**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




FORM
      10-KSB




(Mark
      One)




[
              x
              ]
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURTIES EXCHANGE ACT OF
                1934
              For
                the fiscal year endedJune
                30, 2006




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




For
      the
      transition period from _____________ to ____________




Commission
      file number 333-120936




THE
      MEDICAL EXCHANGE INC.




(Name
      of
      small business Issuer in its charter)





**NEVADA**
              **(State
                or other jurisdiction of incorporation or
                organization)**
            **71-0915825**
              **(I.R.S.
                Employer Identification
                No.)**





17
      State Street


New
      York, New York 10004


**(Address
      of principal executive offices, including zip code)**




**212-269-4051** ****


(Issuer's
      telephone number)




Securities
      registered under Section 12(b) of the Exchange
      Act: **None**




Securities
      registered under Section 12(g) of the Exchange
      Act: **Common
      Stock**




Check
      whether the Issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes [ X ] No [  ]




Check
      if
      there is no disclosure of delinquent filers in response pursuant to Item 405
      of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of registrant's knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB. [ x ]




Indicate
      by a check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ 
].




The
      Company's revenues during the year ended June 30, 2006 were $0.




As
      of
      October 31, 2006, there were 10,200,000 outstanding shares of the issuer's
      common stock. The issuer's common stock is quoted on the over-the-counter
      Bulletin Board. The Company does not believe that its common stock is the
      subject of an active market. There have been no transactions in the issuer’s
      common stock during the past 60 days. Accordingly, the market value of the
      issuer's common stock held by non-affiliates was 0.




Transitional
      Small Business Disclosure Format (check one) Yes [  ] No [
      X]







**PART
      I**




**Item
      1. Description of Business**




We
      were
      incorporated in the state of Nevada on January 23, 2004. Although we have
      previously been engaged in the research, develop and assembly of transcription
      factor library, we currently do not have any significant business operations.





On
      July
      19, 2006, we entered into a Securities Purchase Agreement (the “Agreement”) with
      IDO Securities Limited, a privately held company organized under the laws of
      the
      State of Israel (“IDO”) that is engaged in the homeland security business, and
      the holders of all of the issued and outstanding share capital of IDO
      (collectively the “Selling Shareholders”), pursuant to which we agreed to
      purchase all of the issued and outstanding share capital of IDO and certain
      specified IDO assets (the “Proposed Transaction”). IDO, based in Israel,
      develops and sells devices to detect metal and other materials which are
      incorporated in metal detector gates. IDO currently has one commercialized
      product called the ‘Magshoe’ which detects metals inside shoes as well as next
      to or above the ankles. Under the terms of the Proposed Transaction, we will
      be
      paying the Selling Shareholders $1,000,000. If the Proposed Transaction closes
      as contemplated, IDO will become our wholly-owned subsidiary and our current
      “shell company” status would terminate. Under the terms of the Agreement (until
      the earlier of the Closing or the termination of the Agreement), we undertook
      to
      use commercial efforts to advance $40,000 per month to finance the monthly
      business operations of IDO.




**Item
      2. Description of Property**




Our
      offices are located at 17 State Street, New York, NY 1004. The offices are
      provided to us at no charge. We do not own or lease any other real
      property.




**Item
      3. Legal Proceedings**




We
      are
      not currently engaged in any litigation or other legal proceedings.




**Item
      4. Submission of Matters to a Vote of Security Holders**




Not
      Applicable.




**PART
      II**




**Item
      5.  Market For Common Equity And Related Stockholders
      Matters**




Currently
      there is no established public trading market for our common stock. There are
      currently 11 holders of record of our common stock.




We
      have
      not declared any dividend on our common stock since the inception of our company
      on January 23, 2004. There is no restriction in our Articles of Incorporation
      and Bylaws that will limit our ability to pay dividends on our common stock.
      However, we do not anticipate declaring and paying dividends to our shareholders
      in the near future.




We
      do not
      have any compensation plans under which equity securities are authorized for
      issuance.







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





Although
      we have previously been engaged in the research, develop and assembly of
      transcription factor library, we currently do not have any significant business
      operations. On July 19, 2006, we entered into the Agreement with IDO, pursuant
      to which we agreed to purchase all of the issued and outstanding share capital
      of IDO and certain specified IDO assets. IDO, based in Israel, develops and
      sells devices to detect metal and other materials which are incorporated in
      metal detector gates. IDO currently has one commercialized product called the
      ‘Magshoe’ which detects metals inside shoes as well as next to or above the
      ankles. Under the terms of the Proposed Transaction, we will be paying the
      Selling Shareholders $1,000,000. If the Proposed Transaction closes as
      contemplated, IDO will become our wholly-owned subsidiary and our current “shell
      company” status would terminate. Under the terms of the Agreement (until the
      earlier of the Closing or the termination of the Agreement), we undertook to
      use
      commercial efforts to advance $40,000 per month to finance the monthly business
      operations of IDO.




Our
      independent auditors have issued an opinion about our ability to continue as
      a
      going concern in connection with our audited financial statements for the year
      ended June 30, 2006. Our accumulated deficit is $123,400 as of June 30,
      2006.




The
      following discussion should be read in conjunction with our financial statements
      and the related notes that appear elsewhere herein. The following discussion
      contains forward-looking statements that reflect our plans, estimates and
      beliefs. Our actual results could differ materially from those discussed in
      the
      forward-looking statements.




