements**

| Development                and Engineering   |   |   | 1,995 |   |
|----------------------------------------------|--------|--------|-------|--------|
| Marketing                & Business Dev. |   |   | 436   |   |
| General                and Administrative    |   |   | 1,138 |   |
| Property                & Equipment      |   |   | 122   |   |
| Total                                        |   |   | 3,691 |   |

**Product      Research and Development**

**Lease      agreements & investments**

----

----

**Employees**

** **

**Use      of Estimates**

**Fair      Value of Financial Instruments**

----

**Results      of Operations**

*Year      Ended December 31, 2006*

**Liquidity      and Capital Resources**

| Wages                  and consulting services      |   |   | 174 |   |
|-----------------------------------------------------|--------|--------|-----|--------|
| Engineering                  and R&D activities |   |   | 54  |   |
| Marketing                  and G&A              |   |   | 77  |   |
| Investment                  in equipment            |   |   | 41  |   |
| Total                                               |   |   | 346 |   |

**Off      Balance Sheet Arrangements**

----

|                                                                                             |   | **Page** |
|--------------------------------------------------------------------------------------------------|--------|----------|
| **FINANCIAL                STATEMENTS**** ****INDEX                - IN U.S. DOLLARS ($):** |   |          |
| REPORTS                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                          |   | 19-20    |
| CONSOLIDATED                BALANCE SHEETS                                                       |   | 21       |
| CONSOLIDATED                STATEMENTS OF OPERATIONS                                             |   | 22       |
| CONSOLIDATED                STATEMENTS OF CASH FLOWS                                             |   | 23-24    |
| CONSOLIDATED                STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY                         |   |     |
| (CAPITAL                DEFICIENCY)                                                              |   | 25-26    |
| NOTES                TO CONSOLIDATED FINANCIAL STATEMENTS                                        |   | 27-39    |

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**TraceGuard      Technologies Inc.**

** **

*Tel-Aviv,      Israel*

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

|                                                                                                                                                           |   | **December                31,** |       | **December                31,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|------------|---------------------------------|--------|
|                                                                                                                                                           |   | **2006**                        |       | **2005**                        |   |
|                                                                                                                                                           |   |                            |       |                            |   |
| **Assets**                                                                                                                                                     |   |                            |       |                            |   |
|                                                                                                                                                           |   |                            |       |                            |   |
| **Current                Assets**                                                                                                                              |   |                            |       |                            |   |
| Cash                and cash equivalents                                                                                                                       |   |                            | 1,056,939  |                            |   | 895,693 |   |
| Restricted                deposits                                                                                                                             |   |                            | 21,264     |                            |   | - |   |
| Other                receivables                                                                                                                               |   |                            | 72,111     |                            |   | 24,080 |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **Total                current assets**                                                                                                                        |   |                            | 1,150,314  |                            |   | 919,773 |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **Long                Term Prepaid Expenses**                                                                                                                  |   |                            | 22,153     |                            |   | - |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **Restricted                deposit**                                                                                                                          |   |                            | -          |                            |   | 15,355 |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **Property                and equipment, net**                                                                                                                 |   |                            | 534,577    |                            |   | 61,261 |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **License                rights**                                                                                                                              |   |                            | 455,000    |                            |   | 100,000 |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **Total                Assets**                                                                                                                                |   |                            | 2,162,044  |                            |   | 1,096,389 |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **Liabilities                and Shareholders’ Equity**                                                                                                  |   |                            |       |                            |   |   |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **Current                Liabilities**                                                                                                                         |   |                            |       |                            |   |   |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| Accounts                payable- trade and other                                                                                                               |   |                            | 180,542    |                            |   | 154,053 |   |
| Accrued                Expenses and Other Current Liabilities                                                                                                  |   |                            | 501,148    |                            |   | 32,154 |   |
| **Total                current liabilities**                                                                                                                   |   |                            | 681,690    |                            |   | 186,207 |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **Commitments                and contingencies**                                                                                                               |   |                            |       |                            |   |   |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **Total                liabilities**                                                                                                                           |   |                            | 681,690    |                            |   | 186,207 |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **Shareholders’                Equity**                                                                                                                  |   |                            |       |                            |   |   |   |
| Share                capital - common shares par value $0.001;                                                                                                 |   |                            |            |                            |   |  |   |
| Authorized                - December 31, 2006 and December 31, 2005 - 150,000,000                                                                              |   |                            |       |                            |   |   |   |
| Issued                and outstanding - December 31, 2006 and December 31, 2005 - 29,669,819                and                22,542,859 shares, respectively |   |                            | 29,670     |                            |   | 22,543 |   |
| Additional                paid-in capital                                                                                                                      |   |                            | 5,672,277  |                            |   | 485,539 |   |
| Receipt                on account of shares to be allotted                                                                                                     |   |                            | 221,435    |                            |   | 686,900 |   |
| Warrants                                                                                                                                                       |   |                            | 1,971,826  |                            |   | 162,805 |   |
| Deficit                accumulated during the development stage                                                                                                |   |                            | (6,414,854 | )                               |   | (447,605 | ) |
| **Total                shareholders equity**                                                                                                                   |   |                            | 1,480,354  |                            |   | 910,182 |   |
|                                                                                                                                                           |   |                            |       |                            |   |   |   |
| **Total                liabilities and shareholders equity**                                                                                                   |   |                            | 2,162,044  |                            |   | 1,096,389 |   |

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

|                                                                                          |   |  **Year                Ended****December                31,** |       | **Nine                months ended December 31,** |   | **Cumulative                from March 20,2002(**) to December 31,** |   |   | **TraceTrack****Year                Ended****December                31,** |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|------------|---------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------|--------|
|                                                                                          |   | **2006**                                                           |       | **2005(*)**                                       |   | **2006**                                                             |   |   | **2005**                                                                   |   |
|                                                                                          |   |                                                               |       |                                              |   |                                                                 |   |   |                                                                       |   |
|                                                                                          |   |                                                               |       |                                              |   |                                                                 |   |   |                                                                       |   |
| Research                and development expenses                                              |   |                                                               | 2,393,745  |                                              |   | 30,540                                                               |   |   | 2,424,285                                                                  |   |   |   | 125,630 |   |
|                                                                                          |   |                                                               |       |                                              |   |                                                                 |   |   |                                                                       |   |   |   |   |   |
| General                and administrative expenses                                            |   |                                                               | 3,576,095  |                                              |   | 325,993                                                              |   |   | 3,991,733                                                                  |   |   |   | 31,627 |   |
|                                                                                          |   |                                                               |       |                                              |   |                                                                 |   |   |                                                                       |   |   |   |   |   |
| **Operating                loss**                                                             |   |                                                               | (5,969,840 | )                                                 |   | (356,533                                                             | )      |   | (6,416,018                                                                 | )      |   |   | (157,257 | ) |
| Financing                expenses                                                             |   |                                                               | (38,461    | )                                                 |   | (2,477                                                               | )      |   | (40,938                                                                    | )      |   |   |   |   |
| Financing                Income                                                               |   |                                                               | 41,052     |                                              |   | 1,050                                                                |   |   | 42,102                                                                     |   |   |   | 50 |   |
| Other                Income                                                                   |   |                                                               | -          |                                              |   | -                                                                    |   |   | -                                                                          |   |   |   | 100,000 |   |
| **Net                Loss for the period**                                                    |   |                                                               | (5,967,249 | )                                                 |   | (357,960                                                             | )      |   | (6,414,854                                                                 | )      |   |   | (57,207 | ) |
|                                                                                          |   |                                                               |       |                                              |   |                                                                 |   |   |                                                                       |   |   |   |   |   |
| **Net                Loss per share ("EPS") - basic and diluted**                             |   |                                                               | (0.25      | )                                                 |   | (0.02                                                                | )      |   | (0.36                                                                      | )      |   |   | (5.72 | ) |
|                                                                                          |   |                                                               |       |                                              |   |                                                                 |   |   |                                                                       |   |   |   |   |   |
| Weighted                average number of shares used in computation of EPS basic and diluted |   |                                                               | 24,150,407 |                                              |   | 19,037,705                                                           |   |   | 18,006,461                                                                 |   |   |   | 10,000 |   |

