**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549




**FORM
      10-KSB**




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


**ACT
      OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2006**





**OR**





** ̈** **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
      SECURITIES**


**EXCHANGE
      ACT OF 1934 for the transition period from _____ to _____**





*COMMISSION
      FILE NUMBER: 000-23415*




**Gabriel
      Technologies Corporation**


(Name
      of
      small business issuer in its charter)




DELAWARE
              (State
                or other jurisdiction of
              incorporation
                or organization)
            22-3062052
              (I.R.S.
                Employer
              Identification
                no.)





4538
                S. 140th Street
              OMAHA,
                NEBRASKA 68137
              (Address
                of principal executive offices,
              including
                zip code)
            (402)
                614-0258
              (Issuer’s
                telephone number,
              including
                area code)





SECURITIES
      REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:


None





SECURITIES
      REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:


Common
      Stock, $.001 Par Value


___________________________________________________________________________




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  ̈




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 pursuant to Item 405 of Regulation
      S-B 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.  ̈




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




Issuer’s
      revenues for the fiscal year ended June 30, 2006: $1,241,773




The
      aggregate market value of common stock held by non-affiliates of the registrant
      as of October 31, 2006 was $17,131,010 (based on the last reported sale price
      of
      $0.50 per share on October 31, 2006).




The
      number of shares of the issuer’s common stock outstanding as of October 31, 2006
      was 37,407,771. 1




DOCUMENTS
      INCORPORATED BY REFERENCE: None.




Transitional
      Small Business Disclosure Format: Yes  ̈ No x









1  Excludes
      3,000,000 shares of the issuer’s common stock issued in the name of the issuer
      and held by an investor as security for the issuer’s obligations to the
      investor.







**GABRIEL
        TECHNOLOGIES CORPORATION**
 **2006
        ANNUAL REPORT ON FORM 10-KSB**
 
 **TABLE
        OF CONTENTS**
 
 PART
                  I
              
              **PAGE**ITEM
                  1.
              DESCRIPTION
                  OF BUSINESS
              1ITEM
                  2.
              DESCRIPTION
                  OF PROPERTY
              14ITEM
                  3.
              LEGAL
                  PROCEEDINGS
              14ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              14PART
                  IIITEM
                  5.
              MARKET
                  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
              14ITEM
                  6.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
              20ITEM
                  7.
              FINANCIAL
                  STATEMENTS
              28ITEM
                  8.
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE
              28ITEM
                  8A.
              CONTROLS
                  AND PROCEDURES
              28ITEM
                  8B.
              OTHER
                  INFORMATION
              29PART
                  IIIITEM
                  9.
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
                  WITH SECTION 16(a) OF THE EXCHANGE ACT
              29ITEM
                  10.
              EXECUTIVE
                  COMPENSATION
              32ITEM
                  11.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                  AND RELATED STOCKHOLDER MATTERS
              33ITEM
                  12.
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              34ITEM
                  13.
              EXHIBITS
              37ITEM
                  14.
              PRINCIPAL
                  ACCOUNTANT FEES & SERVICES
              40








**EXPLANATORY
      NOTE**





The
      audit
      of Gabriel Technologies Corporation’s consolidated financial statements at June
      30, 2006, is in progress but was not completed in time to include audited
      consolidated financial statements and a Report of Independent Registered Public
      Accounting Firm in this Annual Report on Form 10-KSB. Because the financial
      statements contained herein have not been audited, the certifications required
      under Exchange Act Rule 13A-14(A)/15D-14(A) and section 906 of the
      Sarbanes-Oxley Act of 2002 have also not been included in this Report. When
      the
      audit of such statements is completed and a Report of Independent Registered
      Public Accounting Firm is issued, Gabriel Technologies Corporation intends
      to
      file an amended Annual Report on Form 10-KSB containing audited financial
      statements and such certifications.