**RESULTS
      OF OPERATIONS**




*From
      July 1, 2004 to June 30, 2005*




For
      the
      period from June 30, 2004 to June 30, 2005, we did not generate any revenue.
      Our
      operating activities during this period consisted primarily of conducting
      research of Transcription Factors




Total
      operating expenses for the period from June 30, 2004 to June 30, 2005 were
      $55,751. Out of these total expenses, professional fees paid to our independent
      auditors and legal counsel for the period from June 30, 2004 to June 30, 2005
      were $48,922. Bank charges and other office charges for the period from June
      30,
      2004 to June 30, 2005 were $115. Other operating expenses, including
      registration, filing and web design, for the period from June 30, 2004 to June
      30, 2005 were $6,714.




*From
      July 1, 2005 to June 30, 2006*




For
      the
      period from July 1, 2005 to June 30, 2006, we did not generate any revenue.
      Our
      operating activities during this period consisted primarily of conducting
      research of Transcription Factors




Total
      operating expenses for the period from July 1, 2005 to June 20, 2006 were
      $58,896. Out of these total expenses, professional fees paid to our independent
      auditors and legal counsel for the period from July 1, 2005 to June 20, 2006
      were $48,838. Bank charges and other office charges for the period from July
      1,
      2005 to June 20, 2006 were $426. Other operating expenses, including
      registration and filing fees, for the period from July 1, 2005 to June 20,
      2006
      were $9,632.


2




**PLAN
      OF OPERATION**





Although
      we have previously been engaged in the research, develop and assembly of
      transcription factor library, we currently do not have any significant business
      operations. On July 19, 2006, we entered into the Agreement with IDO, pursuant
      to which we agreed to purchase all of the issued and outstanding share capital
      of IDO and certain specified IDO assets. IDO, based in Israel, develops and
      sells devices to detect metal and other materials which are incorporated in
      metal detector gates. IDO currently has one commercialized product called the
      ‘Magshoe’ which detects metals inside shoes as well as next to or above the
      ankles. Under the terms of the Proposed Transaction, we will be paying the
      Selling Shareholders $1,000,000. If the Proposed Transaction closes as
      contemplated, IDO will become our wholly-owned subsidiary and our current “shell
      company” status would terminate. Under the terms of the Agreement (until the
      earlier of the Closing or the termination of the Agreement), we undertook to
      use
      commercial efforts to advance $40,000 per month to finance the monthly business
      operations of IDO.




**LIQUIDITY
      AND CAPITAL RESOURCES**




Presently,
      we do not have any revenues. On June 19, 2006, pursuant to share purchase
      agreements, we issued to 11 institutional and private investors an aggregate
      of
      8,037,500 shares of common stock, par value $0.001 per share (hereinafter the
      “Common Stock”), for aggregate gross consideration to the Company of $80,375. We
      intend to use the proceeds from that sale of stock to fund the operation of
      our
      business until the closing of the Proposed Transaction. However, our cash and
      working capital is not sufficient to enable us to carry out our operations
      for
      the next 12 months without additional financing. There is no assurance that
      we
      will obtain any additional financing.




Due
      to
      the uncertainty of our ability to meet our current operating and capital
      expenses, in their report on the annual financial statements for the period
      ended June 30, 2006, our independent auditors included an explanatory paragraph
      regarding concerns about our ability to continue as a going concern. Our
      financial statements contain additional note disclosures describing the
      circumstances that lead to this disclosure by our independent
      auditors.




**ITEM
      7. FINANCIAL STATEMENTS**




The
      information called for by this Item 7 is included following the "Index to
      Financial Statements" contained in this Annual Report on Form 10-KSB.




**Item
      8.  Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure**




None.




**Item
      8A.  Controls and Procedures**




Based
      on
      the most recent evaluation, which was completed within 90 days of filing of
      this
      Form 10-KSB, our principal executive officer and principal accounting officer
      believe our disclosure controls and procedures (as defined in Exchange Act
      Rule
      13a-14 and 15d-14) are effective. There were no significant changes in our
      internal controls, nor other facts that would significantly affect these
      controls subsequent to the date of this evaluation, including any corrective
      actions with regard to significant deficiencies and material
      weaknesses.




**Item
      8B.**  **Other
      Information**




None.


3




**PART
      III**




**Item
      9.  Directors, Executive Officers, Promoters and Control Persons;
      Compliance with Section 16(A) of The Exchange Act.**




Set
      forth
      below is certain information relating to the members of our Board of Directors
      and executive officers during the year ended June 30, 2006. These individuals
      resigned from all positions with us as of June 17, 2006.





**Name**
            **Position
                Held with**
              **the
                Company**
            **Age**
            **Date
                First Elected**
              **or
                Appointed***Zhao
                Zhiying*
            *President,
                Secretary, Treasurer and Director*
            31
            January
                23, 2004*Chen
                Han Xiang*
            Vice
                President and Director
            64
            January
                26, 2004




*Business
      Experience*




The
      following is a brief account of the education and business experience of each
      these persons during at least the past five years, indicating each person's
      business experience, principal occupation during the period, and the name and
      principal business of the organization by which he was employed.




*Zhiying
      Zhao, President, Secretary, Treasurer and Director*




From
      1998
      to 2000, Ms. Zhao was a visiting scholar of University of Georgia and Ohio
      State
      University. From 2000 to 2003, Ms. Zhao served as senior researcher in the
      University of Toronto and National Research Council of Canada. She holds an
      MSc.
      from the University of Toronto.




*Chen
      Han Xiang, Vice President and Director*




Dr.
      Chen
      served as a pharmaceutical researcher focusing on gene regulating drugs in
      Hebei
      Agriculture University, China, where he was part of the team that established
      cell-based, high throughput screening of small molecule modulators of specific
      transcription factors. He leads research efforts in the development of mammalian
      cell-based assays for gene transcription and the automation of these assays
      for
      selection of therapeutic targets and compounds. Dr. Chen holds a Ph.D. from
      Hebei Agriculture University, China, where he continues to conduct research
      for
      us.




