**UNITED      STATES **

**SECURITIES      AND EXCHANGE COMMISSION **

**FORM      10-KSB**

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

**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 |

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**FORM      10-KSB**

**FOR      THE FISCAL YEAR ENDED DECEMBER 31, 2007**

**INDEX      **

|                                                                                                                                                                                    | Page   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| STATEMENT                  REGARDING FORWARD-LOOKING STATEMENTS                                                                                                                         | 1      |
|                                                                                                                                                                                    |   |
| PART                  I                                                                                                                                                                 | 2      |
|                                                                                                                                                                                    |   |
| ITEM                  1. DESCRIPTION OF BUSINESS                                                                                                                                        | 2      |
|                                                                                                                                                                                    |   |
| ITEM                  2. DESCRIPTION OF PROPERTY                                                                                                                                        | 9      |
|                                                                                                                                                                                    |   |
| ITEM                  3. LEGAL PROCEEDINGS                                                                                                                                              | 9      |
|                                                                                                                                                                                    |   |
| ITEM                  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.                                                                                                            | 9      |
|                                                                                                                                                                                    |   |
| PART                  II                                                                                                                                                                | 10     |
|                                                                                                                                                                                    |   |
| ITEM                  5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS                  AND                  SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES. | 10     |
|                                                                                                                                                                                    |   |
| ITEM                  6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF                  OPERATION                                                                                     | 10     |
|                                                                                                                                                                                    |   |
| ITEM                  7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                                                                    | 13     |
|                                                                                                                                                                                    |   |
| ITEM                  8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING                  AND                  FINANCIAL DISCLOSURE                                         | 38     |
|                                                                                                                                                                                    |   |
| ITEM                  8A. CONTROLS AND PROCEDURES                                                                                                                                       | 38     |
|                                                                                                                                                                                    |   |
| ITEM                  8B. OTHER INFORMATION                                                                                                                                             | 39     |
|                                                                                                                                                                                    |   |
| PART                  III                                                                                                                                                               | 40     |
|                                                                                                                                                                                    |   |
| ITEM                  9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;                  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.                              | 40     |
|                                                                                                                                                                                    |   |
| ITEM                  10. EXECUTIVE COMPENSATION                                                                                                                                        | 43     |
|                                                                                                                                                                                    |   |
| ITEM                  11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                  AND                  RELATED STOCKHOLDER MATTERS                              | 50     |
|                                                                                                                                                                                    |   |
| EQUITY                  COMPENSATION PLAN INFORMATION                                                                                                                                   | 51     |
|                                                                                                                                                                                    |   |
| ITEM                  12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                                                                | 52     |
|                                                                                                                                                                                    |   |
| ITEM                  13. EXHIBITS                                                                                                                                                      | 53     |
|                                                                                                                                                                                    |   |
| ITEM                  14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                                                        | 55     |

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**PART      I**

**Organizational      History**

**Market      Overview and Operating Environment**

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**Technology      and Product Suite**

**CompactSafe:**

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

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**ShoeSafe**

**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                from                this method could be lower since it is based on royalties instead                of                direct sales. During 2008, the Company expects to enter a certification                processes leading to sales with the US and Israeli                regulators. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Intellectual      Property **

**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.*

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*TraceGuard      is a Development Stage Company with a Non-Commercialized Technology. 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 |
|--|--------|-----------------------------------------------------------------------------------------------------|

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

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

*TraceGuard      has a License From a Third Party- even though the intention of the Company      is      not to use any of the patent applications, Such Technology May Not be Adequately      Protected and 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      Needs 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 that 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**

|                             |   | **$**               |   |
|----------------------------------|--------|---------------------|--------|
|                             |   | **High***** ** |   | **Low***** ** |   |
|                             |   |                |   |   |   |
| 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 |   |
| 2007                             |   |                |   |   |   |   |   |
|  1st                Quarter |   |                | 1.30   |   |   | 0.50 |   |
|  2nd                Quarter |   |                | 1.22   |   |   | 0.85 |   |
|  3rd                Quarter |   |                | 0.93   |   |   | 0.63 |   |
|  4th                Quarter |   |                | 0.95   |   |   | 0.60 |   |

**Dividends**

**Recent      Sales of Unregistered Securities. **

*Our      financial statements and related notes, which are included in this filing,      provide additional information relating to the following discussion of our      *
*financial      condition, changes in financial condition and results of operations over the      last two fiscal years*
*.      See      Item 7 of this Form 10-KSB. This discussion contains various “forward looking      statements” within the meaning of Section 21E of the Securities Exchange Act of      1934, as amended, regarding future events or the future financial performance      of      the Company that involve risks and uncertainties. Certain statements included      in      this Form 10-KSB, including, without limitation, statements related to      anticipated cash flow sources and uses, words such as “ anticipates”,“believes”, “plans”, “expects”, “continue”, “will”, and similar expressions are      intended to identify forward- looking statements. We caution readers that a      variety of factors could cause our actual results to differ materially from      the      anticipated results or other matters expressed in forward-looking      statements.*

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**General**

**Cash      Requirements and Liquidity**

| Development                and Engineering   |   |   | 1,427 |   |
|----------------------------------------------|--------|--------|-------|--------|
| Marketing                & Business Dev. |   |   | 312   |   |
| General                and Administrative    |   |   | 814   |   |
| Property                & Equipment      |   |   | 87    |   |
| Total                                        |   |   | 2,640 |   |

| Wages                  and consulting services      |   |   | 270 |   |
|-----------------------------------------------------|--------|--------|-----|--------|
| Engineering                  and R&D activities |   |   | 63  |   |
| Marketing                  and G&A              |   |   | 22  |   |
| Investment                  in equipment            |   |   | 45  |   |
| Total                                               |   |   | 400 |   |

**Product      Research and Development**

----

**Lease      agreements and investments**

**Employees**

**Results      of Operations**

*Year      Ended December 31, 2007*

**Off      Balance Sheet Arrangements**

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| **FINANCIAL                STATEMENTS**** ****INDEX                - IN U.S. DOLLARS ($):** |   | **Page** |   |
|--------------------------------------------------------------------------------------------------|--------|----------|--------|
| REPORTS                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                          |   |     | 14-15  |   |
| CONSOLIDATED                BALANCE SHEETS                                                       |   |     | 16     |   |
| CONSOLIDATED                STATEMENTS OF OPERATIONS                                             |   |     | 17     |   |
| CONSOLIDATED                STATEMENTS OF CASH FLOWS                                             |   |     | 18-19  |   |
| CONSOLIDATED                STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY                         |   |     |   |   |
| (CAPITAL                DEFICIENCY)                                                              |   |     | 20-21  |   |
| NOTES                TO CONSOLIDATED FINANCIAL STATEMENTS                                        |   |     | 22-37  |   |

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**TRACEGUARD        TECHNOLOGIES INC. **

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

**TraceGuard      Technologies Inc.**

** **

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**TRACEGUARD      TECHNOLOGIES INC. **