----

**TRACEGUARD      TECHNOLOGIES INC. **

** **

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

|                                                                                                                               |   | **Year                Ended December 31,** |       | **Nine                Months Ended December 31,** |   | **Cumulative                from March 20,2002(**) to December 31,** |   |   | **TraceTrack****Year                Ended December 31** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|------------|---------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------|---------------------------------------------------------|--------|
|                                                                                                                               |   | **2006**                                   |       | **2005(*)**                                       |   | **2006**                                                             |   |   | **2005**                                                |   |
| **Cash                Flow from Operating Activities :**                                                                           |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |
|                                                                                                                               |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |
| Net                Loss for the period                                                                                             |   |                                       | (5,967,249 | )                                                 |   | (357,960                                                             | )      |   | (6,414,854                                              | )      |   |   | (57,207 | ) |
| Adjustments                to reconcile net loss for the period to net cash                used in operating activities: |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
|                                                                                                                               |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
| Income                and expenses not involving cash flow:                                                                        |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
| Depreciation                and Amortization                                                                                       |   |                                       | 57,290     |                                              |   | 442                                                                  |   |   | 57,732                                                  |   |   |   | 2,610 |   |
| Non-Cash                Stock Based Compensation expenses to service provider and                employees                         |   |                                       | 1,874,168  |                                              |   | -                                                                    |   |   | 1,874,168                                               |   |   |   | - |   |
|                                                                                                                               |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
| Changes                in operating assets and liabilities:                                                                   |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
| Decrease                (increase) in receivables                                                                                  |   |                                       | (70,184    | )                                                 |   | (24,080                                                              | )      |   | (94,264                                                 | )      |   |   | 4,835 |   |
| Increase                (decrease) in accounts payable and other current                liabilities                                |   |                                       | 495,483    |                                              |   | 175,493                                                              |   |   | 689,309                                                 |   |   |   | (12,455 | ) |
| Net                cash used in operating activities                                                                          |   |                                       | (3,610,492 | )                                                 |   | (206,105                                                             | )      |   | (3,887,909                                              | )      |   |   | (62,217 | ) |
|                                                                                                                               |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
| **Cash                Flows from Investing Activities **                                                                      |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
| Restricted                deposit                                                                                                  |   |                                       | (5,909     | )                                                 |   | (15,355                                                              | )      |   | (21,264                                                 | )      |   |   | - |   |
| Advance                on account of license rights                                                                                |   |                                       | -          |                                              |   | (100,000                                                             | )      |   | (100,000                                                | )      |   |   | - |   |
| Purchase                of property and equipment                                                                                  |   |                                       | (530,606   | )                                                 |   | (61,703                                                              | )      |   | (592,309                                                | )      |   |   | - |   |
| Net                cash used in investing activities                                                                          |   |                                       | (536,515   | )                                                 |   | (177,058                                                             | )      |   | (713,573                                                | )      |   |   | - |   |
|                                                                                                                               |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
| **Cash                Flows from Financing Activities  **                                                                     |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
|                                                                                                                               |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
| Issuance                of share capital and warrants, net of issuance                expenses                                |   |                                       | 4,086,818  |                                              |   | 582,697                                                              |   |   | 4,720,015                                               |   |   |   | - |   |
| Receipts                on accounts of shares to be allotted                                                                       |   |                                       | 221,435    |                                              |   | 686,900                                                              |   |   | 908,335                                                 |   |   |   | - |   |
| Receipt                on account of notes from shareholder                                                                        |   |                                       | -          |                                              |   | -                                                                    |   |   | 30,071                                                  |   |   |   | - |   |
| Increase                of short term bank credit,  net                                                                       |   |                                       | -          |                                              |   | -                                                                    |   |   | -                                                       |   |   |   | (66 | ) |
| Receipt                of long term loans from related parties                                                                     |   |                                       | -          |                                              |   | -                                                                    |   |   | -                                                       |   |   |   | 73,172 |   |
|                                                                                                                               |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
| Net                cash provided by financing activities                                                                      |   |                                       | 4,308,253  |                                              |   | 1,269,597                                                            |   |   | 5,658,421                                               |   |   |   | 73,106 |   |
|                                                                                                                               |   |                                       |       |                                              |   |                                                                 |   |   |                                                    |   |   |   |   |   |
| **Increase                in cash and cash equivalents **                                                                     |   |                                       | 161,246    |                                              |   | 886,434                                                              |   |   | 1,056,939                                               |   |   |   | 10,889 |   |
| **Cash                and cash equivalents at the beginning of the                period **                                   |   |                                       | 895,693    |                                              |   | 9,259                                                                |   |   | -                                                       |   |   |   | - |   |
| **Cash                and cash equivalents at the end of the                period **                                         |   |                                       | 1,056,939  |                                              |   | 895,693                                                              |   |   | 1,056,939                                               |   |   |   | 10,889 |   |

----

**TRACEGUARD      TECHNOLOGIES INC. **

** **

**CONSOLIDATED      STATEMENTS OF CASH FLOWS (Continued)**

|                                                                                                          |   | **Year                Ended December 31** |    | **Nine                Months Ended December 31,** |   | **Cumulative                from March 20,2002(**) to December 31,** |   | **TraceTrack****Year                Ended December 31** |    |
|---------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|---------------------------------------------------|--------|----------------------------------------------------------------------|--------|---------------------------------------------------------|---------|
|                                                                                                          |   | **2006**                                  |    | **2005(*)**                                       |   | **2006**                                                             |   | **2005**                                                |    |
| **Supplementary                information on financing activities not involving cash                flows:** |   |                                      |    |                                              |   |                                                                 |   |                                                    |    |
| Shareholders                Contribution                                                                      |   |                                      | 355,000 |                                              |   | -                                                                    |   |                                                    | 355,000 |   |   | - |   |
| Shareholders                waiver on notes payable.                                                          |   |                                      | -       |                                              |   | 37,690                                                               |   |                                                    | 37,690  |   |   | - |   |

----

**TRACEGUARD      TECHNOLOGIES INC. **

** **

**CONSOLIDATED      STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)**

|                                                                                                                                                        |   | **Number                  of****Shares*** |           | **Common                  Stock****Amount** |   | **Additional****Paid                  In****Capital** |   | **Receipts****on                  Account of Shares To be Allotted** |        | **Warrants ** |   | **Deficit                  Accumulated During The Development Stage** |   | **Total** |        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|----------------|---------------------------------------------|--------|-------------------------------------------------------|--------|----------------------------------------------------------------------|-------------|--------------------|--------|-----------------------------------------------------------------------|--------|-----------|-------------|
| Issuance                  of common stock to founders on inception                                                                                          |   |                                      | 15,000,000     |                                        |   | 2,500                                                 |   |                                                                 | -           |               |   | -                                                                     |   |      | -           |   |   | - |   |   | 2,500 |   |
| Issuance                  of common stock                                                                                                                   |   |                                      | 1,440,000      |                                        |   | 240                                                   |   |                                                                 | 47,760      |               |   | -                                                                     |   |      | -           |   |   | - |   |   | 48,000 |   |
| Net                  loss for the period                                                                                                                    |   |                                      | -              |                                        |   | -                                                     |   |                                                                 | -           |               |   | -                                                                     |   |      | -           |   |   | (76,263 | ) |   | (76,263 | ) |
|                                                                                                                                                        |   |                                      |           |                                        |   |                                                  |   |                                                                 |        |               |   |                                                                  |   |      |        |   |   |   |   |   |   |   |
| **Balance                  March 31, 2004**                                                                                                                 |   |                                      | 16,440,000     |                                        |   | 2,740                                                 |   |                                                                 | 47,760      |               |   | -                                                                     |   |      | -           |   |   | (76,263 | ) |   | (25,763 | ) |
|                                                                                                                                                        |   |                                      |           |                                        |   |                                                  |   |                                                                 |        |               |   |                                                                  |   |      |        |   |   |   |   |   |   |   |
| Net                  loss for the year                                                                                                                      |   |                                      | -              |                                        |   | -                                                     |   |                                                                 | -           |               |   | -                                                                     |   |      | -           |   |   | (13,382 | ) |   | (13,382 | ) |
| **Balance                  March 31, 2005**                                                                                                                 |   |                                      | 16,440,000     |                                        |   | 2,740                                                 |   |                                                                 | 47,760      |               |   | -                                                                     |   |      | -           |   |   | (89,645 | ) |   | (39,145 | ) |
| Issuance                  of common stock (net of issuance expense) on August 24,                  2005                                                     |   |                                      | 5,360,004      |                                        |   | 893                                                   |   |                                                                 | 72,407      |               |   | -                                                                     |   |      | -           |   |   | - |   |   | 73,300 |   |
| Issuance                  of dividend shares on September 12, 2005                                                                                          |   |                                      |           |                                        |   | 18,167                                                |   |                                                                 | (18,167     | )                  |   | -                                                                     |   |      | -           |   |   | - |   |   | - |   |
| Issuance                  of common stock and warrants (net of issuance expense) on November                  6, 2005                  and December 5, 2005 |   |                                      | 642,855        |                                        |   | 643                                                   |   |                                                                 | 275,949     |               |   | -                                                                     |   |      | 162,805     |   |   | - |   |   | 439,397 |   |
| Receipt                  on accounts of shares to be allotted                                                                                               |   |                                      | -              |                                        |   | -                                                     |   |                                                                 | -           |               |   | 686,900                                                               |   |      | -           |   |   | - |   |   | 686,900 |   |
| Issuance                  of shares to service providers (net of issuance expense) on August                  24,                  2005.                    |   |                                      | 100,000        |                                        |   | 100                                                   |   |                                                                 | 69,900      |               |   | -                                                                     |   |      | -           |   |   | - |   |   | 70,000 |   |
| Capital                  surplus on account of shareholders waiver on notes payable                                                                         |   |                                      |           |                                        |   |                                                  |   |                                                                 | 37,690      |               |   |                                                                  |   |      |        |   |   |   |   |   | 37,690 |   |
| Net                  loss for the period                                                                                                                    |   |                                      | -              |                                        |   | -                                                     |   |                                                                 | -           |               |   | -                                                                     |   |      | -           |   |   | (357,960 | ) |   | (357,960 | ) |
| **Balance                  December 31,2005**                                                                                                               |   |                                      | **22,542,859** |                                        |   | **22,543**                                            |   |                                                                 | **485,539** |               |   | **686,900**                                                           |   |      | **162,805** |   |   | **(447,605** | **)** |   | **910,182** |   |