Dr.
      Chen
      Han Xiang currently spends approximately 40 hours per week providing services
      to
      our company, which represents approximately 100% of his working hours
      .




Ms.
      Zhao
      resigned form the Board on June 29, 2006. Dr. Chen resigned from the Board
      in
      July 2006.




Officers
      and Directors --- Effective July 2006


4




DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS




All
      directors of our company hold office until the next annual meeting of the
      stockholders or until their successors have been elected and qualified. The
      officers of our company are appointed by our board of directors and hold office
      until their death, resignation or removal from office. Our directors and
      executive officers, their ages, positions held, and duration as such, are as
      follows:










**Name**
            **Position
                Held with**
              **the
                Company**
            **Age**
            **Date
                First Elected**
              **or
                Appointed**Irit
                Reiner
            Director
            47
            July
                9, 2006Michael
                Goldberg
            Director
                and Acting Chief Executive Officer
            56
            July
                2006









*Business
      Experience*




The
      following is a brief account of the education and business experience of each
      director and executive officer during at least the past five years, indicating
      each person's business experience, principal occupation during the period,
      and
      the name and principal business of the organization by which he was
      employed.




***Irit
      Reiner*** has
      approximately 25 years experience in the field of arranging and overseeing
      the
      provision of recreational touring services to individuals and groups. From
      January 2002 to March 2006, Ms. Reiner devoted the majority of her time to
      completing the requisite coursework and obtaining an MBA in business
      administration from the Jerusalem School of Business Administration at the
      Hebrew University in Jerusalem (October 2002 to June 2004) and from September
      2004 to March 2006 she was enrolled in a post graduate course at the Israel
      Management Center. From February 1997 to April 2002 she was affiliated with
      Diesenhuas Peltours, an Israeli based tour operator with various branch offices
      throughout Israel, where she oversaw the management and operation of several
      of
      their branch offices.







***Michael
      Goldberg*** serves
      as Chief Executive Officer of Rx Medical Services Corp., a position he has
      held
      from May 1991. RXM was a medical company, which at one time managed and owned
      small rural hospitals, clinical laboratories and MRI/CT centers and is now
      inactive. Mr. Goldberg currently also serves as a Director of Kreisler
      Industries a publicly traded aero-space engineering company and serves on its
      Audit and Compensation committee. Mr. Goldberg also consults to both private
      and
      public companies.






**Conflicts
      of Interest**




We
      believe that none of our officers or directors will be subject to conflicts
      of
      interest.




**Involvement
      in Certain Legal Proceedings**




To
      our
      knowledge, during the past five years, our officer and director has: (1) not
      filed a petition under the federal bankruptcy laws or any state insolvency
      law,
      nor had a receiver, fiscal agent or similar officer appointed by a court for
      the
      business or present of such a person, or any partnership in which he was a
      general partner at or within two yeas before the time of such filing, or any
      corporation or business association of which he was an executive officer within
      two years before the time of such filing; (2) were convicted in a criminal
      proceeding or named subject of a pending criminal proceeding (excluding traffic
      violations and other minor offenses); (3) were the subject of any order,
      judgment or decree, not subsequently reversed, suspended or vacated, of any
      court of competent jurisdiction, permanently or temporarily enjoining him from
      or otherwise limiting the following activities: (i) acting as a futures
      commission merchant, introducing broker, commodity trading advisor, commodity
      pool operator, floor broker, leverage transaction merchant, associated person
      of
      any of the foregoing, or as an investment advisor, underwriter, broker or dealer
      in securities, or as an affiliated person, director of any investment company,
      or engaging in or continuing any conduct or practice in connection with such
      activity; (ii) engaging in any type of business practice; (iii) engaging in
      any
      activity in connection with the purchase or sale of any security or commodity
      or
      in connection with any violation of federal or state securities laws or federal
      commodity laws; (4) were the subject of any order, judgment or decree, not
      subsequently reversed, suspended or vacated, of any federal or state authority
      barring, suspending or otherwise limiting for more than 60 days the right of
      such person to engage in any activity described above under this Item, or to
      be
      associated with persons engaged in any such activity; (5) were found by a court
      of competent jurisdiction in a civil action or by the Securities and Exchange
      Commission to have
      violated any federal or state securities law and the judgment in subsequently
      reversed, suspended or vacate; (6) were found by a court of competent
      jurisdiction in a civil action or by the Commodity Futures Trading Commission
      to
      have violated any federal commodities law, and the judgment in such civil action
      or finding by the Commodity Futures Trading Commission has not been subsequently
      reversed, suspended or vacated.


5






**Code
      of Ethics**




We
      have
      adopted a code of ethics in compliance with Item 406 of Regulation S-B that
      applies to our principal executive officer, principal financial officer,
      principal accounting officer or controller, or persons performing similar
      functions. We undertake herewith to provide by mail to any person without
      charge, upon request, a copy of such code of ethics if we receive the request
      in
      writing by mail to the address listed on the cover page of this Annual Report
      on
      Form 10-KSB.




**Audit
      Committee and Audit Committee Financial Expert**




At
      present we do not have a separately designated standing audit committee. The
      entire board of directors is acting as our Company's Audit Committee, as
      specified in section 3(a)(58)(b) of the Exchange Act. The board of directors
      has
      determined that at present we have no audit committee financial expert serving
      on the Audit Committee. Our company, at present, does not have any operations.
      We are seeking, however, to have a financial expert in our Audit
      Committee.




**Item
      10. Executive Compensation**




**Compensation**




We
      have
      not paid any compensation to its Chief Executive Officer, or to any other
      executive officer, since its incorporation in January 23, 2004.