**PART
      I**





**ITEM
      1.** **DESCRIPTION
      OF BUSINESS.**





**OVERVIEW**





Gabriel
      Technologies Corporation ( “we”,
      “us”, “our”, “Gabriel” or “Company ”)
      is the
      holding company for two wholly-owned subsidiaries and one majority owned
      subsidiary. We were originally incorporated in 1990 as Princeton Video Image,
      Inc., a Delaware corporation. In 2004, Princeton Video Image, Inc. filed for
      Chapter 11 Bankruptcy and emerged as a reorganized company on June 10, 2004.
      On
      July 23, 2004, we changed our name to Gabriel Technologies Corporation. On
      July 29, 2004, we entered into a share exchange with Gabriel Technologies,
      LLC, a Nebraska limited liability company (sometimes referred to herein as
      “Gabriel LLC”), which became our wholly-owned subsidiary. We also organized
      Trace Technologies, LLC, a Nevada limited liability company (sometimes referred
      to herein as “Trace”), which became wholly-owned on November 19,
      2004.





On
      January 19, 2006 we acquired 59.8% of Resilent LLC d/b/a Digital Defense Group,
      a Nebraska limited liability company (sometimes referred to herein as
“Resilent”) in exchange for cash and a promissory note for $2,000,000 (the
“Resilent Note”) pursuant to a plan of exchange and a securities exchange
      agreement (the “Exchange Agreement”). In October 2006, we received a letter from
      Steven Campisi, the manager of Resilent and one of our directors, asserting
      that
      we defaulted under the Resilent Note in February 2006 and that, as a result,
      Resilent has the right to cancel 3,520.85 of the units owned by us in Resilent
      pursuant to the Exchange Agreement. If these units were cancelled, we would
      have
      an approximate 52% ownership interest in Resilent. We disagree with Mr.
      Campisi’s assertions and intend to defend our ownership interest of
      Resilent.





GABRIEL
      TECHNOLOGIES, LLC





Through
      our wholly-owned subsidiary, Gabriel Technologies, LLC (“Gabriel LLC”), we
      develop, manufacture and sell a series of physical locking systems for the
      transportation and shipping industries collectively known as the War-Lok TM
      Security System. The security industry has evolved substantially in recent
      years
      due to increased risks from theft and terrorism. With the implementation of
      the
      award-winning War-Lok TM
      Security System, Gabriel LLC provides cost-efficient security measures to
      prevent national and global theft. Our mission is to provide the highest quality
      security products available to the transportation and shipping industries by
      creating innovative, proven technologies.





Gabriel
      LLC markets four series of War-Lok TM
      products which are protectable by certain patent applications and patents with
      the U.S. Patent & Trademark Office. Gabriel LLC sells the War-Lok TM
series
      products through a direct sales force and a network of qualified distributors
      in
      specific vertical industries. Its current products are described as
      follows:





·
            TheWar-LokTM
                t-Series Trucking Security System includes a trailer hasp lock, kingpin
                lock, tractor air brake lock, trailer glad hand lock, a padlock series
                and
                two versions of a trailer security kit and a trailer door hasp, all
                for
                use in securing semi-trailers and
                tractors.


·
            TheWar-LokTM
                r-Series Railroad Security System includes a special locking pin
                to be
                used for rail box cars, and auto cars. A proprietary tool is required
                to
                remove the pin


·
            TheWar-LokTM
                i-Series Reusable Intermodal Security System is comprised of a reusable
                lock for intermodal containers, used for hauling freight via truck,
                rail
                or marine.


·
            TheWar-LokTM
                i-Series Intermodal Security System is a locking system for intermodal
                containers as used in the trucking and rail industry. The system
                includes
                a security pin, a barrier box and a proprietary seal removal tool.




1




With
      the WAR-LOK TM
      Security System there are 260 million key combinations possible and the ability
      to master key 20,000 different locks. All WAR-LOKTM internal
      locking cores are designed with a flat-keyed locking system. Each component
      of
      this high security disc type cylinder has been designed to withstand the harsh
      environments of the transportation industry. All components are made of chrome
      plated hardened steel, brass or stainless steel. The WAR-LOKTM is pick
      resistant, drill resistant and key duplication is rendered
      improbable.





*Patents*





Gabriel
      LLC owns two issued U.S. patents relating to proprietary technology for use
      in
      its business.





*Trademarks*





Gabriel
      LLC has the WAR-LOKTM name and
      logo as its common law trademark.