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**CONDENSED      INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREOLDERS' EQUITY      (Continued)**

|                                                                            |   |  **Number                of Shares*** |           |  **Common                Stock****Amount** |   |  **Additional                Paid In****Capital** |   | **Receipts****on                Account of Shares To be Allotted** |          |   **Warrants** |   | **Deficit                Accumulated During The Development Stage** |   |   **Total** |          |
|---------------------------------------------------------------------------------|--------|--------------------------------------------|----------------|-------------------------------------------------|--------|--------------------------------------------------------|--------|--------------------------------------------------------------------|---------------|--------------------------|--------|---------------------------------------------------------------------|--------|-----------------------|---------------|
|                                                                            |   |                                       |           |                                            |   |                                                   |   |                                                               |          |                     |   |                                                                |   |                  |          |
| **Balance                December 31, 2005**                                    |   |                                       | **22,542,859** |                                            |   | **22,543**                                             |   |                                                               | **485,539**   |                     |   | **686,900**                                                         |   |                  | **162,805**   |   |   | **(447,605** | **)** |   | **910,182** |   |
|                                                                            |   |                                       |           |                                            |   |                                                   |   |                                                               |          |                     |   |                                                                |   |                  |          |   |   |   |   |   |   |   |
| Issuance                of Common Stock and Warrants (net of Issuance Expenses) |   |                                       | 6,994,347      |                                            |   | 6,994                                                  |   |                                                               | 2,957,703     |                     |   | (686,900                                                            | )      |                  | 1,809,021     |   |   | - |   |   | 4,086,818 |   |
| Receipt                on accounts of shares to be allotted                     |   |                                       | -              |                                            |   | -                                                      |   |                                                               | -             |                     |   | 221,435                                                             |   |                  | -             |   |   | - |   |   | 221,435 |   |
| Issuance                of shares (net of issuance expenses)                    |   |                                       | 132,613        |                                            |   | 133                                                    |   |                                                               | 528,618       |                     |   | -                                                                   |   |                  | -             |   |   | - |   |   | 528,751 |   |
| Issuance                of RSU to Employees                                     |   |                                       | -              |                                            |   | -                                                      |   |                                                               | 528,753       |                     |   | -                                                                   |   |                  | -             |   |   | - |   |   | 528,753 |   |
| Issuance                of Options to Service Providers                         |   |                                       | -              |                                            |   | -                                                      |   |                                                               | 816,664       |                     |   | -                                                                   |   |                  | -             |   |   | - |   |   | 816,664 |   |
| Shareholders                Contribution                                        |   |                                       | -              |                                            |   | -                                                      |   |                                                               | 355,000       |                     |   | -                                                                   |   |                  | -             |   |   | - |   |   | 355,000 |   |
| Net                Loss For The Period                                          |   |                                       | -              |                                            |   | -                                                      |   |                                                               | -             |                     |   | -                                                                   |   |                  | -             |   |   | (5,967,249 | ) |   | (5,967,249 | ) |
|                                                                            |   |                                       |           |                                            |   |                                                   |   |                                                               |          |                     |   |                                                                |   |                  |          |   |   |   |   |   |   |   |
| **Balance                December 31, 2006**                                    |   |                                       | **29,669,819** |                                            |   | **29,670**                                             |   |                                                               | **5,672,277** |                     |   | **221,435**                                                         |   |                  | **1,971,826** |   |   | **(6,414,854** | **)** |   | **1,480,354** |   |

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**NOTES        TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE      1 - GENERAL:**

| **a.  ** | TraceGuard                Technologies, Inc. (until September 12, 2005: IBHAS Technologies                Inc.)                ("the Company") was incorporated in Nevada on March 20, 2002. Initially                the Company's plan was to develop and market an internet based computer                software program known as IBHAS software. The IBHAS computer software                program was intended to automate the process of submission of Internet                web                page information in multiple languages to major internet search engines.                Changes in the market place forced the Company to seek other technologies,                specifically homeland security applications. The Company is currently                developing innovative security technologies and solutions for explosives                detectioning. The Company’s systems are designed to improve the screening                and detection of explosives, narcotics, biological contaminants and                other                hazardous materials. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **b.  ** | On                February 2, 2006, the Board of Directors of the Company approved                a change                in the Company’s fiscal year to December 31 from March 31. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **c.  ** | On                June 20, 2006, the Company announced that it has entered into a                non-binding letter of intent to acquire Laser Detect Systems Ltd.,                a                developer of long distance, remote sensing, laser based trace detection                solutions, from ITL Optronics. The consummation of the acquisition                is                conditional upon the performance of a due diligence review to the                satisfactory of the parties, and will be subject to the negotiation                of a                definitive agreement. On February 8, 2007, the Company received a                termination letter from ITL Optronics., terminating the aforementioned                letter of intent. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **d.  ** | In                June, 2006 the Company entered into an agreement relating to a 12-month                joint development program with Rapiscan Systems ("Rapiscan"), a subsidiary                of OSI Systems in order to develop TraceScan (using TraceGuard's                Carry                Safe product), an advanced combined bulk/trace detection system for                interdiction of explosive devices and weapons Upon development, TraceScan                will be marketed exclusively by Rapiscan primarily to the U.S. Government                and also through its global direct sales and distributor network.                CarrySafe is designed for carry-on luggage and is currently at an                advanced                stage of development. The commencement of the development program                is                subject to prior funding by U.S government which has not yet occurred.                In                addition, The TraceScan product has not yet been developed and there                can                be no assurance that the development will be successfully completed,                in                which event the Company’s venture with Rapiscan will not be successful. In                addition, the product to be developed has not yet been sold to the                intended government and other users and no assurance can be given                that the                product will find a successful                market. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      2 - SIGNIFICANT ACCOUNTING POLICES:**

|  | a. | Basis                of presentation: |
|--|----|---------------------------------------|

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**TRACEGUARD        TECHNOLOGIES INC. **

** **

**NOTE      2 - SIGNIFICANT ACCOUNTING POLICES (Continued)**

|  | b. | Use                of estimates: |
|--|----|----------------------------------|

|   | c. | Share-based                payment: |
|--------|----|-------------------------------------|

|  | d. | Functional                currency: |
|--|----|-------------------------------------|

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**TRACEGUARD        TECHNOLOGIES INC. **

** **

**NOTE      2 - SIGNIFICANT ACCOUNTING POLICES (Continued)**

|  | e. | Cash                equivalents: |
|--|----|----------------------------------|

|  | f. | Property                and equipment: |
|--|----|----------------------------------------|

|  | g. | Income                taxes: |
|--|----|------------------------------|

|  | h. | Research                and development: |
|--|----|------------------------------------------|

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**TRACEGUARD        TECHNOLOGIES INC. **

** **

**NOTE      2 - SIGNIFICANT ACCOUNTING POLICES (Continued)**

|  | i. | Impairment                of long lived assets: |
|--|----|-------------------------------------------------|

|  | j. | Concentration                of credit risk: |
|--|----|----------------------------------------------|

|  | k. | Fair                value of financial instruments: |
|--|----|-----------------------------------------------------|

|  | l. | Loss                per share “EPS”: |
|--|----|--------------------------------------------------|

| Outstanding                December 31, 2006: |   |   |       |
|-----------------------------------------------|--------|--------|------------|
| Warrants                                      |   |   | 6,999,907  |   |
| Options                                       |   |   | 1,377,973  |   |
| Performance                Options            |   |   | 2,340,822  |   |
| RSU                                           |   |   | 503,364    |   |
| Total                                         |   |   | 11,222,066 |   |

|  | m. | Comprehensive                income (loss): |
|--|----|---------------------------------------------|

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**TRACEGUARD        TECHNOLOGIES INC. **

** **

**NOTE      2 - SIGNIFICANT ACCOUNTING POLICES (Continued)**

|  | n. | Newly                adopted and recently issued accounting                pronouncements |
|--|----|-------------------------------------------------------------------------------------------|

**FASB      Interpretation No. 48 - Accounting for Uncertainty in Income Taxes - an      Interpretation of FASB Statement No. 109**

**SFAS      No. 157 - Fair Value Measurements**

**Staff      Accounting Bulletin No. 108 - Considering the Effects of Prior Year      Misstatements when Quantifying Misstatements in Current Year Financial      Statements**

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**TRACEGUARD      TECHNOLOGIES INC. **