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

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**TRACEGUARD      TECHNOLOGIES INC. **

|                                                                                                                                                          |   | **December                31,**  |        | **December                31,**  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|-------------|----------------------------------|--------|
|                                                                                                                                                          |   | **2007**                         |        | **2006**                         |   |
|                                                                                                                                                          |   | **in                US Dollars** |        | **in                US Dollars** |   |
| **Assets**                                                                                                                                                    |   |                             |        |                             |   |
|                                                                                                                                                          |   |                             |        |                             |   |
| **Current                Assets**                                                                                                                             |   |                             |        |                             |   |
| Cash                and cash equivalents                                                                                                                      |   |                             | 62,864      |                             |   | 1,056,939 |   |
| Restricted                deposits                                                                                                                            |   |                             | 26,898      |                             |   | 21,264 |   |
| Prepaid                expenses and other receivables                                                                                                         |   |                             | 130,878     |                             |   | 72,111 |   |
| **Total                current assets**                                                                                                                       |   |                             | 220,640     |                             |   | 1,150,314 |   |
|                                                                                                                                                          |   |                             |        |                             |   |   |   |
| **Long                Term Prepaid Expenses**                                                                                                                 |   |                             | 34,131      |                             |   | 22,153 |   |
|                                                                                                                                                          |   |                             |        |                             |   |   |   |
| **Restricted                deposit**                                                                                                                         |   |                             | 23,574      |                             |   | - |   |
|                                                                                                                                                          |   |                             |        |                             |   |   |   |
| **Property                and equipment, net**                                                                                                                |   |                             | 474,277     |                             |   | 534,577 |   |
|                                                                                                                                                          |   |                             |        |                             |   |   |   |
| **License                rights**                                                                                                                             |   |                             | -           |                             |   | 455,000 |   |
| **Total                Assets**                                                                                                                               |   |                             | 752,622     |                             |   | 2,162,044 |   |
|                                                                                                                                                          |   |                             |        |                             |   |   |   |
|                                                                                                                                                          |   |                             |        |                             |   |   |   |
| **Liabilities                and Shareholders’ Equity (Capital Deficiency)**                                                                            |   |                             |        |                             |   |   |   |
|                                                                                                                                                          |   |                             |        |                             |   |   |   |
| **Current                Liabilities**                                                                                                                        |   |                             |        |                             |   |   |   |
|                                                                                                                                                          |   |                             |        |                             |   |   |   |
| Accounts                payable- trade and other                                                                                                              |   |                             | 498,294     |                             |   | 180,542 |   |
| Accrued                Expenses and Other Current Liabilities                                                                                                 |   |                             | 497,720     |                             |   | 501,148 |   |
| **Total                current liabilities**                                                                                                                  |   |                             | 996,014     |                             |   | 681,690 |   |
| **Commitments                and contingencies**                                                                                                              |   |                             |        |                             |   |   |   |
|                                                                                                                                                          |   |                             |        |                             |   |   |   |
| **Total                liabilities**                                                                                                                          |   |                             | 996,014     |                             |   | 681,690 |   |
|                                                                                                                                                          |   |                             |        |                             |   |   |   |
| **Shareholders’                Equity (Capital Deficiency)**                                                                                            |   |                             |        |                             |   |   |   |
| Share                capital - common shares par value $0.001;                                                                                                |   |                             |        |                             |   |   |   |
| Authorized                Shares - December 31, 2007 and December 31, 2006 - 150,000,000                                                                      |   |                             |        |                             |   |   |   |
| Issued                and Outstanding Shares - December 31, 2007 and December 31, 2006                -                38,308,542 and 29,669,819 respectively |   |                             | 38,309      |                             |   | 29,670 |   |
| Additional                paid-in capital                                                                                                                     |   |                             | 10,867,913  |                             |   | 5,672,277 |   |
| Receipt                on account of shares to be allotted                                                                                                    |   |                             | -           |                             |   | 221,435 |   |
| Warrants                                                                                                                                                      |   |                             | 3,148,324   |                             |   | 1,971,826 |   |
| Cumulative                Deficit during the development stage                                                                                                |   |                             | (14,297,938 | )                                |   | (6,414,854 | ) |
| **Total                shareholders' equity (Capital Deficiency)**                                                                                            |   |                             | (243,392    | )                                |   | 1,480,354 |   |
| **Total                liabilities and shareholders' equity (Capital                Deficiency)**                                                             |   |                             | 752,622     |                             |   | 2,162,044 |   |

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**TRACEGUARD      TECHNOLOGIES INC. **

**CONSOLIDATED      STATEMENTS OF OPERATIONS**

|                                                                                          |   | **Year                Ended****December                31,** |       |  **Year                Ended****December                31,** |   | **Cumulative                from****March                20,****2002                (*) to****December                31,** |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|------------|--------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                          |   | **2007**                                                     |       | **2006**                                                           |   | **2007**                                                                                                                    |   |
| Research                and development expenses                                              |   |                                                         | 3,465,968  |                                                               |   | 2,393,745                                                                                                                   |   |   | 5,890,253 |   |
| Marketing                and Business Development expenses                                    |   |                                                         | 932,710    |                                                               |   | -                                                                                                                           |   |   | 932,710 |   |
| Impairment                of License Rights                                                   |   |                                                         | 455,000    |                                                               |   | -                                                                                                                           |   |   | 455,000 |   |
|                                                                                          |   |                                                         |       |                                                               |   |                                                                                                                        |   |   |   |   |
| General                and administrative expenses                                            |   |                                                         | 3,069,165  |                                                               |   | 3,576,095                                                                                                                   |   |   | 7,060,898 |   |
|                                                                                          |   |                                                         |       |                                                               |   |                                                                                                                        |   |   |   |   |
| **Operating                loss**                                                             |   |                                                         | (7,922,843 | )                                                                  |   | (5,969,840                                                                                                                  | )      |   | (14,338,861 | ) |
| Financing                Income, net                                                          |   |                                                         | 39,759     |                                                               |   | 2,591                                                                                                                       |   |   | 40,923 |   |
|                                                                                          |   |                                                         |       |                                                               |   |                                                                                                                        |   |   |   |   |
| **Net                Loss for the period**                                                    |   |                                                         | (7,883,084 | )                                                                  |   | (5,967,249                                                                                                                  | )      |   | (14,297,938 | ) |
|                                                                                          |   |                                                         |       |                                                               |   |                                                                                                                        |   |   |   |   |
| **Net                Loss per share ("EPS") - basic and diluted**                             |   |                                                         | (0.23      | )                                                                  |   | (0.25                                                                                                                       | )      |   | (0.68 | ) |
|                                                                                          |   |                                                         |       |                                                               |   |                                                                                                                        |   |   |   |   |
| Weighted                average number of shares used in computation of EPS basic and diluted |   |                                                         | 34,817,996 |                                                               |   | 24,150,407                                                                                                                  |   |   | 20,911,864 |   |

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**TRACEGUARD      TECHNOLOGIES INC. **