*Production
      and Assembly*





All
      steel
      castings for the WAR-LOKTM series
      are procured in China and shipped directly to our assembly center at Omaha,
      Nebraska (“Assembly Center”). The WAR-LOKTM locking
      cores and padlock series are produced in Taiwan and shipped directly to the
      Assembly Center. The assembly of the locking core and castings into the final
      product form is accomplished at the Assembly Center. This is also where all
      key(s) are cut and assigned to locking cores. All records of key serial numbers
      and product numbers at the Assembly Center.





The
      proprietary tool for the War-Lok TM
      i-Series Intermodal Security System and r-Series Railroad Security System is
      manufactured and assembled by an outside manufacturer in Omaha,
      Nebraska.





*Warranty*





Gabriel
      LLC currently offers a one-year limited warranty from the date of shipment
      to
      cover defects in materials or workmanship of its products.





*After
      Sales Service*





Gabriel
      LLC currently has a customer care center established at its Omaha, Nebraska
      headquarters. Gabriel LLC employs two personnel who are responsible for
      assisting all current and prospective customer needs and requests.





*Employees*





As
      of
      October 31, 2006, Gabriel LLC has 11 full-time employees. Gabriel LLC is not
      subject to any collective bargaining agreements and it considers relations
      with
      its employees to be excellent.





*Strategic
      Relationships*





Gabriel
      LLC has a number of strategic relationships that aid its business on a daily
      basis. Gabriel LLC currently has distribution/resell agreements from seven
      major
      partners: Freightliner LLC, Aurora Parts & Accessories, VIPAR Heavy Duty,
      Davanac Inc., Ford Systems Inc., Ginont Distributing and the Owner-Operator
      Independent Drivers Association (OOIDA).





Gabriel
      LLC manufactures its WAR-LOKTM products
      under contract from multiple sources, principally in China. To date, these
      products have mostly been shipped to its warehouse facility in Omaha, Nebraska
      for breakout and inspection prior to final shipment to customers. Gabriel LLC
      experiences a normal order fulfillment cycle of less than 90 days. Additionally,
      for certain products, Gabriel LLC does final assembly and packaging at its
      Omaha
      location prior to delivery to its customers. Gabriel LLC keeps secure records
      of
      key and lock serial numbers at its Assembly Center.





2




*Research
      and Development*





Gabriel
      LLC has its own in-house engineering staff which conducts all research and
      development projects. Gabriel LLC is currently developing a new series of its WAR-LOKTM line for
      the general consumer market. Gabriel LLC anticipates a launch of this new
      product in the Fall of 2006. Gabriel LLC also offers customization to its
      current product line on a per customer need basis.





*Indebtedness*





Gabriel
      LLC entered into a financial arrangement on August 12, 2005 with the Nebraska
      State Bank for a revolving line of credit in the amount of $1,500,000. The
      line
      of credit had a maturity date, as extended, of November 12, 2006 but remains
      outstanding as of the date of this Report. The interest rate is the national
      prime rate as published in the Money Section of the *Wall
      Street Journal* plus
      2.00% adjusted daily. The outstanding principal balance as of October 31, 2006
      was approximately $733,756. Loan advances are made from a Collateral Schedule
      based on 75% of eligible accounts receivables and 50% of qualified inventory.
      The loan agreement also requires a Lock Box for Accounts Receivables
      collections. The line of credit is secured by accounts receivable and inventory
      of Gabriel LLC and is guaranteed by Keith Feilmeier, our President and Chief
      Operating Officer, and by Gabriel Technologies Corporation. The revolving line
      is used in Gabriel LLC’s operations and sales of the WAR-LOKTM security
      systems.