** **

**NOTE      3 - PROPERTY AND EQUIPMENT, NET**

|                                              |   | December                31, 2006 |    | December                31, 2005 |   |
|---------------------------------------------------|--------|----------------------------------|---------|----------------------------------|--------|
| Cost:                                             |   |                        |    |                             |   |
| Computers                and peripheral equipment |   | $                                | 97,341  |                             | $      | 10,994 |   |
| Office                furniture                   |   |                             | 70,057  |                             |   | 9,275 |   |
| Development                Equipment              |   |                             | 232,853 |                             |   | - |   |
| Leasehold                improvement              |   |                             | 167,788 |                             |   | 41,434 |   |
| Other                                             |   |                             | 24,270  |                             |   | - |   |
|                                              |   |                             | 592,309 |                             |   | 61,703 |   |
|                                              |   |                             |    |                             |   |   |   |
| Less                - Accumulated depreciation    |   |                             | 57,732  |                             |   | 442 |   |
|                                              |   |                             |    |                             |   |   |   |
| Depreciated                cost                   |   |                             | 534,577 |                             |   | 61,261 |   |

**NOTE      4 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES**

|                                     |   | December                31, 2006 |    | December                31, 2005 |   |
|------------------------------------------|--------|----------------------------------|---------|----------------------------------|--------|
| Accrued                Expenses          |   |                             | 361,555 |                             |   | - |   |
| Employees                                |   |                             | 39,101  |                             |   | 17,577 |   |
| Employees                Social Benefits |   |                             | 66,119  |                             |   | 2,150 |   |
| IRS                and Social Security   |   |                             | 34,373  |                             |   | 12,427 |   |
| Total                                    |   |                             | 501,148 |                             |   | 32,154 |   |

**NOTE      5 - COMMITMENTS AND CONTINGENT LIABILITIES**

|  | a. | Lease: |
|--|----|--------|

|   | 1) | The                  Subsidiary leases office space in Israel and New York under an                  operating                  lease at a monthly rent of $6,350 which expire in November 2007.                  In                  connection with this lease agreements two bank guarantees for $15,355                  and                  $ 4,037, respectively, issued to the premises landlord. The Subsidiary                  secured such guarantee by 2 restricted deposits in the same                  amount. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2) | The                  Company paid office space rent in the amount of $ 91,370 for the                  year                  ended December 31, 2006 and $14,500 for the nine month ended December                  31,                  2005. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 3) | Future                  minimum lease commitments under non-cancelable operating lease                  as of                  December 31, 2006, were as                  $67,100. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | b. | In                  consideration for the license granted to the Company (see note                  6)                  Tracetrack will receive royalty payments of 3% of net sales until                  the                  earlier of: five years from the first commercial sale of a product,                  or at                  the time of the aggregate total royalty payment equal $2,500,000. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | c. | The                  Company entered into several agreements with consultants and brokers                  outside the U.S. in the form of a “Finder Fee Agreement”. The Company is                  committed to certain cash and shares payment of the Company, proportional                  to the amount raised by the consultant or broker, in accordance                  with the                  terms of the Finder Fee                  Agreements. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TRACEGUARD        TECHNOLOGIES INC. **

** **

**NOTE      5 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued)**

|  | d. | In                  2006 the Company entered into agreement with a certain placement                  agent in                  the U.S. The Company is committed to a cash payment of 7% of the                  amount                  raised by this placement agent, and issuance of warrants to purchase                  7% of                  the amount of shares issued.. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      6 - INCOME TAXES**

|     |   | **Year                  Ended December 31, 2006** |      | **Nine                  Months Ended December 31, 2005** |   |
|----------|--------|---------------------------------------------------|-----------|----------------------------------------------------------|--------|
| Domestic |   | $                                                 | 1,811,188 |                                                     | $      | 194,444 |   |
| Foreign  |   | $                                                 | 4,156,061 |                                                     | $      | 163,516 |   |
|     |   | $                                                 | 5,967,249 |                                                     | $      | 357,960 |   |

|                                            |   | **Year                Ended December 31, 2006** |     | **Nine                Months Ended December 31, 2005** |   |
|-------------------------------------------------|--------|-------------------------------------------------|----------|--------------------------------------------------------|--------|
| Deferred                income tax assets:      |   |                                            |     |                                                   |   |   |   |
| Net                operating loss carry forward |   | $                                               | 963,625  |                                                   | $      | 122,513 |   |
| Employees                benefits               |   | $                                               | 11,951   |                                                   | $      | 667 |   |
| Gross                deferred tax assets        |   | $                                               | 975,576  |                                                   | $      | 123,179 |   |
| Less                valuation allowance         |   | $                                               | (975,576 | )                                                      | $      | (123,179 | ) |
| Net                deferred tax assets          |   | $                                               | —  |                                                   | $      | — |   |

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**NOTE      7 - LICENSE RIGHTS**

|  | **a.** | On                  February 15, 2006, the Company's fully owned Subsidiary, TraceGuard                  Technologies Ltd (the "Subsidiary") entered into a License Agreement                  (the                  “Agreement”) with TraceTrack Technology Ltd ("TraceTrack"), an Israeli                  based company, wholly owned by Dr Fredy Ornath, who also owns,                  as of                  December 31, 2006, approximately 35% percent of the of the Company's                  common stock. Pursuant                  to the Agreement, the Subsidiary, under certain terms and conditions                  as                  set forth within the Agreement, acquired an exclusive, worldwide,                  perpetual license to the patents and related know-how owned by                  TraceTrack,                  which involves technology being developed to be used for the collection                  of                  explosive traces. In consideration for the license granted to the                  Subsidiary, TraceTrack will receive royalty payments of 3% of net                  sales                  until the earlier of: five years from the first commercial sale                  of a                  product, or at the time that the aggregate total royalty payment                  equal                  $2,500,000. This is in addition to a previous payment of $100,000                  made as                  a down payment for the license and is as license rights. As a result                  of                  the agreement, the Company is considered the successor entity of                  TraceTrack**.** |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | **b.** | On                  December 11, 2006, the Company entered into an amendment of the                  aforementioned Agreement. The amendment eliminated the right of                  TraceTrack                  to terminate the license if certain development milestones were                  not                  achieved by the Company. Pursuant to the aforementioned amendment                  the                  value of the License Agreement was re-evaluated by the management                  of the                  Company, with assistance of independent consultant, as $455,000.                  The                  increase in value in the amount of $355,000 was accounted for as                  Shareholders contribution. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      8 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES**

|  | a. | Dr.                  Fredy Ornath is the holder of 10,629,990 shares of common stock                  of the                  Company and the holder of 99.8% shares of common stock M.S. Materials                  Ltd.                  (“M.S.”)., which owns                  Tracetrack. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | b. | On                  February 15, 2006 the Subsidiary entered into a consulting agreement                  with                  M.S. Materials Ltd. (“M.S.”) for a term of thirty six months. The services                  to be provided to the Subsidiary by M.S. shall be provided solely                  by Dr.                  Ornath, who will be engaged as the Chief Scientist of the Subsidiary.                  This                  agreement was amended on July 6, 2006. In consideration for Dr.                  Ornath                  services the Subsidiary will pay a monthly fee of $12,000 to M.S.                  In                  addition, the Company will grant M.S. options to purchase shares                  of common                  stock (par value $0.001) as follows: |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 1)   | Options                to purchase of 1,080,000 shares at an exercise price of $0.70, to                be                vested over a three year period commencing February 15,                2006. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2)   | M.S.                shall receive additional options for the purchase of 1,200,000 shares                of                common stock at an exercise price of $1.00 upon the receipt of an                approval                of the Israeli Security Agency or the US Transportation Security                Administration to a Company’s product. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD      TECHNOLOGIES INC. **

** **

**NOTE      8 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES      (Continued)**

| 3)   | M.S.                shall receive additional options for the purchase of 1,200,000 shares                of                common stock at an exercise price of $1.50 upon the receipt of a                purchase                order for equipment in an aggregate amount of $1,000,000 during one                calendar year or entering into a strategic                agreement. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4)   | M.S.                shall receive additional options for the purchase of 1,500,000 shares                of                common stock at an exercise price of $1.75 upon the Company's achieving                a                gross profit of $2,000,000 according to the audited financial statements                of the Company . |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      9 - MATERIAL AGREEMENTS**

|  | **a.** | Upon                  the receipt of the written approval of a Security Organization                  for the                  fulfillment of the Security Demands by the CarrySafe and for the                  operational use of the CarrySafe (as defined within the agreement)                  -                  Company will grant Dr. Ganani options to purchase 200,000 shares                  of the                  Company's Common Stock, par valued $0.001                  each. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | **b.** | Upon                  the execution, delivery and performance of Strategic Transaction                  (as                  defined within the agreement) by Company - Company will grant Dr.                  Ganani                  options to purchase 200,000 shares of the Company's Common Stock,                  par                  valued $0.001 each. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | **c.** | Upon                  a Qualified Transaction (as defined within the                  agreement): |
|--|--------|---------------------------------------------------------------------------------------------------|

| 1)   | Dr.                Ganani will be granted options to purchase up to 500,000 Shares of                the                Company's Common Stock, par valued $0.001                each. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2)   | If                in the framework of a Qualified Transaction the Company shall grant                to the                merged entity or its shareholders options to purchase shares of the                Company's Common Stock, Company will also grant to Dr. Ganani with                an                option to purchase such number of shares of the Company's common                stock,                par valued $0.001 each, equal to 4% of the shares exercisable upon                such                Qualified Transaction grant. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**NOTE      9 - MATERIAL AGREEMENTS (Continued)**