**Employment
      Agreements**




We
      have
      not entered into any employment agreement or consulting agreement with our
      directors and executive officers. There are currently no arrangements or plans
      in which we provide pension, retirement or similar benefits for directors or
      executive officers. Our directors and executive officers may receive stock
      options at the discretion of our board of directors in the future. We do not
      have any material bonus or profit sharing plans pursuant to which cash or
      non-cash compensation is or may be paid to our directors or executive officers,
      except that stock options may be granted at the discretion of our board of
      directors.




At
      the
      closing of the Proposed Transaction, Mr. Gill Stiss (“Stiss”), the current
      president of IDO and one our stockholders, is to be appointed to our Board
      of
      Directors. Stiss will continue to serve as a director of IDO post closing.
      In
      addition, at closing, IDO, as our wholly-owned subsidiary, and Stiss will enter
      into an employment agreement pursuant to which Stiss is to be retained as IDO’s
      Chief Technology Officer. The initial term of the employment agreement is to
      be
      three years which will be automatically renewable for successive two year terms
      unless IDO or Stiss indicate in writing, upon 120 days prior to the scheduled
      termination of the initial term or any renewal term, that such party does not
      intend to renew the agreement. The gross monthly salary which Stiss shall be
      entitled to under the employment agreement, including all fringe benefits
      (insurance, cell phone, car lease), will be NIS 60,000 (approximately $13,333).
      Under the terms of the employment agreement, Stiss will be entitled to spend
      up
      to 10% of his working time working for another company he currently owns. The
      employment agreement may be terminated by Stiss for any reason on 90 days
      written notice or for Good Reason (as defined in the employment agreement)
      or by
      IDO for Just Cause (as defined in the employment agreement) or for any other
      reason. In the event of a termination by Stiss for Good Reason or by IDO for
      any
      reason other than Just Cause, IDO is to pay Stiss an amount equal to Stiss’
salary then payable from the date of such termination to the end of the term.
      Termination of Stiss’ employment for cause shall automatically be deemed as
      Stiss’ resignation from the Board of Directors of IDO and the
      Company.


6




*Directors
      Compensation*




We
      reimburse our directors for expenses incurred in connection with attending
      board
      meetings but did not pay director's fees or other cash compensation for services
      rendered as a director in the period ended June 30, 2006.




We
      have
      no formal plan for compensating our directors for their service in their
      capacity as directors. We may grant to our directors in the future options
      to
      purchase shares of common stock as determined by our Board of Directors or
      a
      compensation committee which may be established in the future. Directors are
      entitled to reimbursement for reasonable travel and other out-of-pocket expenses
      incurred in connection with attendance at meetings of our board of directors.
      The board of directors may award special remuneration to any director
      undertaking any special services on behalf of the Company other than services
      ordinarily required of a director. Other than indicated in this report, no
      director received and/or accrued any compensation for his or her services as
      a
      director, including committee participation and/or special
      assignments.




**Item
      11.  Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters**





The
      following table sets forth certain information as of October 30, 2006, with
      respect to the ownership of Common Stock by of more than five percent of any
      class of the Company's voting securities. None of our directors or officers
      owned any shares of our Common Stock as of such date.




**Name
                and Address of Beneficial Owner**
            
            
            **Common
                Stock**
              **Beneficially
                Owned**
            
            **Percentage
                of**
              **Common
                Stock**Mr.
                Gil Stiss
              41/13
                Nahal Lachish St., Ashdod, Israel 77707
            
            
            1,700,000
            (1)
            
            16.75
            %Rolfe
                Investment Ltd.
              Chamerstrasse
                12cPOB 4436 Zug.
              Switzerland
                6304
            
            
            916,667
            
            
            9.03
            %Mr.
                Zeev Bronfeld
              6
                Uri Street
              Tel
                Aviv, Israel
            
            
            916,667
            
            
            9.03
            %EDA
                Capital Corporation
              1685
                - 54th Street, Brooklyn NY 11204
            
            
            916,667
            
            
            9.03
            %ACC
                Holdings Ltd.
              Pasea
                Estate, Road Town, Tortola, British Virgin Island
            
            
            916,667
            
            
            9.03
            %Pentium
                Management Ltd.
              12
                Parnes Str, Apt 10
              Har
                Nof, Jerusalem
              Israel
            
            
            916,666
            
            
            9.03
            %Zegal
                & Ross Capital LLC
              20
                Robert Pitt Drive, Suite 214
              Monsey,
                New York 10952
            
            
            916,666
            
            
            9.03
            %Ms.
                Adi Levy
              7
                Sapir St., Gedera, Israel 70700
            
            
            900,000
            (2)
            
            8.87
            %Melton
                Management LimitedP.O. Box 3161
              Road
                Town, Tortola, British Virgin Islands
            
            
            847,000
            
            
            8.34
            %Mr.
                Yoav Hirsch
              POB
                4056 Caesarea, Israel 38900
            
            
            750,000
            (2)
            
            7.40
            %





7




**(1)**
            The
                stockholder holds an irrevocable proxy from the holders of an additional
                1,950,000 shares of Common Stock to vote their shares on all matters
                submitted to stockholders. The selling stockholder disclaims any
                beneficial interest in the shares to which he holds a
                proxy.




**(2)**
            The
                stockholder gave an irrevocable proxy to the stockholder referred
                to in
                footnote (1) to vote its shares on all matters submitted to
                stockholders.











**Item
      12.  Certain Relationships and Related
      Transactions**




Other
      than the Proposed Transaction, the details of which are provided above and
      incorporated herein by reference, we have not been a party to any transaction,
      proposed transaction, or series of transactions in which the amount involved
      exceeds $60,000, and in which, to our knowledge, any of our directors, officers,
      five percent beneficial security holder, or any member of the immediate family
      of the foregoing persons has had or will have a direct or indirect material
      interest.