**CONSOLIDATED      STATEMENTS OF CASH FLOWS**

|                                                                                                                               |   | **Year                Ended December 31,** |       | **Year                Ended December 31,** |   | **Cumulative                from****March                20,****2002(*)****to                December 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|------------|--------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                               |   | **2007**                                   |       | **2006**                                   |   | **2007**                                                                                                    |   |
| **Cash                Flow from Operating Activities :**                                                                           |   |                                       |       |                                       |   |                                                                                                        |   |
|                                                                                                                               |   |                                       |       |                                       |   |                                                                                                        |   |
| Net                Loss for the period                                                                                             |   |                                       | (7,883,084 | )                                          |   | (5,967,249                                                                                                  | )      |   | (14,297,938 | ) |
| 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                                                                                       |   |                                       | 181,803    |                                       |   | 57,290                                                                                                      |   |   | 239,535 |   |
| Impairment                of License Rights                                                                                        |   |                                       | 455,000    |                                       |   | -                                                                                                           |   |   | 455,000 |   |
| Non-Cash                Stock Based Compensation expenses to service provider and                employees                         |   |                                       | 2,336,286  |                                       |   | 1,874,168                                                                                                   |   |   | 4,210,454 |   |
| Changes                in assets and liabilities:                                                                             |   |                                       |       |                                       |   |                                                                                                        |   |   |   |   |
| Increase                in prepaid expenses and other receivables                                                                  |   |                                       | (70,745    | )                                          |   | (70,184                                                                                                     | )      |   | (165,009 | ) |
| Increase                in accounts payable and other current liabilities                                                          |   |                                       | 314,324    |                                       |   | 495,483                                                                                                     |   |   | 1,003,633 |   |
| Net                cash used in operating activities                                                                          |   |                                       | (4,666,416 | )                                          |   | (3,610,492                                                                                                  | )      |   | (8,554,325 | ) |
|                                                                                                                               |   |                                       |       |                                       |   |                                                                                                        |   |   |   |   |
| **Cash                Flows from Investing Activities **                                                                      |   |                                       |       |                                       |   |                                                                                                        |   |   |   |   |
| Restricted                deposits                                                                                                 |   |                                       | (29,208    | )                                          |   | (5,909                                                                                                      | )      |   | (50,472 | ) |
| Advance                on account of license rights                                                                                |   |                                       | -          |                                       |   | -                                                                                                           |   |   | (100,000 | ) |
| Purchase                of property and equipment                                                                                  |   |                                       | (121,503   | )                                          |   | (530,606                                                                                                    | )      |   | (713,812 | ) |
| Net                cash used in investing activities                                                                          |   |                                       | (150,711   | )                                          |   | (536,515                                                                                                    | )      |   | (864,284 | ) |
|                                                                                                                               |   |                                       |       |                                       |   |                                                                                                        |   |   |   |   |
| **Cash                Flows from Financing Activities  **                                                                     |   |                                       |       |                                       |   |                                                                                                        |   |   |   |   |
|                                                                                                                               |   |                                       |       |                                       |   |                                                                                                        |   |   |   |   |
| Issuance                of share capital and warrants, net of issuance                expenses                                |   |                                       | 3,823,052  |                                       |   | 4,086,818                                                                                                   |   |   | 8,543,067 |   |
| Receipts                on accounts of shares to be allotted                                                                       |   |                                       | -          |                                       |   | 221,435                                                                                                     |   |   | 908,335 |   |
| Receipt                on account of notes from shareholder                                                                        |   |                                       | -          |                                       |   | -                                                                                                           |   |   | 30,071 |   |
|                                                                                                                               |   |                                       |       |                                       |   |                                                                                                        |   |   |   |   |
| Net                cash provided by financing activities                                                                      |   |                                       | 3,823,052  |                                       |   | 4,308,253                                                                                                   |   |   | 9,481,473 |   |
|                                                                                                                               |   |                                       |       |                                       |   |                                                                                                        |   |   |   |   |
| **Increase                (decrease) in cash and cash equivalents **                                                          |   |                                       | (994,075   | )                                          |   | 161,246                                                                                                     |   |   | 62,864 |   |
| **Cash                and cash equivalents at the beginning of the                period **                                   |   |                                       | 1,056,939  |                                       |   | 895,693                                                                                                     |   |   | - |   |
| **Cash                and cash equivalents at the end of the                period **                                         |   |                                       | 62,864     |                                       |   | 1,056,939                                                                                                   |   |   | 62,864 |   |

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**TRACEGUARD      TECHNOLOGIES INC. **

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

|                                                                                                          |   | **Year                Ended December 31** |   | **Year                Ended December 31** |   | **Cumulative                from****March                20,****2002(*)                to December 31,** |   |
|---------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|-------------------------------------------|--------|----------------------------------------------------------------------------------------------------------|--------|
|                                                                                                          |   | **2007**                                  |   | **2006**                                  |   | **2007**                                                                                                 |   |
| **Supplementary                information on financing activities not involving cash                flows:** |   |                                      |   |                                      |   |                                                                                                     |   |
| Shareholders                Contribution                                                                      |   |                                      | -      |                                      |   | 355,000                                                                                                  |   |   | 355,000 |   |
| Shareholders                waiver on notes payable.                                                          |   |                                      | -      |                                      |   | -                                                                                                        |   |   | 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 |   |
|  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                                                                                                                |   |                                 | -              |                                            |   | -                                                      |   |                                                               | -           |                     |   | -                                                                   |   |      | -           |   |   | (447,605 | ) |   | (447,605 | ) |
| **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**
***(CAPITAL      DEFICIENCY)***
**(Continued)**

|  In                US dollars                                                                                        |   |  **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 to service providers (net of issuance expenses)                                         |   |                                       | 132,613        |                                            |   | 133                                                    |   |                                                               | 528,618        |                     |   | -                                                                   |   |                  | -             |   |   | - |   |   | 528,751 |   |
| Compensation                expenses related to RSU and options granted to employees and service                providers |   |                                       | -              |                                            |   | -                                                      |   |                                                               | 1,345,417      |                     |   | -                                                                   |   |                  | -             |   |   | - |   |   | 1,345,417 |   |
| Shareholders                Contribution in the form of license rights                                                    |   |                                       | -              |                                            |   | -                                                      |   |                                                               | 355,000        |                     |   | -                                                                   |   |                  | -             |   |   | - |   |   | 355,000 |   |
| Net                Loss For The year                                                                                      |   |                                       | -              |                                            |   | -                                                      |   |                                                               | -              |                     |   | -                                                                   |   |                  | -             |   |   | (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** |   |
| Issuance                of Common Stock (net of issuance expenses)                                                        |   |                                       | 6,437,971      |                                            |   | 6,438                                                  |   |                                                               | 2,182,525      |                     |   | (                221,435                                            | )      |                  | 1,855,524     |   |   | - |   |   | 3,823,052 |   |
| Issuance                of shares to service providers (net of issuance expenses)                                         |   |                                       | 2,200,752      |                                            |   | 2,201                                                  |   |                                                               | 618,199        |                     |   | -                                                                   |   |                  | -             |   |   | - |   |   | 620,400 |   |
| Compensation                expenses related to RSU and options granted to employees and service                providers |   |                                       | -              |                                            |   | -                                                      |   |                                                               | 1,715,886      |                     |   | -                                                                   |   |                  | -             |   |   | - |   |   | 1,                715,886 |   |
| Expiration                of Warrants                                                                                     |   |                                       | -              |                                            |   | -                                                      |   |                                                               | 679,026        |                     |   | -                                                                   |   |                  | (679,026      | ) |   | - |   |   | - |   |
| Net                Loss for the year                                                                                      |   |                                       | -              |                                            |   | -                                                      |   |                                                               | -              |                     |   | -                                                                   |   |                  | -             |   |   | (7,883,084 | ) |   | (7,883,084 | ) |
| **Balance                December 31, 2007**                                                                              |   |                                       | **38,308,542** |                                            |   | **38,309**                                             |   |                                                               | **10,867,913** |                     |   | **-**                                                               |   |                  | **3,148,324** |   |   | **(14,297,938** | **)** |   | **(243,392** | **)** |