**NOTE      10 - SHAREHOLDERS’ EQUITY**

| 1)   | On                January 19, 2006, the Company completed a private placement of 1,607,836                units, each "unit" comprising one share of our common stock, one                warrant                to purchase one share of common stock with an exercise price of $1.50                per                share and an exercise period of one year and one warrant to purchase                one                share of common stock with an exercise price of $2.50 and an exercise                period of three years. Units were issued for an aggregate purchase                price                of $1,125,487. Warrants were valued according to Black-Scholes valuation                model at $407,189 using a risk free interest rate of 4.3%, their                contractual life, an annual volatility of 100% and no expected dividend.                A                total of 1,607,836 shares of common stock, par value $0.001 each,                were                issued On June 29, 2006, in connection with the above private                placement. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2)   | On                May 7, 2006, the Company completed a private placement of 2,108,662                units,                each "unit" comprising one share of our common stock, one warrants                to                purchase one share of common stock with an exercise price of $1.50                and an                exercise period of one year and one warrant to purchase one share                of                common stock with an exercise price of $2.50 and an exercise period                of                three years. Units were issued for an aggregate purchase price of                $1,476,064. Warrants were valued according to Black-Scholes valuation                model at $534,025 using a risk free interest rate of 4.25%, their                contractual life, an annual volatility of 100% and no expected dividend.                A                total of 2,108,662 shares of common stock, par value $0.001 each,                were                issued On November 6, 2006, in connection with the above private                placement. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3)   | On                August 31, 2006 the Company completed a private placement of 1,993,278                units, each "unit" comprising one share of our common stock, one                warrants                to purchase one share of common stock with an exercise price of $1.5                and                an exercise period of one year and one warrant to purchase one share                of                common stock with an exercise price of $2.5 and an exercise period                of                three years. Units were issued for an aggregate purchase price of                $1,395,295. Warrants were valued according to Black-Scholes valuation                model at $504,805 using a risk free interest rate of 4.35%, their                contractual life, an annual volatility of 100% and no expected dividend.                A                total of 1,849,278 shares of common stock, par value $0.001 each,                were                issued on November 6, 2006, in connection with the above private                placement. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TRACEGUARD      TECHNOLOGIES INC. **

** **

**NOTE      10 - SHAREHOLDERS’ EQUITY**
**(Continued)**

| 4)   | On                December 11, 2006, the Company completed a private placement of 1,428,571                units for a total purchase price of $1,000,000 or $.70 per unit.                Each unit                consists of (i) one share of the Company's common stock, (ii) a warrant                to                purchase one share of the Company's common stock at an exercise price                of                $1.50 per share, exercisable for a period of 12 months, and (iii)                a                warrant to purchase one share of the Company's common stock at an                exercise                price of $2.50 per share, exercisable for a period of 36 months.                The                Company provided the investor certain anti-dilution protection for                a three                month period. The aforementioned warrants and rights were subject                to a                limitation that the investor would not have or acquire as a result                of                exercising such rights "beneficial ownership" (as such term is used                in                Section 13(d) of the Securities Exchange Act of 1934) of 5% or more                of the                outstanding common stock of the Company. If the investor cannot exercise                such warrants or rights due to the restriction on beneficial ownership,                the exercisability of such warrants or rights would be deferred until                the                investor was able to exercise such warrants or rights without acquiring                beneficial ownership of 5% or more of the outstanding common stock.                Warrants were valued according to Black-Scholes valuation model at                $                363,003 using                an average risk free interest rate of 4.75%, their contractual life,                an                annual volatility of 100% and no expected dividend. A total of 1,428,571                shares of common stock, par value $0.001 each, were issued On December                11,                2006, in connection with the above private placement. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      11 - STOCK BASED COMPENSATION**

| **a.  ** | Employees'                Restricted Stock Unit Plan |
|--------------------|------------------------------------------------------|

| 1)   | On                July 6, 2006, the Board of Directors of the Company adopted the 2006                Global Stock Incentive Compensation Plan (the "Plan"), pursuant to                which                the Company will be able to issue restricted stock units ("RSU")                to its                employees, consultants and independent agents. The Company reserved                a                total of 2,300,000 authorized but unissued shares of Common Stock                of the                Company, par value US$ 0.001 each, for the purposes of the Plan and                the                Company's other stock compensation plans, when applicable, subject                to                adjustments as set forth in the                Plan. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2)   | The                  following table summarizes the grant of RSU to employees in                  2006: |
|----------------|---------------------------------------------------------------------------------------------------------|

|                                               |   | **RSU** |      | **Weighted-****Average****Of                RSU****Value****(U.S.                Dollars****)** |   |
|----------------------------------------------------|--------|---------|-----------|-------------------------------------------------------------------------------------------------|--------|
| Outstanding                at January 1, 2006 |   |    | -         |                                                                                            | $      | - |   |
| Granted                                            |   |    | 1,235,000 |                                                                                            | $      | 1.26 |   |
| Forfeited                                          |   |    | 12,000    |                                                                                            | $      | 0.85 |   |
|                                               |   |    |      |                                                                                            |   |   |   |
| Outstanding                at December 31, 2006    |   |    | 1,223,00  |                                                                                            | $      | 1.26 |   |
| Vested                as of December 31, 2006      |   |    | 372,500   |                                                                                            | $      | 1.37 |   |

----

**TRACEGUARD      TECHNOLOGIES INC. **

** **

**NOTE      11 - STOCK BASED COMPENSATION (Continued)**

| 3)   | Each                unit's value was determined based on the closing price for the company's                share on grant date. As of December 31, 2006 the Company recognized                share                based compensation expenses under the straight-line method over the                requisite service period, which is two years. During the year ended                December 31, 2006, the Company recorded stock-based compensation                of                $528,753 related to the RSU                granted. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4)   | As                of December 31, 2006 the total unrecognized compensation cost related                to                unvested RSU not yet recognized is $830,614 and is expected to be                recognized over the weighted average period of 1.9                years. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **b.  ** | Stock                Option Plans** **for                Service Providers |
|--------------------|---------------------------------------------------------------------------------|

| 1)   | In                2006 the Board of Directors approved the grant of options for the                purchase                of up to 6,640,000 shares of common stock of the Company, par value                $0.001                each to the Company's CEO and several service providers, including                a                related party (see note 7b). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| a.   | Options                to purchase 1,440,000, vest over a two to three year period, are                exercisable at $0.70 each, with an exercise period of 5 years. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | Options                to purchase up to 5,200,000 shares vest upon the achievement of certain                milestones. |
|----------------|---------------------------------------------------------------------------------------------------------------------------|

| 2)   | On                August 8, 2006 the Board of Directors approved the grant of an option                for                the purchase of 359,000 shares of common stock of the Company, par                value                $0.001 each, to M.S. Savyonim Ltd. ("Savyonim"), an Israeli corporation                that rendered to the Corporation management services through Mr.                Meir                Zucker who served as the President and Chief Executive Officer of                the                Corporation. Such options were granted to Savyonim following the                termination of the engagement of Savyonim in February 2006 in connection                with the services rendered by it to the Corporation. The options                have no                vesting period, are exercisable at $0.70 each, with an exercise period                of                5 years. In addition the Company paid to Savyonim an amount equal                to                approximately US$ 27,000 in connection with the termination of Savyonim's                engagement. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3)   | The                fair value of each of the aforementioned stock option is estimated                on the                date of balance using the Black-Scholes option pricing model that                uses the                following assumptions: Expected term is based on the Company’s management                estimate for future behavior; Expected volatility is based on the                historical volatility of the share price for similar companies over                a                period equal to, or greater than, the expected term; The risk free                rate is                based on the U.S. Treasury constant maturity for a term consistent                with                the expected term of the award (or weighed average of the two closest                available bonds), as in effect at the date of                grant. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4)   | The                fair value of options granted during the year ended December 31,                2006 was                estimated using the following assumptions: (a) average expected term                of                the option of 3.55 years (b) average risk free interest rate of 4.86%                (c)                dividend yield of 0% and (d) volatility of                100%. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**NOTE      11 - STOCK BASED COMPENSATION (Continued)**