TRACE
      TECHNOLOGIES, LLC





In
      addition to the WAR-LOKTM Security
      System, we have established Trace Location Services through our wholly-owned
      subsidiary, Trace Technologies, LLC, a Nevada limited liability company
      (“Trace”). Trace has developed a modern, web-services-oriented platform for the
      delivery of location based service to its customers. This platform can track
      wireless devices using assisted or autonomous Global Positioning System (“GPS”)
      capabilities in an optimized fashion to achieve minimum fix times and bandwidth
      and maximum sensitivity and battery life. Using multi-mode GPS end-devices,
      Trace expects a wide variety of successful applications in tracking assets
      and
      personnel. Trace’s servers and end-devices utilize Snaptrack’s MM-GPS technology
      as incorporated in many cellular CDMA networks for E911 service. A-GPS
      technology provides accurate location information in environments where
      traditional, autonomous GPS is unable to properly function, such as inside
      buildings, parking garages, vehicle trunks, cargo areas, areas with dense
      foliage, and “urban canyons.” Subscribers and licensees will pay a fee to access
      the Trace-enhanced location information to determine the location of enabled
      devices, such as the Asset Tag. Trace primarily sells its Trace Location
      Services through licensed value-added resellers (each a “VAR”) and licensed
      distributors in specific vertical industries. Trace continues to qualify
      distributors for these services. However, there will be specific applications
      where Trace will contract directly with unique, large governmental and
      commercial entities that typically operate a private or campus network to
      operate as authorized service centers.





According
      to a market analysis and strategic assessment report issued by Juniper Research
      in June 2005, location based services appeal to the following three basic
      needs:





·
            Efficiency
                (primarily for corporate
                applications);


·
            Enjoyment
                and convenience (primarily for consumer applications);
                and


·
            Safety
                (for both corporate and consumer
                applications).





While
      location based services are rapidly expanding into numerous vertical market
      segments, Juniper Research states that its success has been previously
      constrained by a number of factors, including:





·
            The
                downturn in the telecommunications
                markets;


·
            Lack
                of clear business cases for operator service provision and commercial
                use;


·
            The
                growing complexity of the value chain and underlying OSS infrastructures
                required to deliver and charge for content based
                services;


·
            Delays
                in rolling out both 2.5G and 3G networks;
                and


·
            Uncertainties
                over the merits of different positioning
                technologies.





Many
      of
      these issues are being resolved by the industry in general. However, Trace
      has
      leveraged its proprietary technology to build a methodology and business model
      that reduces the impact of these issues on its ability to offer a profitable,
      robust location based service. First and foremost, Trace’s ability to assemble
      its turnkey solutions and managed services significantly shortens the time
      to
      market and accelerates a return on investment for its VARs and service centers.
      Our technology and business model afford greater control over potential
      variables in the deployment equation. In addition, Trace’s application of a-GPS
      greatly enhances the ability to obtain location data over traditional GPS
      methodologies, thereby enabling an almost unlimited number of new
      applications.





3




Trace
      has
      completed a sale of Trace Asset Tag and various support equipment and
      accessories to the U.S. Department of Energy Nevada Test Site, NSTec Inc.,
      as
      part of a large radar mapping and tracking project. The Trace Location Services
      are still in evaluation with this test site. Trace anticipates rolling NSTec,
      Inc. over to commercial service around January 2007.





*Trace
      Location Services*





Trace
      has
      licensed, acquired and developed proprietary technology for the operation and
      management of a location based services network that supports enhanced
      communication between users and locating devices utilizing Qualcomm’s SnapTrack
      a-GPS technology. Trace Location Services consist of the following
      components.





·
            Trace
                Asset Tag


·
            Carrier
                or private communications network (currently ReFLEX
                wireless)


·
            GPS
                data from satellites


o
            Assisted-GPS
                information (a proprietary method of providing calculated positional
                information using a location
                server)


o
            Mapping
                solution for useful presentation of the position data (via the Application
                Service Provider)





*Production
      and Assembly*





The
      heart
      of providing Trace Location Services resides in what is referred to as the
      Trace
      Location Server which consists of storage servers, infrastructure servers and
      the SnapTrack Position Determination Entity Server Pool. Trace has been
      operating on a development server environment and will complete transition
      to a
      commercial grade redundant server setup in a Savvis collocation in 2007. The
      Savvis collocation provides redundant power, emergency power backup, security
      (card key and handprint restricted access) and redundant connections to our
      Internet Service Provider.





Currently,
      there is one device class on our network, the Trace Asset Tag. Trace completed
      its first commercial run of Trace Asset Tag in June 2006. In addition, Trace
      has
      entered into an agreement with CSI Wireless in Calgary, Canada to purchase
      all
      assets associated with the engineering and manufacturing rights for the Trace
      Location-Tag. Trace anticipates closure of this deal in the very near
      future.