----

**TRACEGUARD        TECHNOLOGIES INC. **

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE      1 - GENERAL:**

|   | **a.** | TraceGuard                Technologies, Inc. (formerly known, until September 12, 2005, as                IBHAS                Technologies Inc.) ("the Company") was incorporated in Nevada on                March 20,                2002. Initially the Company's business 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 to develop and market other technologies, specifically homeland                security applications. The Company is currently developing innovative                security technologies and solutions for the detection of explosives.                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 from March 31 to December 31. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **c.** | On                September 27, 2007, the Company signed a Letter of Intent with Smiths                Detection, a world leader in airport and critical infrastructure                security                screening systems. Under the Letter of Intent, Smiths and TraceGuard                will                work exclusively towards bringing about a definitive agreement to                accelerate the market entrance of TraceGuard’s Automated Trace Extraction                (ATE). In the first phase of the definitive agreement, the companies                would                cooperate in marketing TraceGuard’s CompactSafe ATE system to select                aviation and homeland security customers. Additionally, TraceGuard                and                Smiths Detection may cooperate on integration of CompactSafe and                other                TraceGuard products and capabilities for improving and automating                trace                sample collection with Smiths Detection’s IONSCSAN IMS explosives trace                detectors. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **d.** | **Going                Concern** |
|--------|--------|----------------------------------|

|  |  | As                reflected in the accompanying financial statements, the Company’s                operations for the year ended December 31, 2007 resulted in an operating                loss of $7,922,843 and a negative cash flow from operating activities                of                $4,666,416. Capital Deficiency as of December 31, 2007 is $243,392.                The                Company expects to continue operating expenditures at the current                level                over the next 12 months with no substantial revenues expected. These                factors raise substantial doubt about the ability of the Company                to                continue as a going concern. The Company’s ability to continue operating                as a going concern is dependent on its ability to raise sufficient                additional working capital. Management’s plan in this regard is to seek                additional financing to fund its operations. The financial statements                do                not include any adjustment that might result from the outcome of                this                uncertainty. |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      2 - SIGNIFICANT ACCOUNTING POLICES:**

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

|  |  | The                consolidated financial statements are prepared according to accounting                principles, generally accepted in the United States of America ("U.S.                GAAP"). The consolidated financial statements include the accounts                of                TraceGuard Technologies Inc. and its wholly owned subsidiary. Inter                company transactions and balances have been eliminated upon consolidation. |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD      TECHNOLOGIES INC. **

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

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

|  |  | The                preparation of financial statements in conformity with accounting                principles generally accepted in the United States of America requires                management to make estimates and assumptions that affect the reported                amounts of assets and liabilities and disclosures of contingent assets                and                liabilities at the date of the financial statements and the reported                amounts of expenses during the reporting period. Actual results could                differ from those estimates. |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|  |  | Effective                January 1, 2006, the company adopted Statement of Financial Accounting                Standards No. 123 (revised 2004), “Share-based Payment” (“SFAS 123(R)”).                SFAS 123(R) supersedes APB 25 and related interpretations and amends                Statement of Financial Accounting Standards No. 95, "Statement of                Cash                Flows" (“SFAS 95”). SFAS 123(R) requires awards classified as equity                awards be accounted for using the grant-date fair value method. The                fair                value of share-based payment transactions is recognized as expense                over                the requisite service period. |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

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

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

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

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

----

**TRACEGUARD        TECHNOLOGIES INC. **

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

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

|  | 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, 2007: |   |   |       |
|-----------------------------------------------|--------|--------|------------|
| Warrants                                      |   |   | 19,543,545 |   |
| Options                                       |   |   | 1,956,500  |   |
| Performance                Options            |   |   | 80,000     |   |
| RSU                                           |   |   | 996,167    |   |
| Performance                RSU                |   |   | 55,000     |   |
| Total                                         |   |   | 22,631,212 |   |

----

**TRACEGUARD        TECHNOLOGIES INC. **

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

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

|   | n. | Recently                issued accounting pronouncements |
|--------|----|----------------------------------------------------------|

** **
** **

----

**TRACEGUARD        TECHNOLOGIES INC. **

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

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

|                                              |   | December                31, 2007 |    | December                31, 2006 |   |
|---------------------------------------------------|--------|----------------------------------|---------|----------------------------------|--------|
|                                              |   | In                US Dollars     |    |
| Cost:                                             |   |                             |    |
| Computers                and peripheral equipment |   |                             | 125,135 |                             |   | 97,341 |   |
| Office                furniture                   |   |                             | 78,800  |                             |   | 70,057 |   |
| Development                Equipment              |   |                             | 295,166 |                             |   | 232,853 |   |
| Leasehold                improvement              |   |                             | 189,856 |                             |   | 167,788 |   |
| Other                                             |   |                             | 24,855  |                             |   | 24,270 |   |
|                                              |   |                             | 713,812 |                             |   | 592,309 |   |
|                                              |   |                             |    |                             |   |   |   |
| Less                - Accumulated depreciation    |   |                             | 239,535 |                             |   | 57,732 |   |
|                                              |   |                             |    |                             |   |   |   |
| Depreciated                cost                   |   |                             | 474,277 |                             |   | 534,577 |   |

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

|                                     |   | December                31, 2007 |    | December                31, 2006 |   |
|------------------------------------------|--------|----------------------------------|---------|----------------------------------|--------|
|                                     |   | In                US Dollars     |    |
| Accrued                Expenses          |   |                             | 274,107 |                             |   | 361,555 |   |
| Employees                                |   |                             | 82,400  |                             |   | 39,101 |   |
| Employees                Social Benefits |   |                             | 92,201  |                             |   | 66,119 |   |
| IRS                and Social Security   |   |                             | 49,012  |                             |   | 34,373 |   |
| Total                                    |   |                             | 497,720 |                             |   | 501,148 |   |

----

**TRACEGUARD        TECHNOLOGIES INC. **

**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 approximately $9,000 which expires in                November                2009. In connection with this lease agreements two bank guarantees                for                $17,522 and $ 4,592, 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 $ 111,300 for the                year                ended December 31, 2007 and $91,370 for year ended December 31,                2006. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | Future                minimum lease commitments under non-cancelable operating lease as                of                December 31, 2007, are approximately $                161,000. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | In                consideration for the license granted to the Company (see note 7)                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. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

**NOTE      6 - INCOME TAXES**

|     |   |   | **Year                Ended December 31, 2007** |   |   | **Year                Ended December 31, 2006** |   |
|----------|--------|--------|-------------------------------------------------|--------|--------|-------------------------------------------------|--------|
| Domestic |   | $      | 5,521,632                                       |   | $      | 1,811,188                                       |   |
| Foreign  |   | $      | 2,361,452                                       |   | $      | 4,156,061                                       |   |
|     |   | $      | 7,883,084                                       |   | $      | 5,967,249                                       |   |

|                                            |   | **Year                Ended December 31, 2007** |          | **Year                Ended December 31, 2006** |   |
|-------------------------------------------------|--------|-------------------------------------------------|---------------|-------------------------------------------------|--------|
| Deferred                income tax assets:      |   |                                            |          |                                            |   |
| Net                operating loss carry forward |   | $                                               | 3,157,757     |                                            | $      | 963,625 |   |
| Employees                benefits               |   | $                                               | 15,038        |                                            | $      | 11,951 |   |
| Gross                deferred tax assets        |   | $                                               | 3,172,795     |                                            | $      | 975,576 |   |
| Less                valuation allowance         |   | $                                               | (3,172,795    | )                                               | $      | (975,576 | ) |
| Net                deferred tax assets          |   | $                                               |  — |                                            | $      |  — |   |

| c. | Tax                Reform in the United States: |
|----|-------------------------------------------------|

| d. | Tax                Reform in Israel |
|----|-------------------------------------|

| e. | Tax                assessments |
|----|--------------------------------|

----

**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, 2007, approximately 26% percent of the of the Company's                common stock.   |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**.**

|   | **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 |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **c.** | As                of December 31,2007 and according to the Company's business plans                , it is                not in the intention of the Company to use any of the patent applications                with respect to which the license applies to the Company's current                and                future products. Therefore, the Company's management has decided                to record                an impairment of $455,000 which is the entire remaining license right                balance. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | a. | Dr.                Fredy Ornath is the holder of 9,879,990 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: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