| 5)   | The                following table summarizes the activity of all of the above stock                options                for the year ended December 31,                2006: |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                               |   |   **Options** |      | **Weighted-****Average****Exercise****Price****(U.S.****Dollars)** |   |  **Weighted-****Average****Remaining****Contractual****Term****(in                years)** |   | **Aggregate                Intrinsic Value (U.S. Dollars****)** |   |
|----------------------------------------------------|--------|-------------------------|-----------|--------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|
| Outstanding                at January 1, 2006 |   |                    | -         |                                                               | $      | -                                                                                               |   |                                                            | -      |   |   | - |   |
|                                               |   |                    |      |                                                               |   |                                                                                            |   |                                                            |   |   |   |   |   |
| Granted                - below market price        |   |                    | 6,999,000 |                                                               | $      | 1.11                                                                                            |   |                                                            | 5.78   |   |   | 6,967,716 |   |
|                                               |   |                    |      |                                                               |   |                                                                                                 |   |                                                            |   |   |   |   |   |
| Outstanding                at December 31, 2006    |   |                    | 6,999,000 |                                                               | $      | 1.11                                                                                            |   |                                                            | 5.78   |   |   | 6,967,716 |   |
|                                               |   |                    |      |                                                               |   |                                                                                            |   |                                                            |   |   |   |   |   |
| Exercisable                at December 31, 2006    |   |                    | 741,500   |                                                               | $      | 0.7                                                                                             |   |                                                            | 4.61   |   |   | 519,050 |   |

| 6)   | As                Of December 31, 2006 the total unrecognized compensation cost related                to                unvested options was $ 2,156,608 out of which $ 209,158 will be                recognized over an average 1.9 years period, and the remaining $                1,947,450                in accordance with achievement of certain                milestones. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **c.  ** | Shares                Granted to Service Providers  |
|--------------------|----------------------------------------------------------|

| 1)   | During                the year ended December 31, 2006, the Company has entered into service                agreements with several service providers. In consideration for service                provided, the Board of Directors of the Company has approved the                issuance                a total of 672,613 shares of its common stock, par value $0.001 each,                out                of which 132,613 shares were issued in 2006, and 540,000 were issued                in                2007. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2)   | Total                stock based compensation to service providers recognized during the                year                ended December 31, 2006 was $563,716. This value based upon the closing                price for the Company's share on the award's grant date. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      12 - SUBSEQUENT EVENTS**

| **a.  ** | On                March 26, 2007 the Company completed a private placement of 5,257,400                units, each "unit" comprising one share of our common stock, one                warrant                to purchase one share of common stock with an exercise price of $1.50                and                an exercise period of one year and one warrant to purchase one share                of                common stock with an exercise price of $2.50 and an exercise period                of                three years. Units were issued for an aggregate purchase price of                $3,680,180. The aforementioned securities were issued in reliance                upon the                exemption afforded by the provisions of Regulation S, as promulgated                by                the Securities and Exchange Commission under the Securities Act of                1933,                as amended, based on the fact that at the time of the offer and sale                of                such securities to such purchasers, the purchasers were not inside                the                U.S., and in reliance on each of the purchaser's representation that                such                person was not a "U.S. person" (as defined in Regulation S) and is                not                acquiring the securities for the account or benefit of any U.S. person.                In                addition, the securities bear a Regulation S restrictive                legend. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**PART      III**

| **Name**                        |   | **Age** |   | **Position**                                                                                              |
|---------------------------------|--------|---------|--------|-----------------------------------------------------------------------------------------------------------|
| Dr.                Ehud Ganani  |   | 55      |   | Chairman                of the Board of Directors, President & Chief Executive                Officer |
| Dr.                Fredy Ornath |   | 58      |   | Chief                Scientist of the Subsidiary                                                          |
| David                Ben-Yair   |   | 36      |   | Chief                Financial Officer                                                                    |
| Gil                Perlberg     |   | 47      |   | Vice                President Product Management & Engineering of the                Subsidiary       |
| Jacob                Eluz       |   | 50      |   | Director                Until February 16, 2006                                                           |
| Jack                Hornstein   |   | 60      |   | Director                                                                                                  |
| David                Cohen      |   | 46      |   | Director                as of February 16, 2006                                                           |

**Background      of Executive Officers and Directors **

**Dr.      Ehud Ganani**
**55,      Chairman, President & Chief Executive Officer**

**Dr.      Fredy Ornath**
**58,      Chief Scientist**

**David      Ben-Yair, 36**
**Chief      Financial Officer**
** **

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**Gil      Perlberg, 47, Vice President of Product Management and      Engineering**

**Jack      Hornstein, 60, Director**

**David      Cohen,**
**46,      Director. **

**Family      relationships**

**Compliance      with Section 16(a) of the Securities Exchange Act of 1934 **

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**Code      of Ethics **

**Audit      Committee and Financial Expert**

|                                                    |   |   |   | Salary(1) |   | Bonus(1) |   | Stock                Awards(2) |   | Option                Awards(3) |   | All                Other Compensations(1) |   | Total  |    |
|---------------------------------------------------------|--------|--------|--------|-----------|--------|----------|--------|--------------------------------|--------|---------------------------------|--------|-------------------------------------------|--------|--------|---------|
| Name                & Principal Position            |   | Year   |   | ($)       |   | ($)      |   | ($)                            |   | ($)                             |   | ($)                                       |   | ($)    |    |
| (a)                                                     |   | (b)    |   | (c)       |   | (d)      |   | (e)                            |   | (f)                             |   | (i)                                       |   | (j)    |    |
| Dr.                Ehud Ganani - Chairman & CEO     |   |   | 2006   |      |   | 179,412  |   |                           | 30,000 |                            |   | 325,417                                   |   |   | 0       |   |   | 26,098 | (4) |   | 560,927 |   |
| David                Ben - Yair - CFO                   |   |   | 2006   |      |   | 83,729   |   |                           | 0      |                            |   | 80,467                                    |   |   | 0       |   |   | 35,343 | (4) |   | 199,540 |   |
| Gil                Perlberg- VP Engineering (Ltd)       |   |   | 2006   |      |   | 105,488  |   |                           | 0      |                            |   | 80,467                                    |   |   | 0       |   |   | 43,269 | (4) |   | 229,224 |   |
| Dr.                Fredy Ornath - Chief Scientist (Ltd) |   |   | 2006   |      |   | 172,229  |   |                           | 0      |                            |   | 0                                         |   |   | 290,081 | (5) |   | 0 |   |   | 383,825 |   |
| Meir                Zucker - CEO until Feb 06           |   |   | 2006   |      |   | 38,418   |   |                           | 0      |                            |   | 0                                         |   |   | 413,207 |   |   | 28,504 | (6) |   | 480,129 |   |

**Footnotes      to Summary Compensation Table**

| (1)   | All                cash compensation was paid in New Israeli Shekels. See note 2d of                the                consolidated financial statement presented above, regarding the currency                translation policy. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (2)   | See                Note 11a of the consolidated financial Statement regarding RSU                evaluation. |
|-----------------|--------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (3)   | See                Note 11b of the consolidated financial Statement regarding option                evaluation. Also refer to notes 8b regarding evaluation of options                for Dr                Fredy Ornath. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (4)   | Includes: |
|-----------------|-----------|

|   |   |
|--------|--------|

| a.   | Social                Benefits paid by the Company to the employees' retirement plans,                severance                funds, loss of work capability insurance, and educational-fund, all                as                customary in Israel. In 2007 the Company paid an aggregate total                of                approximately $56,000 as social benefits for the named three                officers. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | The                Company leases cars for the use of its employees for business, which                the                employees may use for personal purposes. Cost recognized as compensation                includes: lease payments, maintenance, petrol, insurance fees (if                applicable) and other related expenses. In 2007 the Company paid                an                aggregate total of approximately $49,000 in such car related expenses                of                the named 3 officers. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

| (5)   | Dr                Ornaths, The Subsidiary's Chief Scientist's Options award value,                was                calculated in accordance with EITF 96-18, as Dr. Ornath's does not                qualify                for FAS 123(R)'s definition of                Employee. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (6)   | Represents                severance payments paid to Meir Zucker upon his                resignation. |
|-----------------|-------------------------------------------------------------------------------------------------------|

**Narrative      Disclosure to Summary Compensation Table**

**Dr.      Ehud Ganani –**
** **

**Dr.      Fredy Ornath –**

| 1)   | Options                to purchase of 1,080,000 shares at an exercise price of $0.70, vesting                over a three year period commencing February 15,                2006. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2)   | M.S.                shall receive additional options for the purchase of 1,200,000 shares                of                common stock at an exercise price of $1.00 upon the receipt of an                approval                of the Israeli Security Agency or the US Transportation Security                Administration of one of our products. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3)   | M.S.                shall receive additional options for the purchase of 1,200,000 shares                of                common stock at an exercise price of $1.50 upon our receipt of a                purchase                order for equipment in an aggregate amount of $1,000,000 during one                calendar year or entering into a strategic                agreement. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4)   | M.S.                shall receive additional options for the purchase of 1,500,000 shares of                common stock at an exercise price of $1.75 upon our achievement of                gross                profits of $2,000,000 according to our audited financial statements. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**David      Ben-Yair**
**–**