*Warranty*





Device
      warranties are offered by the device manufacturer(s) since the devices will
      be
      wholesaled to our VARs. Warranties on the Trace Location Services are in the
      form of the following Service Level commitments:





§
            99.9%
                6am-10pm EST 365 days/yr


§
            99.7%
                10pm-6am EST 365 days/yr


§
            80%
                of XY Service and API transactions with response times<180
                sec (assumes reliable carrier
                network)


§
            95%
                of XY Service and API transactions with excess response time<20
                sec over Carrier’s network





Services
      levels are absent any carrier or ASP-induced latency





*After
      Sales Service*





Based
      on
      the marketing and sales model established for Trace Location Services, Trace
      will rarely deal with end customers. The majority of Trace Location Services
      end
      customers will receive their support directly from a ReFLEX carrier, application
      service provider, or other VAR. Device specific issues will be directed to
      the
      device manufacturer. However, Trace will have significant interaction with
      the
      ReFLEX carriers, application service providers and VARs. Service to these
      entities will include initial training on Trace Location Services, maintenance
      of and upgrades to the Trace Location Server, coordinating the addition of
      features on existing devices and identification of potential new devices and
      applications. Trace will maintain 24x7 support to the carriers, application
      service providers and VARs as defined in agreements with these entities. This
      was enhanced in the fiscal year ended June 30, 2006 with the implementation
      of
      an electronic trouble ticketing website for use by Trace’s carriers, application
      service providers and VARs.





4




*Technology*





Satellites
      provide GPS data to location tags equipped with GPS chip sets. For this
      application of a-GPS, the chip set utilizes specifications consistent with
      Trace’s license with SnapTrack, Inc.. A standard autonomous GPS device requires
      considerable power and “open sky” conditions in order to provide location
      information. SnapTrack’s assisted-GPS works by combining GPS satellite
      information with ranging information from a wireless network to produce GPS
      acquisition assistance information for satellites visible to the device. The
      wireless network not only provides coverage, it may deliver adjunct location
      information which aids in the location process. A location server provides
      all
      location calculations (in this case, a Trace server using the SnapTrack
      software). The global GPS satellite system provides precise positioning
      information to the location server. A user or application service provider
      initiates a location request to the location server. The location server uses
      known communications tower location data for the tower currently serving the
      device to tell the device which GPS satellites it should listen to in order
      to
      gather positioning data more quickly. The device uses GPS acquisition assistance
      (AA) to acquire raw position information (called pseudo-range) for visible
      satellites more effectively than it otherwise could with a blind search. This
      saves time and battery life. It also improves the sensitivity of the device.
      The
      device uses the wireless network to relay the pseudo-range information back
      to
      Trace, at which point a fix is computed by the SnapTrack servers using this
      pseudo-range data, data from Wide Area Reference Network (WARN), and approximate
      location information from the wireless network. The exact coordinates are then
      typically sent back to the device and sent to the application service
      provider.





A
      variety
      of middle-ware applications are employed by either an application service
      provider or private network owner to convert the positioning information into
      a
      useful display for end user access.





Trace’s
      first generation a-GPS device communicates over a ReFLEX v2.7 network and allows
      for both binary and alphanumeric messages to and from the device. It uses a
      parameter-driven, configurable architecture to permit optimization for
      individual applications. This device communicates using the current recognized
      standards for wireless data and 2-way paging (i.e., TIA801 and WCTP Version
      1.3). Future generation devices will communicate using a variety of new
      standardized wireless protocols.





Trace
      operates its Networks Operations Center at the Savvis facility in Takwila,
      Washington. A secondary Network Operations Center will be completed in second
      quarter 2007.





*Employees*





As
      of
      October 31, 2006, Trace had seven full-time employees. Trace is not subject
      to
      any collective bargaining agreements, and it considers relations with its
      employees to be excellent.