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

|   | 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. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | c. | On                May 29, 2007 Dr. Ornath granted the Company a stock option, pursuant                to                which the Company may purchase up to 1,450,000 shares of the Company’s                common stock owned by Dr. Ornath (the "Ornath Option"). The purpose                of                this grant was to fulfill the Company's obligation upon exercise                of an                option granted to Dr. Ganani, see the “Ganani Option” as described in Note                9. |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1) | The                Ornath Option is exercisable according to a certain vesting schedule                throughout April 1, 2009. However, the Ornath Option is exercisable                if,                and only if, and to the extent that, certain stock option between                the                Company and its Chairman, President and CEO, Dr. Ehud Ganani ("Ganani                Option"), is exercised. The Ornath Option shall be terminated immediately                upon termination of the Ganani Option with respect to shares that                are                unvested, according to the aforementioned vesting schedule. (See                also Note                9). |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | The                Ornath Option is exercisable for $0.35 per share and expires on the                7th                anniversary of its grant. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | The                Ornath Option was accounted as shareholder's contribution, which                was                credited to equity and as a derivative instrument, which was debited                to                equity, pursuant to provisions of EITF 00-19. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

**NOTE      9 - MATERIAL AGREEMENTS**

----

**TRACEGUARD        TECHNOLOGIES INC. **

**NOTE      10 - SHAREHOLDERS’ EQUITY**

----

**TRACEGUARD        TECHNOLOGIES INC. **

**NOTE      11 - STOCK BASED COMPENSATION**

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

|                                                 |   | **Amount** |      | **Weighted-****Average****of                grant-date Fair****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 |   |       | 1,223,000 |                                                                   | $      | 1.26 |   |
| Granted                                              |   |       | 520,000   |                                                                   | $      | 0.87 |   |
| Forfeited                                            |   |       | 20,417    |                                                                   | $      | 0.85 |   |
|                                                 |   |       |      |                                                                   |   |   |   |
| Outstanding                at December 31, 2007      |   |       | 1,722,583 |                                                                   | $      | 1.15 |   |
| Vested                as of December 31, 2007        |   |       | 1,051,167 |                                                                   | $      | 1.20 |   |

|   | 4) | Each                unit's value was determined based on the closing price for the company's                share on grant date. As of December 31, 2007 the Company recognized                share                based compensation expenses under the straight-line method over the                requisite service period, which is three years. During the year ended                December 31, 2007, the Company recorded stock-based compensation                of                $727,047 related to the RSU                granted. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5) | As                of December 31, 2007 the total unrecognized compensation cost related                to                unvested RSU not yet recognized is $442,521 and is expected to be                recognized over the weighted average period of 0.7                years. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

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

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

|   | 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 8b). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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) | On                February 15, 2007 the Company's Board of Directors approved the grant                of                an option for the purchase of up to 100,000 shares of common stock                of the                Company, par value $0.001 each, to Mr. Jacob Eluz, who served as                a                director of the Company until February 16, 2007. The options are                fully                vested, are exercisable at $0.70 each, with an exercise period of                3                years. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4) | On                May 21, 2007 the Company's Board of Directors approved the grant                of                options for the purchase of up to 480,000 shares of the Company's                common                stock, par value $0.001 each, to acting board members and other service                providers. Options are subject to the following terms: |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | a.  | Options                to buy 360,000 shares are exercisable for $0.70 each. Options will                vest in                equal installments, on a quarterly basis, over a service period of                3                years, and will expire 3 years after the vesting of the final installment                with respect to all such options. |
|--------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b.  | Options                to buy 120,000 shares are exercisable for a $0.70 each. Options will                vest                in equal installments on a quarterly basis over a service period                of 2                years. Each installment will expire 5 years after its                vesting. |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**TRACEGUARD        TECHNOLOGIES INC. **

** **

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

|   | 5) | On                May 29, 2007, the Company granted to Dr. Ehud Ganani, Chairman, President                and CEO of the Company, a stock option to purchase 1,450,000 shares                of the                Company’s common stock, at an exercise price of $0.35 per share. See notes                9 and 12 for further details. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|

|   | 6) | On                July 15, 2007 the Board of Directors of the Company has approved                several                grants of options to purchase common stock to several of the Subsidiary's                service providers for an aggregate of 752,500 shares of common stock.                Options are exercisable for $0.70 per share, shall vest according                to a                certain task performance schedule, and shall expire 3 years commencing                as                of the date on which each option vests. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|

|   | 7) | On                October 8, 2007, the Company granted an option to purchase up to                180,000                shares of the Company's Common Stock, par value $0.001 per share,                to a                member of the advisory board of the Company in consideration of services                provided by such advisory board member. The vesting of the option                is                subject to a certain service and performance schedule. Option is                exercisable at $0.70 per share and expires 5 years after its vesting. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|

|   | 8) | 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. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |   |
|--------|--------|--------|

|   | 9) | The                fair value of options granted during the year ended December 31,                2007 was                estimated using the following assumptions: (a) average expected term                of                the option of 3.4 years (b) average risk free interest rate of 3.5%                (c)                dividend yield of 0% and (d) volatility of                100%. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10) | The                following table summarizes the activity of all of the above stock                options                for the year ended December 31,                2007: |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                               |   |   | **Number** |   |   | **Weighted-****Average****Exercise****Price** |   |   | **Weighted-****Average****Remaining****Contractual****Term****(in                years)** |   |
|----------------------------------------------------|--------|--------|------------|--------|--------|-----------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------|--------|
|                                               |   |   |       |   |   | **(U.S.****Dollars)**                         |   |   |                                                                                      |   |
| Outstanding                at January 1, 2006 |   |   | -          |   | $      | -                                             |   |   | -                                                                                         |   |
| Granted                - below market price        |   |   | 6,999,000  |   | $      | 1.11                                          |   |   | 5.78                                                                                      |   |
| Outstanding                at December 31, 2006    |   |   | 6,999,000  |   | $      | 1.11                                          |   |   | 5.78                                                                                      |   |
| Granted                - below market price        |   |   | 2,962,500  |   | $      | 0.54                                          |   |   | 5.17                                                                                      |   |
| Outstanding                at December 31, 2007    |   |   | 9,961,500  |   | $      | 0.94                                          |   |   | 4.66                                                                                      |   |
|                                               |   |   |       |   |   |                                          |   |   |                                                                                      |   |
| Exercisable                at December 31, 2007    |   |   | 2,036,500  |   | $      | 0.65                                          |   |   | 4.45                                                                                      |   |

----

**TRACEGUARD          TECHNOLOGIES INC. **

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

|   | 11) | During                the year ended December 31, 2007, the Company recorded stock-based                compensation of $988,839 related to the stock options granted out                of which                $91,394 related to stock options with a performance condition for                which                vesting was estimated by the Company's management as probable, and                the                remaining $897,445 related to stock options with service conditions. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 12) | As                Of December 31, 2007 the total unrecognized compensation cost related                to                unvested options was $ 1,232,117 out of which $ 206,922 will be                recognized over an average 1.35 years period, and the remaining $                1,025,195 in accordance with achievement of certain                milestones. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | 1) | During                the year ended December 31, 2007, 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 1,768,752 shares of its common stock, par value $0.001                each,                out of which 108,000 shares were not issued as of December 31,                2007. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | Total                stock based compensation to service providers recognized during the                year                ended December 31, 2007 was $1,638,221 This value based upon the                closing                price for the Company's share on the award's grant date. The                issuance expenses amounted to $                1,017,812. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      12 - SUBSEQUENT EVENTS**