**Gil      Perlberg – **

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**Outstanding      Equity Awards as of Fiscal Year End**

|                                                      |   | Option                  Award                                                    |    | Stock                  Awards                                                      |   |
|-----------------------------------------------------------|--------|----------------------------------------------------------------------------------|---------|------------------------------------------------------------------------------------|--------|
| Name                                                      |   | Number                  of Securities Underlying Unexercised Options Exercisable |    | Number                  of Securities Underlying Unexercised Options Unexercisable |   | Equity                  Incentive Plan Awards: Number of securities underlying Unexercised,                  Unearned Options |   | Option                  Exercise Price |   | Options                  Expiration Date |   | Number                  of Shares or Unit of Stock that have not Vested(6) |   | Market                  Value of Shares or Unit of Stock that have not Vested(7) |   |
|                                                      |   | (#)                                                                              |    | (#)                                                                                |   | (#) |   | ($) |   |   |   | (#) |   | ($) |   |
|                                                      |   |                                                                             |    |                                                                               |   |   |   |   |   |   |   |   |   |   |   |
| Dr                  Ehud Ganani - Chairman & CEO(1)   |   |                                                                             | -       |                                                                               |   | - |   |   | 200,000 |   |   | 0.70 |   |   | - |   |   | - |   |   | - |   |
|                                                           |   |                                                                             | -       |                                                                               |   | - |   |   | 200,000 |   |   | 0.70 |   |   | - |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | 500,000 |   |   | 0.70 |   |   | - |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | 400,000 |   |   | 0.70 |   |   | - |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | - |   |   |   |   |   |   |   |   | 320,833 |   |   | 154,000 |   |
| Meir                  Zucker - CEO until Feb 06 (2)       |   |                                                                             | 359,000 |                                                                               |   | - |   |   | - |   |   | 0.70 |   |   | 08/08/06 |   |   | - |   |   | - |   |
| Fredy                  Ornath - Chief Scientist (Ltd) (3) |   |                                                                             | 90,000  |                                                                               |   | - |   |   | - |   |   | 0.70 |   |   | 05/15/11 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | 90,000  |                                                                               |   | - |   |   | - |   |   | 0.70 |   |   | 08/15/11 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | 90,000  |                                                                               |   | - |   |   | - |   |   | 0.70 |   |   | 11/15/11 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | 90,000 |   |   | - |   |   | 0.70 |   |   | 02/15/12 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | 90,000 |   |   | - |   |   | 0.70 |   |   | 05/15/12 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | 90,000 |   |   | - |   |   | 0.70 |   |   | 08/15/12 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | 90,000 |   |   | - |   |   | 0.70 |   |   | 11/15/12 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | 90,000 |   |   | - |   |   | 0.70 |   |   | 02/15/13 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | 90,000 |   |   | - |   |   | 0.70 |   |   | 05/15/13 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | 90,000 |   |   | - |   |   | 0.70 |   |   | 08/15/13 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | 90,000 |   |   | - |   |   | 0.70 |   |   | 11/15/13 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | 90,000 |   |   | - |   |   | 0.70 |   |   | 02/15/14 |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | 1,200,000 |   |   | 1.00 |   |   | - |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | 1,200,000 |   |   | 1.50 |   |   | - |   |   | - |   |   | - |   |
|                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | 1,500,000 |   |   | 1.75 |   |   | - |   |   | - |   |   | - |   |
| David                  Ben - Yair - CFO(4)                |   |                                                                             | -       |                                                                               |   | - |   |   | - |   |   | 0.00 |   |   | - |   |   | 113,333 |   |   | 54,400 |   |
| Gil                  Perlberg- VP Engineering (Ltd) (5)   |   |                                                                             | -       |                                                                               |   | - |   |   | - |   |   | 0.00 |   |   | - |   |   | 113,333 |   |   | 54,400 |   |

**Footnotes      to Outstanding Equity Awards **

| (1)   | Dr                Ehud Ganani - |
|-----------------|---------------------------------|

|   |   |
|--------|--------|

| a.   | On                July 6, 2006, the Company granted Dr. Ehud Ganani 550,000 restricted                stock                units (RSU) in accordance to the Company's 2006 Global Stock Incentive                Plan. As of December 31, 2006 , a total of 229,167 RSUs have vested.                The                remaining RSUs will vest in equal portions on a quarterly basis,                until                July 1st, 2008. The next vesting of 45,833 RSUs occurred on January                1,                2007. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

| b.   | On                July 6, 2006 the Company granted Dr. Ganani the right to earn options                to                purchase up to 1,300,000 shares of its common stock par value $0.001.                These options are earned and are fully vested upon the achievement                of                certain milestones, and expire 3 years after they are earned. As                none of                these milestones have been met, no expiration date can be                determined. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.   | See                also note 9 of the Consolidated Financial Statements, regarding                Performance based options, and RSU granted to Dr                Ganani. |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | On                August 13, 2006 the Company granted Mr. Meir Zucker, in consideration                for                his services as CEO of the Company until February 2006, options to                purchase 359,000 shares of its common stock par value $0.01. These                options                are fully vested. See also note 11b(2) of the Consolidated Financial                Statements, regarding Options granted to Mr. Zucker, in consideration                of                services provided. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Dr                Fredy Ornath: |
|-----------------|---------------------------------|

| a.   | On                July 6, 2006 Dr Ornath was awarded with options to purchase 1,080,000                of                the Company's common stock. These options vest, in equal portions,                on a                quarterly basis as of February 15, 2006. As of December 31, 2006                options                to purchase 270,000 shares were vested. The remaining options will                continue to vest until February 15,                2009. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | On                July 6, 2006 Dr Ornath was also awarded the right to earn options                to                purchase up to 3,900,000 shares of the Company's common stock, par                value                $0.001. These options are earned and are fully vested upon the achievement                of certain milestones, and expire 3 years after they are earned.                As none                of these milestones have been met, no expiration date can be determined. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | On                July 6, 2006 the Company granted David-Ben Yair 170,000 restricted                stock                units (RSU) in accordance to the Company's 2006 Global Stock Incentive                Plan. As of December 31, 2006, a total of 56,667 RSUs have vested.                The                remaining RSUs will vest in equal portions on a quarterly basis,                until                November 10, 2008. The next vesting of 14,167 RSUs occurred on February                10, 2007. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)   | On                July 6, 2006 the Company granted Gil Perlberg 170,000 restricted                stock                units (RSU) in accordance to the Company's 2006 Global Stock Incentive                Plan. As of December 31, 2006, a total of 56,667 RSUs have vested.                The                remaining RSUs will vest in equal portions on a quarterly basis,                until                December 1, 2008. The next vesting of 14,167 RSUs occurred on March                1,                2007. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | All                awards in this column were granted pursuant to the Company's 2006                Global                Stock Incentive Compensation Plan (see note 11a of the Consolidated                financial statement). |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7)   | Value                of awards was calculated base on the closing price for the Company's                share                as of the final day of trading in 2006                ($0.48). |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

**Compensation      of Directors**

| Name                          |   | Fees                Earned or Paid in Cash |   | Total  |   |
|-------------------------------|--------|--------------------------------------------|--------|--------|--------|
|                          |   | ($)                                        |   | ($)    |   |
| Jacob                Eluz     |   |                                       | 5000   |   |   | 5000 |   |
| Jack                Hornstein |   |                                       | 5000   |   |   | 5000 |   |

| Title                Of Class                                                          |   | Name                of Beneficial Owner (1) |                            | Common                StockBeneficially                Owned |   | Percentage                ofCommon                Stock (2) |   |
|----------------------------------------------------------------------------------------|--------|---------------------------------------------|---------------------------------|--------------------------------------------------------------|--------|-------------------------------------------------------------|--------|
| Common                Stock                                                            |   |                                        | Dr.                Ehud Ganani  |                                                         |   | 320,833                                                     | (3)    |   | 1.0 | % |
| Common                Stock                                                            |   |                                        | David                Ben-Yair   |                                                         |   | 85,000                                                      | (3)    |   | 0.3 | % |
| Common                Stock                                                            |   |                                        | Jacob                Eluz       |                                                         |   | 100,000                                                     | (4)    |   | 0.3 | % |
| Common                Stock                                                            |   |                                        | Jack                Hornstein   |                                                         |   | -0-                                                         |   |   | 0.0 | % |
| Common                Stock                                                            |   |                                        | Gil                Perlberg     |                                                         |   | 70,833                                                      | (3)    |   | 0.2 | % |
| Common                Stock                                                            |   |                                        | Dr.                Fredy Ornath |                                                         |   | 11,079,990                                                  | (5)    |   | 35 | % |
| Common                Stock                                                            |   |                                        | David                Cohen      |                                                         |   | 72,000                                                      | (6)    |   | 0.2 | % |
| **All                officers and directors as a group****(7                persons)** |   |                                        |                            |                                                         |   | **11,222,823**                                              |   |   | 37 | % |

| (1)   | Except                as otherwise indicated, the address of each beneficial owner is c/o                TraceGuard                Technologies, Inc.                330                Madison Avenue, 9th                Floor, New York, New York 10017. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (2)   | Applicable                percentage ownership is based on 30,662,011 shares of common stock                outstanding as of March 31, 2007, together with securities exercisable                or                convertible into shares of common stock within 60 days of March 31,                2007                for each stockholder. Beneficial ownership is determined in accordance                with the rules of the Securities and Exchange Commission and generally                includes voting or investment power with respect to securities. Shares                of                common stock that are currently exercisable or exercisable within                60 days                of March 31, 2006 are deemed to be beneficially owned by the person                holding such securities for the purpose of computing the percentage                of                ownership of such person, but are not treated as outstanding for                the                purpose of computing the percentage ownership of any other person. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (3)   | Consists                of Restricted Stock Units vested by May 31,                2007. |
|-----------------|------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (4)   | Consists                of shares subject to currently Exercisable                options. |
|-----------------|--------------------------------------------------------------------------------------------|