**Item
      13. Exhibits**




Exhibits





Exhibit
                No.
            Document
                Description3.1*
            Articles
                of Incorporation3.2*
            Bylaws4.1*
            Specimen
                ordinary share certificate31.1
            Rule
                13a-14(a)/15d-14(a) Certification32.1
            Section
                1350 Certification




*  Incorporated
      by reference to same exhibit filed with the Company's Registration Statement
      on
      Form SB-2 dated December 1, 2004.


8




**Item
      14  Principal Accountant Fees and Services**




(1)
      Audit
      Fee (including review of interim financial statements).




Audit
      Fees consist of fees for professional services rendered for the audit of our
      consolidated financial statements included in the Annual Report on Form 10-KSB
      and the review of the interim financial statements included in the Quarterly
      Reports on Form 10-QSB, and for the services that are normally provided in
      connection with regulatory filings or engagements. The
      aggregate fees billed by our accountant, Amisano Hanson, for professional
      services rendered for the audit of our financial statements included in the
      Annual Report on Form 10-KSB and the review of the interim financial statements
      included in the Quarterly Reports on Form 10-QSB for the year ended June 30,
      2005 and the year ended June 30, 2006 were $12,809 (which amount is comprised
      of
      $7,138 in respect of the year-end audit and $5,167 for review of interim
      financial statements) and $10,021 (which amount is comprised of 4,710 in respect
      of the year-end audit and $5,311 in respect of the review of interim financial
      statements), respectively.




(2)
      Audit-Related Fees.




There
      have been no audit-related fees billed by our accountants in each of the last
      two fiscal years of our Company.




(3)
      Tax
      Fees.




There
      have been no tax fees billed by our accountants in each of the last two fiscal
      years of our Company.




(4)
      All
      Other Fees.




There
      have been no other fees billed by our accountants in each of the last two fiscal
      years of our Company.




(5)
      It is
      the policy of our board of directors that before the accountant is engaged
      to
      render audit or non-audit services, the engagement is approved by the Board
      of
      Directors that is at present acting as the Audit Committee.




(6)
      Not
      applicable.


9




In
      accordance with Section 13 or 15(d) of the Securities and Exchange Act of 1934,
      the Registrant has duly caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized, on this 3rd day of November,
      2006.





**THE
                MEDICAL EXCHANGE INC.**
              **(Registrant)**
              
              BY:/s/
                Michael Goldberg**
              Michael
                Goldberg
              Acting
                CEO (principal executive officer and principal accounting and financial
                officer)








Pursuant
      to the requirements of the Securities Act of 1934, this Report has been signed
      below by the following persons on behalf of the Registrant and in the capacities
      and on the dates indicated.





/s/
                Michael Goldberg**
              **Michael
                Goldberg
              principal
                executive officer, principal accounting officer and director
              November
                9, 2006/s/
                Irit Reiner
              Irit
                Reiner
              Director
              November
                9, 2006







10


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Stockholders,


The
      Medical Exchange Inc.


(A
      Development Stage Company)





We
      have
      audited the accompanying balance sheets of The Medical Exchange Inc. (A
      Development Stage Company) as of June 30, 2006 and 2005 and the related
      statements of operations, stockholders' equity (deficiency) and cash flows
      for
      the years ended June 30, 2006 and 2005 and the period January 23, 2004
      (Date of Inception) to June 30, 2006. These financial statements are the
      responsibility of the company's management. Our responsibility is to express
      an
      opinion on these financial statements based on our audits.





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





In
      our
      opinion, these financial statements referred to above present fairly, in all
      material respects, the financial position of The Medical Exchange Inc. as of
      June 30, 2006 and 2005 and the results of its operations and its cash flows
      for
      the years ended June 30, 2006 and 2005 and the period from January 23, 2004
      (Date of Inception) to June 30, 2006, in conformity with accounting principles
      generally accepted in the United States of America.





The
      accompanying financial statements referred to above have been prepared assuming
      that the company will continue as a going concern. As discussed in Note 1 to
      the
      financial statements, the company is in the development stage, and has no
      established source of revenue and is dependent on its ability to raise capital
      from shareholders or other sources to sustain operations. These factors, along
      with other matters as set forth in Note 1, raise substantial doubt that the
      company will be able to continue as a going concern. The financial statements
      do
      not include any adjustments that might result from the outcome of this
      uncertainty.








Vancouver,
                Canada
            ***“AMISANO
                HANSON”***October
                12, 2006
            **C**hartered**A**ccountants





F-1


**THE
      MEDICAL EXCHANGE INC.**


(A
      Development Stage Company)


BALANCE
      SHEETS


June
      30,
      2006 and 2005


( Stated
      in US Dollars )





**ASSETS**
              
              2006
              
              2005CurrentCash
              
              $
              9,422
              
              $
              1,263Deferred
                  acquisition costs
              
              
              9,000
              
              
              -$
              18,422
              
              $
              1,263**LIABILITIES**CurrentAccounts
                  payable and accrued liabilities
              
              $
              19,466
              
              $
              12,787Loan
                  payable - Note 4
              
              
              4,396
              
              
              -Due
                  to related party - Note 3
              
              
              -
              
              
              10,56823,862
              
              
              23,355**STOCKHOLDERS’
                  DEFICIENCY**Capital
                  stock - Note 5Authorized:25,000,000
                  common shares, par value $0.001 per shareIssued
                  and outstanding:10,150,000
                  common shares (2005: 2,112,500)
              
              
              10,150
              
              
              2,113Additional
                  paid-in capital
              
              
              144,281
              
              
              40,137Share
                  subscriptions receivable
              
              
              (36,500
              )
              