----

**Item      8A(T).**
**Controls      and Procedures.**

*Disclosure      Controls and Procedures*

*Management’s      Report on Internal Control Over Financial Reporting *

** **

----

*Changes      in Internal Control Over Financial Reporting*

*Auditor      Attestation*

----

**PART      III**

| **Name**                          | **Age** | **Position**                                                                                              |
|-----------------------------------|---------|-----------------------------------------------------------------------------------------------------------|
| Avi                  Kostelitz    | 61      | President                  and Chief Executive Officer                                                    |
| Dr.                  Ehud Ganani  | 56      | Chairman                  of the Board of Directors                                                       |
| Dr.                  Fredy Ornath | 59      | Chief                  Scientist of the Subsidiary                                                        |
| David                  Ben-Yair   | 37      | Chief                  Financial Officer                                                                  |
| Gil                  Perlberg     | 48      | Vice                  President, Product Management & Engineering, of the                  Subsidiary |
| Jack                  Hornstein   | 61      | Director                                                                                                  |
| David                  Cohen      | 47      | Director                                                                                                  |
| Efi                  Oshaya       | 51      | Director                                                                                                  |

**Background      of Executive Officers and Directors **

**Avi      Kostelitz, 61, President and Chief Executive Officer**

**Dr.      Ehud Ganani**
**56,      Chairman of the Board of Directors**

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

----

**David      Ben-Yair, 37**
**Chief      Financial Officer**
** **

**Gil      Perlberg, 48, Vice President of Product Management and      Engineering**

**Jack      Hornstein, 61, Director**

**David      Cohen,**
**47,      Director. **

**Efi      Oshaya, 51, Director. **

----

**Family      relationships**

**Section      16(a) Beneficial Ownership Reporting Compliance **

----

**Code      of Ethics **

**Stockholder      Recommendations of Board Nominees**

**Audit      Committee and Financial Expert**

| Name                & Principal Position                                                                 | Year       | Salary(1)     | Bonus                (1) | Stock                Awards(2) |  Option                Awards(3) |  All                Other Compensation(4) |  Total     |
|--------------------------------------------------------------------------------------------------------------|------------|---------------|--------------------------|--------------------------------|---------------------------------------|------------------------------------------------|-----------------|
|                                                                                                         |       |  ($)     |  ($)                |  ($)                      |  ($)                             |  ($)                                      |  ($)       |
| (a)                                                                                                          |  (b)  |  (c)     |  (d)                |  (e)                      |  (f)                             |  (g)                                      |  (h)       |
| Dr.                Ehud Ganani - President, Chief Executive Officer and Chairman (until                2008) |  2007 |  226,327 |  32,625             |  585,750                  |  274,677                         |  53,092                (4)                |  1,172,471 |
|                                                                                                         |       |          |                     |                           |                                  |                                           |            |
| David                Ben - Yair - CFO                                                                        |  2007 |  91,119  |  30,174             |  245,958                  |  -                               |  37,871                (4)                | 405,122         |
|                                                                                                         |       |          |                     |                           |                                  |                                           |            |
| Gil                Perlberg- VP Engineering of the Subsidiary                                                |  2007 |  120,158 |  30,147             |  256,342                  |  -                               |  54,036                (4)                | 460,683         |
|                                                                                                         |       |          |                     |                           |                                  |                                           |            |
| Dr.                Fredy Ornath - Chief Scientist of the Subsidiary                                          |  2007 |  148,136 |  -                  |  -                        |  528,633                (5)      | -                                              |  676,769   |
|                                                                                                         |       |          |                     |                           |                                  |                                           |            |
| Mr.                Avi Kostelitz - Consultant                                                                |  2007 |  14,532  |  48,523             |  -                        |  39,372                          |                                           |  102,427   |

**Footnotes      to Summary Compensation Table**

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

----

|   | (2) | For                RUS evaluation, please see Note 11a of the consolidated financial                statements. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------|

|   | (3) | For                option evaluation, please see Note 11b of the consolidated financial                statements. For evaluation of Options of Dr. Ornath, please see Note                8 of                the consolidated financial                statements. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (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 is                customary in Israel. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | The                Company leases cars for the use by its employees for business, which                the                employees may use for personal purposes. Cost recognized as compensation                includes: lease payments, maintenance, fuel, insurance fees (if                applicable) and other related                expenses. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**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 TSA 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 - **

**Avi      Kostelitz**
** **

----

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

|                                                                      |   | Option                  Awards                                                   |    | 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 |   | Option                  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) |   |
|                                                                      |   | (#)                                                                              |    | (#)                                                                                |   | (#) |   | ($) |   |   |   | (#) |   | ($) |   |
| Avi                  Kostelitz,                                           |   |                                                                             | -       |                                                                               |   | - |   |   | 50,000 |   |   | 0.70 |   |   | - |   |   | - |   |   | - |   |
| Consultant                  (and, since                                   |   |                                                                             | -       |                                                                               |   | - |   |   | 70,000 |   |   | 0.70 |   |   | - |   |   | - |   |   | - |   |
| January                  2008, President and                              |   |                                                                             | 40,000  |                                                                               |   | - |   |   | - |   |   | 0.70 |   |   | 07/12/10 |   |   | - |   |   | - |   |
| Chief                  Executive Officer) (1)                             |   |                                                                             | 20,000  |                                                                               |   | - |   |   | - |   |   | 0.70 |   |   | 07/12/10 |   |   | - |   |   | - |   |
|                                                                      |   |                                                                             | 20,000  |                                                                               |   | - |   |   | - |   |   | 0.70 |   |   | 07/12/10 |   |   | - |   |   | - |   |
|                                                                      |   |                                                                             |    |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dr                  Ehud Ganani,                                          |   |                                                                             | -       |                                                                               |   | - |   |   | 200,000 |   |   | 0.70 |   |   | 06/01/11 |   |   | - |   |   | - |   |
| Chairman                  (2)                                             |   |                                                                             | -       |                                                                               |   | - |   |   | 200,000 |   |   | 0.70 |   |   | 06/01/11 |   |   | - |   |   | - |   |
|                                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | 500,000 |   |   | 0.70 |   |   | 12/01/12 |   |   | - |   |   | - |   |
|                                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | 400,000 |   |   | 0.70 |   |   | 12/01/12 |   |   | - |   |   | - |   |
|                                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | - |   |   | - |   |   | - |   |   | 137,500 |   |   | 74,250 |   |
|                                                                      |   |                                                                             | 290,000 |                                                                               |   | 1,160,000 |   |   | - |   |   | 0.35 |   |   | 07/29/14 |   |   | - |   |   | - |   |
|                                                                      |   |                                                                             |    |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fredy                  Ornath, Chief                                      |   |                                                                             | 90,000  |                                                                               |   | - |   |   | - |   |   | 0.70 |   |   | 05/15/11 |   |   | - |   |   | - |   |
| Scientist                  (Ltd) (3)                                      |   |                                                                             | 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 |   |   | 06/15/11 |   |   | - |   |   | - |   |
|                                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | 1,200,000 |   |   | 1.50 |   |   | 06/15/12 |   |   | - |   |   | - |   |
|                                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | 1,500,000 |   |   | 1.75 |   |   | 12/15/12 |   |   | - |   |   | - |   |
|                                                                      |   |                                                                             |    |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| David                Ben-Yair, Chief Financial Officer                (4) |   |                                                                             | -       |                                                                               |   | - |   |   | - |   |   | - |   |   | - |   |   | 56,667 |   |   | 30,600 |   |
|                                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | - |   |   | - |   |   | - |   |   | 90,000 |   |   | 48,600 |   |
|                                                                      |   |                                                                             |    |                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gil                    Perlberg, VP                                       |   |                                                                             | -       |                                                                               |   | - |   |   | - |   |   | - |   |   | - |   |   | 56,667 |   |   | 30,600 |   |
| Engineering                    (Ltd) (5)                                  |   |                                                                             | -       |                                                                               |   | - |   |   | - |   |   | - |   |   | - |   |   | 90,000 |   |   | 48,600 |   |
|                                                                      |   |                                                                             | -       |                                                                               |   | - |   |   | - |   |   | - |   |   | - |   |   | 50,000 |   |   | 27,000 |   |