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**TRACEGUARD          TECHNOLOGIES INC. **

** **

| (5)   | Consists                of 10,629,990 shares of common stock and 450,000 shares subject to                currently exercisable options. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|

| (6)   | Consists                of 36,000 shares of common stock and 36,000 shares subject to currently                exercisable warrants. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------|

**Securities      Authorized for Issuance Under Equity Compensation Plans **

| Plan                category                                          |   | Number                of securities to be issued upon exercise of outstanding options,                warrants                and rights |      | Weighted                average exercise price of outstanding options, warrants and rights |   | Number                of securities remaining available for future issuance |   |
|-----------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------|-----------|--------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|
|                                                                  |   | (a)                                                                                                                                      |      | (b)                                                                                        |   | (c)                                                                         |   |
|                                                                  |   |                                                                                                                                     |      |                                                                                       |   |                                                                        |   |
| Equity                compensation plans approved by security holders |   |                                                                                                                                     | -         |                                                                                       |   | -                                                                           |   |   | - |   |
| Equity                compensation plans not                          |   |                                                                                                                                     | 1,223,000 | (1)                                                                                        |   | -                                                                           |   |   | 1,077,000 |   |
| approved              by security holders                             |   |                                                                                                                                     | 1,799,000 | (2)                                                                                        | $      | 0.7                                                                         |   |   | - |   |
|                                                                       |   |                                                                                                                                     | 5,200,000 | (3)                                                                                        | $      | 1.3                                                                         |   |   | - |   |
|                                                                  |   |                                                                                                                                     | 42,937    |                                                                                       |   | -                                                                           |   |   | (4 | ) |
| Total                                                                 |   |                                                                                                                                     | 8,264,937 |                                                                                       |   | -                                                                           |   |   | 1,077,000 |   |

| (1)   | See                note 11a of the Consolidated Financial                Statement. |
|-----------------|-------------------------------------------------------------------------------------|

|   |   |
|--------|--------|
| (2)   | See                note 11b of the Consolidated Financial                Statement. |
|-----------------|-------------------------------------------------------------------------------------|
|   |   |
|--------|--------|

| (3)   | See                note 11b of the Consolidated Financial                Statement. |
|-----------------|-------------------------------------------------------------------------------------|

|   |   |
|--------|--------|
| (4)   | The                Company entered into several agreements with consultants and finders                outside the U.S.. The Company is committed to issue certain numbers                of                shares based on a percentage of the amounts invested as a result                of                introductions by such persons. Additional shares may be issued in                the                future in connection with additional investments made as a result                of                introductions by such persons. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**TRACEGUARD          TECHNOLOGIES INC. **

** **

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**TRACEGUARD          TECHNOLOGIES INC. **

** **

***Exhibits:***

| **Exhibit                Number** |   | **Description                of Exhibit**                                                                                                                                                                                                                                                                                                                   |
|-----------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                               |   | Certificate                of Incorporation (incorporated by reference to the Company’s Registration                Statement on Form SB-2, filed on June 18, 2002)                                                                                                                                                                                   |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 3.2                               |   | Certificate                of Amendment to Certificate of Incorporation (incorporated by reference                to                the Company’s Form 8-K, filed on September 15, 2005)                                                                                                                                                              |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 3.3                               |   | Articles                of Merger changing the Registrant’s name to TraceGuard Technologies, Inc.                (incorporated by reference to the Company’s Form 8-K, filed on September                15, 2005)                                                                                                                              |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 3.4*                              |   | Bylaws                                                                                                                                                                                                                                                                                                                                                      |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 4.1*                              |   | Form                of Warrant issued in connection with March 26, 2007 Regulation S                private                placement                                                                                                                                                                                                                        |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.1                              |   | Letter                of Intent between Ibhas Technologies Inc. and Tracetrack Technologies                Ltd,                dated August 15, 2005 (incorporated by reference to the Company's                Form                8-K, filed on August 22, 2005)                                                                                          |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.2                              |   | License                Agreement, dated as of February 15, 2006, by and between TraceGuard                Technologies Ltd. and Tracetrack Technology Ltd. (Incorporated by                reference to the Company’s Current Report on Form 8-K filed on February                16, 2006)                                                           |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.3+                             |   | Consulting                Agreement, dated as of February 15, 2006, by and between TraceGuard                Technologies Ltd. and M.S. Materials Ltd. (incorporated by reference                to                the Company’s Current Report on Form 8-K filed on February 16,                2006)                                                |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.4+                             |   | Consulting                Agreement, dated May 7, 2006, by and between Traceguard Technologies                Ltd.                and Ehud Ganani (incorporated by reference to the Company’s Current Report                on Form 8-K filed on May 7, 2006)                                                                                         |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.5+                             |   | Employment                Agreement, dated July 6, 2006, by and between TraceGuard Technologies                Ltd.                and David Ben Yair. (incorporated by reference to the Company’s Current                Report on Form 8-K filed on July 6, 2006)                                                                                   |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.6+                             |   | Employment                Agreement, dated July 6, 2006, by and between** **TraceGuard                Technologies Ltd. and Gil** **Perlberg.                (incorporated by reference to the Company’s Current Report on Form 8-K                filed on July 6, 2006)                                                                   |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.7+                             |   | First                Amendment to Agreement, dated July 6, 2006, by and between TraceGuard                Technologies Ltd. and Dr. Ehud (Udi) Ganani (incorporated                by reference to the Company’s Current Report on Form 8-K filed on July 6,                2006)                                                                     |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.8+                             |   | First                Amendment, dated                July 6, 2006 to Consulting Agreement dated as of February 15, 2006                by and                between Traceguard Technologies Ltd. and M.S. Materials Ltd. (incorporated                by reference to the Company’s Current Report on Form 8-K filed on July 6,                2006) |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 10.9+                             |   | 2006                Global Stock Incentive Compensation Plan (incorporated by reference                to the                Company’s Current Report on Form 8-K filed on July 6,                2006)                                                                                                                                               |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 31.1*                             |   | Certification                of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),                promulgated under the Securities and Exchange Act of 1934, as                amended                                                                                                                                                 |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 31.2*                             |   | Certification                of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d                14(a),                promulgated under the Securities and Exchange Act of 1934, as                amended                                                                                                                                  |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 32.1*                             |   | Certification                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906 of                the Sarbanes-Oxley Act of 2002 (Chief Executive                Officer)                                                                                                                                                |
|                              |   |                                                                                                                                                                                                                                                                                                                                                        |
| 32.2*                             |   | Certification                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                906 of                the Sarbanes-Oxley Act of 2002 (Chief Financial                Officer)                                                                                                                                                |

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**TRACEGUARD          TECHNOLOGIES INC. **

** **

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|         |                                                                                                          |                              |
|--------------|---------------------------------------------------------------------------------------------------------------|-----------------------------------|
|         | TRACEGUARD                TECHNOLOGIES, INC.                                                                  |
|    |                                                                                                     |                         |
|              | By:                                                                                                 | /s/ Ehud              Ganani |
|         | Dr.                Ehud Ganani                                                                                |
|         | President,                Chief Executive Officer and Chairman (Principal                  Executive Officer) |
|        |                                                                                                                             |                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|
|        | By:                                                                                                                    | /s/ David              Ben-Yair |
|   | David                  Ben-Yair                                                                                                  |
|   | Chief                    Financial Officer(Principal                      Financial and Accounting                      Officer) |

| SIGNATURE                                                                            |   | TITLE                                                                       |   | DATE                          |
|--------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|-------------------------------|
|                                                                                 |   |                                                                        |   |                          |
| /s/                Ehud GananiDr.                Ehud Ganani                         |   | President,                Chief Executive Officer and Chairman of the Board |   | March                29, 2007 |
|                                                                                 |   |                                                                        |   |                          |
| /s/                David Ben-Yair                 David                Ben-Yair |   | Chief                Financial Officer                                      |   | March                29, 2007 |
|                                                                                 |   |                                                                        |   |                          |
| /s/                David CohenDavid                Cohen                             |   | Director                                                                    |   | March                29, 2007 |
|                                                                                 |   |                                                                        |   |                          |
| /s/                Jack Hornstein Jack                Hornstein                      |   | Director                                                                    |   | March                29, 2007 |

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