              -Accumulated
                  other comprehensive loss
              
              
              (331
              )
              
              (198
              )Deficit
                  accumulated during the development stage
              
              
              (123,040
              )
              
              (64,144
              )(5,440
              )
              
              (22,092
              )$
              18,422
              
              $
              1,263




Nature
      and Continuance of Operations - Note 1


Commitment
      and Subsequent Events - Notes 5 and 7


SEE
          ACCOMPANYING NOTES
 F-2


**THE
      MEDICAL EXCHANGE INC.**


(A
      Development Stage Company)


STATEMENTS
      OF OPERATIONS


for
      the
      years ended June 30, 2006 and 2005, and


for
      the
      period from January 23, 2004 (Date of Inception) to June 30, 2006


( Stated
      in US Dollars )








January
                23,2004
                (Date ofYears
                ended
            
            Inception)
                toJune
                30,
            
            June
                30,2006
            
            2005
            
            2006ExpensesAccounting
                and audit fees
            
            $
            13,972
            
            $
            14,371
            
            $
            30,143Bank
                charges and interest
            
            
            426
            
            
            115
            
            
            563Legal
                fees
            
            
            34,866
            
            
            34,551
            
            
            71,295Registration
                and filing fees
            
            
            9,632
            
            
            6,281
            
            
            16,611Website
                design and maintenance
            
            
            -
            
            
            433
            
            
            2,928Net
                loss for the period before other item
            
            
            (58,896
            )
            
            (55,751
            )
            
            (121,540
            )Other
                itemWrite-off
                of advance receivable
            
            
            -
            
            
            (1,500
            )
            
            (1,500
            )Net
                loss for the period
            
            
            (58,896
            )
            
            (57,251
            )
            
            (123,040
            )Other
                comprehensive lossForeign
                currency translation adjustment
            
            
            (133
            )
            
            (44
            )
            
            (331
            )Comprehensive
                loss for the period
            
            $
            (59,029
            )
            $
            (57,295
            )
            $
            (123,371
            )Basic
                and diluted loss per share
            
            $
            (0.02
            )
            $
            (0.03
            )Weighted
                average number of shares outstanding
            
            
            2,685,034
            
            
            2,112,500





SEE
          ACCOMPANYING NOTES
 F-3


**THE
      MEDICAL EXCHANGE INC.**


(A
      Development Stage Company)


STATEMENTS
      OF STOCKHOLDERS’ EQUITY (DEFICIENCY)


for
      the
      period from January 23, 2004 (Date of Inception) to June 30, 2006


( Stated
      in US Dollars )








DeficitAccumulated
            
            
            
            AccumulatedCommon
                Stock
            
            Additional
            
            Other
            
            Common
            
            During
                theNumber
                of
            
            
            
            Paid-in
            
            Comprehensive
            
            Stock
            
            DevelopmentShares
            
            Amount
            
            Capital
            
            Loss
            
            Subscriptions
            
            Stage
            
            TotalBalance,
                January 23, 2004
              (Date
                of Inception)
            
            
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Common
                stock issued for cash
              -
                at $0.02 per share
            
            
            2,112,500
            
            
            2,113
            
            
            40,137
            
            
            -
            
            
            -
            
            
            -
            
            
            (42,250
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            (154
            )
            
            -
            
            
            -
            
            
            (154
            )Net
                loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,893
            )
            
            (6,893
            )Balance,
                June 30, 2004
            
            
            2,112,500
            
            
            2,113
            
            
            40,137
            
            
            (154
            )
            
            -
            
            
            (6,893
            )
            
            35,203Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            (44
            )
            
            -
            
            
            -
            
            
            (44
            )Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (57,251
            )
            
            (57,251
            )Balance,
                June 30, 2005
            
            
            2,112,500
            
            
            2,113
            
            
            40,137
            
            
            (198
            )
            
            -
            
            
            (64,144
            )
            
            (22,092
            )Common
                stock issued for cash
              -
                at $0.01 per share
            
            
            8,037,500
            
            
            8,037
            
            
            72,338
            
            
            -
            
            
            -
            
            
            -
            
            
            80,375Common
                stock subscriptions
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (36,500
            )
            
            -
            
            
            (36,500
            )Director’s
                forgiveness of debt
            
            
            -
            
            
            -
            
            
            31,806
            
            
            -
            
            
            -
            
            
            -
            
            
            31,806Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            (133
            )
            
            -
            
            
            -
            
            
            (133
            )Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (58,896
            )
            
            (58,896
            )Balance,
                June 30, 2006
            
            
            10,150,000
            
            $
            10,150
            
            $
            144,281
            
            $
            (331
            )
            $
            (36,500
            )
            $
            (123,040
            )
            $
            (5,440
            )





SEE
          ACCOMPANYING NOTES
 F-4


**THE
      MEDICAL EXCHANGE INC.**


(A
      Development Stage Company)


STATEMENTS
      OF CASH FLOWS


for
      the
      years ended June 30, 2006 and 2005 and


for
      the
      period from January 23, 2004 (Date of Inception) to June 30, 2006


( Stated
      in US Dollars )








January
                23,2004
                (Date ofYears
                ended
            
            Inception)
                toJune
                30,
            
            June
                30,2006
            
            2005
            
            2006Cash
                Flows from Operating ActivitiesNet
                loss for the period
            
            $
            (58,896
            )
            $
            (57,251
            )
            $
            (123,040
            )Adjustments
                to reconcile net loss to net cash
              used
                by operating activities:Increase
                in accounts payable and accrued
              Liabilities
            
            
            6,679
            
            
            10,987
            
            
            19,466Net
                cash used in operating activities
            
            
            (52,217
            )
            