**Footnotes      to Outstanding Equity Awards **

|   | (1) | Avi                Kostelitz - |
|--------|-----|--------------------------------|

----

|   | (2) | 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, 2007, a total of 412,500 RSUs have vested. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | On                May 21, 2007 the Subsidiary has entered into a second amendment (the                "Amendment") of its Consulting Agreement (the "Agreement") with Dr.                Ehud                Ganani, the Company's Chairman, President and CEO. Pursuant to the                amendment, a certain milestone related to the vesting of options                to                purchase 200,000 shares of the Company's common stock, was restated                to be                'the receipt of the written approval of a Security Organization for                the                fulfillment of the security demands by the CompactSafe and for the                operational use of the CompactSafe' (rather than the original security                demands and operational use of the CarrySafe, which was originally                intended to be the Company’s first product, rather than                CompactSafe). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | On                May 29, 2007, the Company granted to Dr. Ehud Ganani, Chairman of                the                Company, a stock option (the “Ganani Option”) to purchase 1,450,000 shares                of the Company’s common stock, at an exercise price of $0.35 per share.The                Ganani Option has a term of seven years, may only be exercised to                the                extent that the Company has sufficient surplus to exercise the Ornath                Option (see below) and vests according to a vesting schedule, identical                to                the Ornath Option. In addition, the Ganani Option terminates upon                the                cessation of Dr. Ganani’s employment with the Company or its subsidiary                under certain specified conditions. On January 1, 2008, Dr. Ganani                resigned as CEO and, as a result, the unvested portion of the Ganani                Option (equal to options to purchase 1,160,000 shares) terminated.                As a                result, the remainder of the Ornath Option for the same amount of                shares                also terminated. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | See                also note 9 to the Financial Statements, regarding options and RSUs                granted to Dr Ganani. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------|

|   | (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, 2007                options                to purchase 630,000 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. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | c. | On                May 29, 2007 Dr. Ornath granted the Company a stock option, pursuant                to                which the Company may purchase up to 1,450,000 shares of the Company’s                common stock owned by Dr. Ornath (the "Ornath Option"). The purpose                of                this grant was to fulfill the Company's obligation upon exercise                of an                option granted to Dr. Ganani, see the “Ganani Option”.The Ornath Option is                exercisable according to a certain vesting schedule throughout April                1,                2009. However, the Ornath Option is exercisable if, and only if,                and to                the extent that, certain stock option between the Company and its                Chairman, President and CEO, at the time, Dr. Ehud Ganani ("Ganani                Option"), is exercised. The Ornath Option shall be terminated immediately                upon termination of the Ganani Option with respect to shares that                are                unvested, according to the aforementioned vesting schedule. The Ornath                Option is exercisable for $0.35 per share and expires on the 7th                anniversary of its grant. See also note 8 to the financial                statements.  As                of January 1, 2008, as a consequence of the termination of Dr. Ganani’s                employment, the number of shares underlying the Ornath Option was                reduced                to 290,000. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (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, 2007, a total of 113,333 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, 2008. On July 29, 2007 , Mr. Ben Yair was granted 180,000 restricted                stock units which can be settled in stock only and vested after one                year                as of June 1, 2008. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (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, 2007, a total of 113,333 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,                2008. On July 29, 2007 , Mr. Perlberg Gil was granted 180,000 restricted                stock which can be settled in stock only and vested after one year                as of                June 1, 2008. On July 29, 2006 the Company granted Gil Perlberg 50,000                restricted stock units (RSU) vested upon the achievement of certain                milestones. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | All                awards in this column were granted pursuant to the Company's 2006                Global                Stock Incentive Compensation Plan (see note 11a to the 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 2007                ($0.54). |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Compensation      of Directors**

|  Name                    |  Fees                Earned or Paid in Cash |  Option                awards | Total         |
|-------------------------------|--------------------------------------------------|------------------------------------|---------------|
|                          |  ($)                                        |  ($)                          |  ($)     |
| Jack                Hornstein |  5,000                                      |  100,831                (1)   |  105,831 |
| David                Cohen    |  -                                          |  38,621                (2)    | 38,621        |
| Efi                Oshaya     |  -                                          |   -                      |  -       |

| Title                Of Class |   | Name                of Beneficial Owner (1) |                                                                                       | Number                of shares ofCommon                StockBeneficially                Owned |   | Percentage                ofCommon                Stock (2) |   |
|-------------------------------|--------|---------------------------------------------|--------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------|--------|
| Common                Stock   |   |                                        | Avi                Kostelitz                                                               |                                                                                           |   | 1,130,000                                                   | (5)    |   | 2.8 | % |
| Common                Stock   |   |                                        | Dr.                Ehud Ganani                                                             |                                                                                           |   | 702,500                                                     | (3)    |   | 1.7 | % |
| Common                Stock   |   |                                        | David                Ben-Yair                                                              |                                                                                           |   | 321,667                                                     | (3)    |   | 0.8 | % |
| Common                Stock   |   |                                        | Jack                Hornstein                                                              |                                                                                           |   | 165,000                                                     | (6)    |   | 0.4 | % |
| Common                Stock   |   |                                        | Gil                Perlberg                                                                |                                                                                           |   | 321,667                                                     | (3)    |   | 0.8 | % |
| Common                Stock   |   |                                        | Dr.                Fredy Ornath                                                            |                                                                                           |   | 10,689,990                                                  | (4)    |   | 26 | % |
| Common                Stock   |   |                                        | David                Cohen                                                                 |                                                                                           |   | 147,000                                                     | (7)    |   | 0.4 | % |
| Common                Stock   |   |                                        | Efi                Oshaya                                                                  |                                                                                           |   | 144,000                                                     | (8)    |   | 0.4 | % |
|                          |   |                                        | **All                  officers and directors as a group****(8                  persons)** |                                                                                           |   | 13,621,823                                                  |   |   | 33.3 | % |

|   | (1) | 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 38,308,542 shares of common stock                outstanding as of April 13, 2008, together with securities exercisable                or                convertible into shares of common stock within 60 days of April 13,                2008                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 April 13, 2008 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) | Includes                1,055,834 Restricted Stock Units vested by June 13, 2008 and currently                exercisable options to purchase 290,000 shares of common                stock. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Consists                of 9,879,990 shares of common stock and 810,000 currently exercisable                options. 8,859,990 shares were pledged by Dr.                Fredy Ornath                to                "Bank Leumi of Israel Ltd" as collateral for a personal loan granted                to                him by the bank. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Includes                1,050,000 shares of common stock and 80,000 currently exercisable                options |
|--------|-----|------------------------------------------------------------------------------------------------------------------|