*Strategic
      Relationships*





Trace
      has
      formed key relationships for sales, delivery, installation and support in order
      to execute this business plan. This allows us to concentrate on our information
      services. Current relationships include:





**Carriers**
              USA
                Mobility
              SkyTel
            
            **ASPs**
              GTES
              SAIC
              Space
                Data
              S3**Manufacturers**
              CSI
                Wireless
            
            **Technology
                Partners**
              SnapTrack
                (a QualComm Company)
              GTES





5




*Research
      and Development*





Primary
      development during the fiscal year ended June 30, 2006, has been focused on
      developing and testing software code on the Trace Location Server and working
      with CSI Wireless to bring Trace Location Services and the Location Asset Tag
      to
      commercial availability. Trace is committed to remaining on the cutting edge
      of
      assisted-GPS technology and has plans to expand beyond ReFLEX networks into
      other wireless protocols in the future.





RESILENT
      LLC





With
      the
      acquisition of a majority of Resilent LLC d/b/a Digital Defense Group, a
      Nebraska limited liability company (“Resilent”), we are able to take advantage
      of the technology Resilent has created in its Factor 4® biocard, an
      identification card that incorporates biometric fingerprints with the ability
      to
      self-enroll and authenticate without a need for a central database or any other
      computer assisted software or hardware. The biocard is a wireless communication
      device (RFID) with the ability to transmit stored data values.





Resilent
      has created a sales channel structure that is comprised of a distribution
      network to support and service systems integrators and value added resellers.
      The direct sales force is establishing government and large account
      relationships and supports Resilent’s channel partners. The market for
      boimeteric technologies has increased. According to the International Biometeric
      Group, the biometric market has a projected growth rate of 39% with projected
      revenues expected to increase from $600 million in 2002 to $4.6 billion in
      2008.





*Trademarks*





Resilent
      has the following two trademark registrations: Biotrac® and Factor
      4®.





Resilent
      has the following trademark applications: IrongateTM; IronfortressTM; ResilentTM;
      Authenticus BiokeyTM; Matrix BiokeyTM; Matrix PasskeyTM; AuthenticusTM; and Digital
      DefenseTM.





Resilent
      has the following family of common law trademarks: Factor 4®; IdentipassTM; and
      BiotracTM.





*Production
      and Assembly*




Resilent
      has established a bill of materials (BOM) for the Factor 4® biocards and Re_Up
      Stations. The BOM consists of the components for each respective product,
      contract and manufacturing costs, and labor and overhead expenses associated
      with final assembly at Resilent’s Omaha location. Resilent has established a
      ramp-up schedule for a goal of 20,000 Factor 4® biocards and 10,000 Re_Up
      Stations produced per month. Components will be purchased from various supply
      partners and shipped to Resilent’s contract manufacturing partners for
      manufacturing and assembly.




Finished
      goods are held in inventory at corporate headquarters in Omaha, Nebraska.
      Resilent attempts to fill purchase orders for clients within 30 days of receipt
      of the purchase orders.





*Warranty*





A
      six
      month limited liability device warranty is offered by Resilent on all of its
      devices.





*After
      Sales Service*




Corporate
      headquarters includes a Client Services Department (CSD) that receives and
      processes orders, assists with expediting major shipments, provides support
      to
      customers for order changes, tracking order process and ETA’s, and a returns
      department for client card cycling, imaging as well as DOA returns.




Our
      reception and telephone answering is staffed by real human beings; this is
      an
      important part of our branding experience that we want our clients to associate
      with Resilent. Management believes that in today’s marketplace the most
      successful companies are those that provide excellent service to their clients.
      Resilent is committed to total client satisfaction, and recognizes this as
      an
      opportunity to separate itself from the rest of the pack by focusing on an
      overall branding experience.




6




Management
      believes that developing loyalty programs serve to foster an environment of
      close friendship and mutual respect with both clients and employees that
      strengthen Resilent’s credibility in the marketplace. Loyalty programs will not
      be built on coffee mugs, hats, etc. It will be built on a sound channel program
      that promotes quality partners and profitability through Single Sales Objective
      registration of opportunities whereby Resilent can protect the partners that
      are
      working hard to make us successful. Resilent’s website will play a key roll in
      integrating a “friends and family” nature of business excellence.