            (46,264
            )
            
            (103,574
            )Cash
                Flows from Investing ActivityDeferred
                acquisition costs
            
            
            (9,000
            )
            
            -
            
            
            (9,000
            )Net
                cash used in investing activity
            
            
            (9,000
            )
            
            -
            
            
            (9,000
            )Cash
                Flows from Financing ActivitiesIssuance
                of common shares
            
            
            80,375
            
            
            -
            
            
            122,625Share
                subscriptions receivable
            
            
            (36,500
            )
            
            -
            
            
            (36,500
            )Loan
                payable
            
            
            4,396
            
            
            -
            
            
            4,396Increase
                in due to related party
            
            
            21,238
            
            
            9,318
            
            
            31,806Net
                cash provided by financing activities
            
            
            69,509
            
            
            9,318
            
            
            122,327Effect
                of foreign currency translation on cash
            
            
            (133
            )
            
            (44
            )
            
            (331
            )Increase
                (decrease) in cash during the period
            
            
            8,159
            
            
            (36,990
            )
            
            9,422Cash,
                beginning of period
            
            
            1,263
            
            
            38,253
            
            
            -Cash,
                end of period
            
            $
            9,422
            
            $
            1,263
            
            $
            9,422





SEE
          ACCOMPANYING NOTES
 F-5


**THE
      MEDICAL EXCHANGE INC.**


(A
      Development Stage Company)


NOTES
      TO
      THE FINANCIAL STATEMENTS


June
      30,
      2006 and 2005


( Stated
      in US Dollars )








Note
              1
            Nature
                and Continuance of Operations





a)
            Organization





The
      Medical Exchange, Inc. (the “Company”) was incorporated in the State of Nevada,
      United States of America on January 23, 2004.





b)
            Development
                Stage Activities





The
      Company is in the development stage. Since its formation, the Company has not
      yet realized any revenues from its planned operations. Subsequent to June 30,
      2006, the Company entered into an agreement to purchase a private company based
      in Israel that is engaged in the homeland security field and which develops
      and
      sells devices to detect metal and other materials which are incorporated in
      metal detection gates (Refer to Note 7).





c)
                Going
                    Concern





These
        financial statements have been prepared in accordance with generally accepted
        accounting principles applicable to a going concern, which assumes that the
        Company will be able to meet its obligations and continue its operations
        for its
        next fiscal year. Realization values may be substantially different from
        carrying values as shown and these financial statements do not give effect
        to
        adjustments that would be necessary to the carrying values and classification
        of
        assets and liabilities should the Company be unable to continue as a going
        concern. At June 30, 2006, the Company had not yet achieved profitable
        operations, has accumulated losses of $123,040 since its inception, has a
        working capital deficiency of $14,440 and expects to incur further losses
        in the
        development of its business, all of which casts substantial doubt about the
        Company’s ability to continue as a going concern. The Company’s ability to
        continue as a going concern is dependent upon its ability to generate future
        profitable operations and/or to obtain the necessary financing to meet its
        obligations and repay its liabilities arising from normal business operations
        when they come due. Management has no formal plan in place to address this
        concern but considers that the Company will be able to obtain additional
        funds
        by equity financing and/or related party advances, however there is no assurance
        of additional funding being available.





Note
              2
            Significant
                Accounting Policies





The
      financial statements of the Company have been prepared in accordance with
      generally accepted accounting principles in the United States of America.
      Because a precise determination of many assets and liabilities is dependent
      upon
      future events, the preparation of financial statements for a period necessarily
      involves the use of estimates, which have been made using careful judgement.
      Actual results may vary from these estimates.


F-6





Note
              2
            Significant
                Accounting Policies-
                (cont’d)





The
      financial statements have, in management’s opinion, been properly prepared
      within the framework of the significant accounting policies summarized
      below:





a)
            Organizational
                and Start-up Costs





Costs
      of
      start-up activities, including organizational costs, are expensed as
      incurred.





b)
            Development
                Stage Company





The
      Company is a development stage company as defined in the Statements of Financial
      Accounting Standards (“SFAS”) No. 7. The Company is devoting substantially all
      of its present efforts to establish a new business and none of its planned
      principal operations have commenced. All losses accumulated since inception
      have
      been considered as part of the Company’s development stage
      activities.





c)
            Income
                Taxes





The
      Company has adopted the SFAS No. 109 - “Accounting for Income Taxes”. SFAS No.
      109 requires the use of the asset and liability method of accounting of income
      taxes. Under the asset and liability method of SFAS No. 109, deferred tax assets
      and liabilities are recognized for the future tax consequences attributable
      to
      temporary differences between the financial statements carrying amounts of
      existing assets and liabilities and their respective tax bases. Deferred tax
      assets and liabilities are measured using enacted tax rates expected to apply
      to
      taxable income in the years in which those temporary differences are expected
      to
      be recovered or settled.





d)
            Basic
                and Diluted Loss Per Share





In
      accordance with SFAS No. 128 - “Earnings Per Share”, the basic loss per common
      share is computed by dividing net loss available to common stockholders by
      the
      weighted average number of common shares outstanding. Diluted loss per common
      share is computed similar to basic loss per common share except that the
      denominator is increased to include the number of additional common shares
      that
      would have been outstanding if the potential common shares had been issued
      and
      if the additional common shares were dilutive. At June 30, 2006, the Company
      had
      no stock equivalents that were anti-dilutive and excluded in the loss per share
      computation.