|   | (6) | Consists                of shares subject to currently exercisable                options |
|--------|-----|-------------------------------------------------------------------------------------------|

|   | (7) | Consists                36,000 shares of common stock 36,000 currently exercisable warrants                and                75,000 currently                exercisable options |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (8) | Consists                72,000 shares of common stock and 72,000 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 under Equity                  Compensation Plans |   |
|---------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                          |   | (a)                                                                                                                                            |       | (b)                                                                                                           |   | (c)                                                                                                                            |   |
|                                                                                                          |   |                                                                                                                                           |       |                                                                                                          |   |                                                                                                                           |   |
| Equity                  compensation plans approved by security holders                                       |   |                                                                                                                                           | -          |                                                                                                          |   | -                                                                                                                              |   |   | - |   |
| Equity                  compensation plans                  not approved by security                  holders |   |                                                                                                                                           | 1,722,583  | (1)                                                                                                           |   | -                                                                                                                              |   |   | 577,417 |   |
|                                                                                                               |   |                                                                                                                                           | 3,889,000  | (2)                                                                                                           |   | $0.6                                                                                                                           |   |   | - |   |
|                                                                                                               |   |                                                                                                                                           | 6,072,500  | (3)                                                                                                           |   | $1.2                                                                                                                           |   |   | - |   |
|                                                                                                               |   |                                                                                                                                           | -          |                                                                                                          |   | -                                                                                                                              |   |   | (4) |   |
| Total                                                                                                         |   |                                                                                                                                           | 11,684,083 |                                                                                                          |   | -                                                                                                                              |   |   | 577,417 |   |

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

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

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

|   | (4) | Additional                shares may be issued in the future in connection with additional                investments made as a result of introductions by consultants and                finders. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

***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                of the Company, as amended on August 23, 2007                                                                                                                                                                                                                                                                                                                                                                           |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.1                               |   | Form                of Warrant issued in connection with March 26, 2007 Regulation S                private                placement (incorporated by reference to the Company’s Form 10-KSB for the                fiscal year ended December 31, 2006 filed on March 30,                2007)                                                                                                                                         |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.2                               |   | Form                of Option to Purchase 1,450,000 shares of Common Stock issued by                Dr. Fredy                Ornath to the Company (incorporated by reference to the Company’s Current                Report on Form 8-K filed on June 1, 2007)                                                                                                                                                                         |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.3                               |   | Form                of Option to Purchase 1,450,000 shares of Common Stock issued by                the                Company to Dr. Ehud Ganani (incorporated by reference to the Company’s                Current Report on Form 8-K filed on June 1, 2007)                                                                                                                                                                          |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.4                               |   | Grant                Letter, dated August 9, 2007, between the Company and Akis Ltd. setting                forth the terms of terms of the options granted pursuant to the Consulting                Agreement, dated as of August 9, 2007, by and between the Subsidiary                and                Akis, Ltd. (incorporated by reference to the Company’s Current Report on                Form 8-K filed on January 8, 2008) |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.5                               |   | Form                of Warrant to Purchase 1,275,000 shares of Common Stock issued by                the                Company in connection with a December 16, 2007 Regulation S Private                Placement (incorporated by reference to the Company’s Current Report on                Form 8-K filed on December 17, 2007)                                                                                                  |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.1                              |   | 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)                                                                                                                                             |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.2+                             |   | 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)                                                                                                                                  |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.3+                             |   | 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 10, 2006)                                                                                                                                                                                     |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.4+                             |   | 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 7, 2006)                                                                                                                                                                      |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.5+                             |   | 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 7, 2006)                                                                                                                                                      |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.6+                             |   | First                Amendment, dated July 6, 2006, to 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 July 7,                2006)                                                                                                                              |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.7+                             |   | 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 7, 2006)                                                                                |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.8+                             |   | Amendment,                dated July 15, 2007, to Employment Agreement of David Ben-Yair, dated                July                6, 2006 (incorporated by reference to the Company’s Current Report on Form                8-K filed on July 19, 2007)                                                                                                                                                                                |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 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)                                                                                                                                                                                                                                 |

----

| **Exhibit                Number** |   | **Description                of Exhibit** |
|-----------------------------------|--------|-------------------------------------------|

| 10.10  |   | Consulting                Agreement, dated as of August 9, 2007, by and between the Subsidiary                and                Akis, Ltd. (incorporated by reference to the Company’s Current Report on                Form 8-K filed on January 8, 2008)                                                                                                                                                  |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.11  |   | Confidential                Private Placement Subscription Agreement, dated as of December 16,                2007,                in connection with a December 16, 2007 Regulation S Private Placement                (incorporated by reference to the Company’s Current Report on Form 8-K                filed on December 17, 2007)                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.12  |   | Letter                Agreement, dated January 8, 2007, by and between the Company, the                Subsidiary and Akis, Ltd. terminating the Consulting Agreement, dated                as                of August 9, 2007, by and between the Subsidiary and Akis, Ltd.                (incorporated by reference to the Company’s Current Report on Form 8-K                filed on January 8, 2008) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                               |
| 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)                                                                                                                                                                                                       |

----

----

----

|         |                                                                                              |                                              |
|--------------|---------------------------------------------------------------------------------------------------|---------------------------------------------------|
|         | TRACEGUARD                TECHNOLOGIES, INC.                                                      |
|    |                                                                                         |                                         |
|              | By:                                                                                     | /s/              Avi              Kostelitz  |
|         | Avi                Kostelitz                                                                      |
|         | President                and Chief Executive Officer (Principal                Executive Officer) |

|        |                                                                                                                   |                                  |
|--------|------------------------------------------------------------------------------------------------------------------------|---------------------------------------|
|        | By:                                                                                                          | /s/              David Ben-Yair  |
|   | David                  Ben-Yair                                                                                        |
|   | Chief                  Financial Officer(Principal                  Financial and Accounting                  Officer) |

| SIGNATURE                                                                |   | TITLE                                                |   | DATE                          |
|--------------------------------------------------------------------------|--------|------------------------------------------------------|--------|-------------------------------|
|                                                                     |   |                                                 |   |                          |
|                                                                     |   |                                                 |   |                          |
| /s/                Avi KostelitzAvi                Kostelitz             |   | President                and Chief Executive Officer |   | April                13, 2008 |
|                                                                     |   |                                                 |   |                          |
|                                                                     |   |                                                 |   |                          |
| /s/                David Ben-YairDavid                Ben-Yair           |   | Chief                Financial Officer               |   | April                13, 2008 |
|                                                                     |   |                                                 |   |                          |
|                                                                     |   |                                                 |   |                          |
| /s/                Ehud Ganani  Dr.                Ehud Ganani |   | Chairman                of the Board                 |   | April                13, 2008 |
|                                                                     |   |                                                 |   |                          |
|                                                                     |   |                                                 |   |                          |
| /s/                David CohenDavid                Cohen                 |   | Director                                             |   | April                13, 2008 |
|                                                                     |   |                                                 |   |                          |
|                                                                     |   |                                                 |   |                          |
| /s/                Jack Hornstein Jack                Hornstein          |   | Director                                             |   | April                13, 2008 |
|                                                                     |   |                                                 |   |                          |
|                                                                     |   |                                                 |   |                          |
| /s/                Efi OshayaEfi                Oshaya                   |   | Director                                             |   | April                13, 2008 |

----