*Technology*





Conflicting
      and often duplicative requirements for identity confirmation and credential
      verification have led to a plethora of proposed identity card solutions. Many,
      if not most, of these alternatives carry characteristics that limit their
      efficacy:





·
            Passive
                RFID chips are prone to security breaches and data
                theft


·
            System-based
                biometric data (i.e. central repository storage) raises significant
                privacy concerns


·
            Additional
                hardware requirements, “middleware,” or software needed to work with
                legacy systems complicate implementation and drive up costs


·
            Storage
                capacity can limit the utility of the identity instrument (e.g.,
                the DoD
                Common Access Card - the CAC - was originally intended to carry individual
                medical information; this component was deleted due to lack of space
                in
                the data storage fields).





Resilent
      has developed the next generation of biometric “Smart Card” that overcomes these
      and other limitations. These U.S.-produced products combine proximity, smart
      card, and biometric technology with an on-card enrollment and authentication
      capability that can support Public Key Infrastructure (PKI)
      applications.





Resilent’s
      biocards put a full processor, 125 KHz and 13.56 MHz radios, a wirelessly
      recharged power source, two antennas, up to 1GB in memory, and a fingerprint
      sensor in a card that is only slightly thicker than current building access
      and
      identification cards.





Compatible
      with legacy systems, Resilent’s biocards perform an on-card authentication,
      creating a biometric-enabled identity, credential, and security system without
      the need for a centralized database or additional software, thereby protecting
      the user’s privacy at all times. Only upon fingerprint authentication will the
      biocard transmit an encrypted identification key for physical or logical access
      applications. Users register their card and then self-enroll their fingerprints
      by placing a finger, thumb, or combination of digits on the biocard’s scan
      engine. This generates a unique digital certificate directly onto the card.
      The
      user’s biometric data never leave the biocard. Because of this 1:1
      authentication, the stored biometric information cannot be breached and
      duplicated if the bio-card is lost or stolen.





No
      other
      person can authenticate the biocard, and it is able to hold numerous
      certificates of authentication for other access or transaction requirements,
      as
      well as secure documents and digital images. This functionality can be
      customized based on existing and emerging standards (government or civilian),
      and can support any encryption platform or certificate authority. It also works
      with all types of readers and in any card management system. This versatility
      will allow a single biocard to support multiple identity and credential
      applications, as well as include electronic copies of source documents and
      qualification records.





*Employees*





As
      of
      October 31, 2006, Resilent has 11 full-time employees and one part-time
      employee. Resilent is not subject to any collective bargaining agreements,
      and
      it considers relations with its employees to be excellent.





7





*Strategic
      Relationships*





Resilent
      has established several key relationships for sales, delivery, and installation
      of the Factor 4® card. This allows Resilent to concentrate on the continued
      development of national and governmental sales. Current relationships
      include:





Net
                Communications Inc.BioDigital
                Security Pty. Ltd.FlowSenseIntegrated
                Security ResourcesDefense
                TechnologiesPrice-Langevin
                & Associates Inc.Smart
                Security Solutions, Inc.Access
                Systems Integration, LLCAkoura,
                Inc.Dahl
                CommunicationsLogistic
                SolutionsLinstar,
                IncMarcomn
                Fiberoptics





*Research
      and Development*





Resilent
      is committed to the ongoing development of new products and services that will
      ensure its competitive position and continued growth. To that end, key
      management, engineering, and a dedicated research and development department
      will conduct research and development on building lower cost products, keeping
      an eye on quality, and being client-driven. Resilent has already established
      the
      development platform for our generation II products (G2) and is planning G3
      with
      chip-on-board technology. All of the aforementioned reduces costs to build
      while
      increasing production throughput, and allowing for a card that approaches the
      thickness of two credit cards.





**COMPETITION**





Although
      management is not aware of similar products which would compete directly with
      us
      through our WAR-LOKTM series
      products, the Trace Location Service, and the Trace Asset Tag, it is anticipated
      that larger, better-financed companies will develop products similar or superior
      to our systems. Such competition will potentially affect our chances of
      achieving profitability, and ultimately adversely affect our ability to continue
      as a going concern.