F-7





Note
              2
            Significant
                Accounting Policies-
                (cont’d)





e)
              Financial
                  Instruments





The
      carrying value of the Company’s financial instruments, consisting of cash,
      accounts payable and accrued liabilities and loan payable approximate their
      fair
      value due to the short-term maturity of such instruments. Due to related party
      also approximates fair value. Unless otherwise noted, it is management’s opinion
      that the Company is not exposed to significant interest, currency or credit
      risks arising from these financial instruments.





f)
            Foreign
                Currency Translation





The
      Company’s functional currency is Canadian dollars as substantially all of the
      Company’s operations are in Canada. The Company uses the United States dollar as
      its reporting currency for consistency with registrants of the Securities and
      Exchange Commission and in accordance with SFAS No. 52.





Assets
      and liabilities that are denominated in a foreign currency are translated at
      the
      exchange rate in effect at the period-end and capital accounts are translated
      at
      historical rates. Income statement accounts are translated at the average rates
      of exchange prevailing during the period. Translation adjustments from the
      use
      of different exchange rates from period to period are included in the
      comprehensive loss account in stockholders’ equity, if applicable.





Transactions
      undertaken in currencies other than the functional currency of the entity are
      translated using the exchange rate in effect as of the transaction date. Any
      exchange gains and losses are included in the statements of
      operations.





g)
            Website
                Costs





The
      Company recognizes the costs incurred in the development of the Company's
      website in accordance with EITF 00-2 "Accounting for Website Development Costs"
      and with the provisions of AICPA Statement of Position No. 98-1, "Accounting
      for
      the Costs of Computer Software Developed or Obtained for Internal Use".
      Accordingly, direct costs incurred during the application stage of development
      are capitalized and amortized over the estimated useful life. Fees incurred
      for
      website hosting are expensed over the period of the benefit. Costs of operating
      a website are expensed as incurred.





h)
            Deferred
                Acquisition Costs





Deferred
        acquisition costs consist of costs incurred in connection with the proposed
        security purchase agreement (see Note 7). These costs will be included in
        the
        purchase price on the completion of the acquisition or expensed if the
        acquisition does not complete.


F-8





Note
                2
              Significant
                  Accounting Policies-
                  (cont’d)





i)
            New
                Accounting Standards





Management
      does not believe that any recently issued, but not yet effective accounting
      standards if currently adopted could have a material effect on the accompanying
      financial statements.





Note
                3
              Due
                  to Related Party





The
      amounts due to related party consist of advances from a director of the Company
      and are unsecured, non-interest bearing and have no specific terms for
      repayment. As at June 30, 2006, total advances of $31,806 due to a director
      of the Company had been forgiven.





Note
              4
            Loan
                Payable





At June
          30,
          2006, the loan payable of $4,396 is unsecured, non-interest bearing and
          has no
          specific terms of repayment.





Note
              5
            Capital
                Stock





On
      February 6, 2004, the Company issued 2,112,500 shares of common stock at $0.02
      per share for proceeds of $42,250. Included in this amount is 450,000 shares
      issued to persons who were then directors of the Company.





On
      June
      19, 2006, the Company issued 8,037,500 shares of common stock at $0.01 per
      share
      for proceeds of $80,375. As at June 30, 2006, there was subscriptions receivable
      of $36,500 in respect to the issuance.





Subsequent
        to June 30, 2006, the Company issued 50,000 shares of common stock at $0.01
        per
        share for proceeds of $500.





Note
              6
            Deferred
                Tax Assets





The
      following table summarizes the significant components of the Company’s deferred
      tax assets:





2006
            
            2005Deferred
                tax assetsNon-capital
                loss carryforward
            
            $
            31,236
            
            $
            11,036Valuation
                allowance for deferred tax asset
            
            
            (31,236
            )
            
            (11,036
            )$
            -
            
            $
            -





F-9





Note
              6
            Deferred
                Tax Assets-
                (cont’d)





The
        amount taken into income as deferred tax assets must reflect that portion
        of the
        income tax loss carryforwards that is likely to be realized from future
        operations. The Company has chosen to provide an allowance of 100% against
        all
        available income tax loss carryforwards, regardless of their time of
        expiry.





At
      June
      30, 2006, the Company has accumulated net operating loss totalling $123,040,
      which is available to reduce taxable income in future taxation years. These
      losses expire beginning in the year ended June 30, 2024.





Note
              7
            Subsequent
                Events-
                Note 5





On
      July
      19, 2006, the Company and a privately held company organized under the laws
      of
      the State of Israel (“IDO”) and the shareholders of IDO (collectively the
“Selling Shareholders”) entered into a Securities Purchase Agreement (the
“Agreement”) pursuant to which the Company agreed to purchase all of the issued
      and outstanding share capital of IDO and certain specified IDO assets (the
      “Proposed Transaction”). IDO, based in Israel, is engaged in the homeland
      security field and develops and sells devices to detect metal and other
      materials which are incorporated in metal detector gates. IDO currently has
      one
      commercialized product called the ‘Magshoe’ which detects metals inside shoes as
      well as next to or above the ankles.





Under
      the
      terms of the Proposed Transaction, the Company will pay the selling shareholders
      $1,000,000. If the Proposed Transaction closes as contemplated, IDO will become
      a wholly-owned subsidiary of the Company.





Under
      the
      terms of the Agreement (until the earlier of the closing or the termination
      of
      the Agreement), the Company undertook to use commercial efforts to advance
      $40,000 per month to finance the monthly business operations of IDO. The Company
      agreed to provide IDO with sufficient funds post closing to repay debts owing
      by
      IDO under certain promissory notes, according to the terms of such notes, which
      principal amount is approximately $760,000. At closing of the proposed
      transaction, the Company shall enter an employment agreement for a term of
      three
      years, renewable in successive two year terms, at New Israeli Shekels (NIS)
      60,000 per month (approximately USD$13,400 per month).










F-10