As
      fingerprint biometrics emerges, they become a more likely target for competing
      technologies. For example, in physical access, biometrics competes with keys,
      badges, proximity and contact cards. Companies such as HID and RSA have seen
      fit
      to target biometrics’ weaknesses in terms of reliability, price, ease of use,
      and deployment risks. Anyone in physical, logical access would be considered
      competition regardless of the technology used. Resilent’s Factor 4® biocard
      brings a high level of security and biometric privacy to the user and the
      companies deploying the technology which only a handful of competitors can
      offer.





**PROPRIETARY
      RIGHTS**





We
      currently rely on a combination of trade secret, patent, copyright and trademark
      law, as well as non-disclosure agreements and invention-assignment agreements,
      to protect our proprietary information. However, such methods may not afford
      complete protection and there can be no assurance that other competitors will
      not independently develop similar processes, concepts, ideas and documentation.
      We also rely upon trade secrets, know-how, continuing technological innovations
      and licensing opportunities to develop our competitive position. Our policy
      is
      to protect our technology by, among other things, filing, or requiring the
      applicable licensor to file, patent applications for technology that we consider
      important to the development of our business. We intend to file additional
      patent applications, when appropriate, relating to our technology, improvements
      to the technology, and to specific products we develop.





8




Our
      policy is to require our employees, consultants, other advisors, as well as
      software design collaborators, to execute confidentiality agreements upon the
      commencement of employment, consulting or advisory relationships. These
      agreements generally provide that all confidential information developed or
      made
      known to the individual by us during the course of the individual’s relationship
      with us is to be kept confidential and not to be disclosed to third parties
      except in specific circumstances. In the case of employees and consultants,
      the
      agreements provide that inventions conceived by the individual in the course
      of
      their employment or consulting relationship shall be our exclusive property.
      There can be no assurance, however, that these agreements will provide
      meaningful protection or adequate remedies for trade secrets in the event of
      unauthorized use or disclosure of such information.





**AVAILABLE
      INFORMATION**





Our
      Internet website is located at http:// www.gabrieltechnologies.com .
      This
      reference to our Internet website does not constitute incorporation by reference
      in this report of the information contained on or hyperlinked from our Internet
      website and such information should not be considered part of this
      report.





The
      public may read and copy any materials we file with the Securities and Exchange
      Commission (“SEC”) at the SEC’s Public Reference Room at 450 Fifth Street, N.W.,
      Washington, D.C. 20549. The public may obtain information on the operation
      of
      the Public Reference Rooms by calling the SEC at 1-800-SEC-0330. The SEC also
      maintains an Internet website that contains reports, proxy and information
      statements and other information regarding issuers that file electronically
      with
      the SEC. The SEC’s Internet website is located at
      http://www.sec.gov.





**RISK
      FACTORS**





We
      are
      subject to various risks that may materially harm our business, financial
      condition and results of operations. You should carefully consider the risks
      and
      uncertainties described below and the other information in this filing before
      deciding to purchase our common stock. If any of these risks or uncertainties
      actually occurs, our business, financial condition or operating results could
      be
      materially harmed. In that case, the trading price of our common stock could
      decline and you could lose all or part of your investment.





WE
      HAVE A
      HISTORY OF LOSSES AND WE EXPECT THESE LOSSES TO CONTINUE FOR THE FORESEEABLE
      FUTURE.





Since
      inception, we have incurred net losses. We incurred net losses of $14,549,582
      and $3,445,552 for the fiscal years ended June 30, 2006, and June 30, 2005,
      respectively. As of June 30, 2006, we had an accumulated deficit of $19,381,986.
      We expect to continue to incur net losses for the foreseeable future as we
      continue to develop our products and technology. We have been funding our
      operations through borrowings and the sale of our securities and expect to
      continue doing so for the foreseeable future. Our ability to generate and
      sustain significant additional revenues or achieve profitability will depend
      upon the factors discussed elsewhere in this “ RISK
      FACTORS ”
      section. We cannot assure you that we will achieve or sustain profitability
      or
      that our operating losses will not increase in the future. If we do achieve
      profitability, we cannot be certain that we can sustain or increase
      profitability on a quarterly or annual basis in the future. We expect to
      increase expense levels on research and development, engineering, manufacturing,
      marketing, sales and administration as we continue to develop our Trace location
      products, and to invest in new Trace technologies. These expenditures will
      necessarily precede the realization of substantial revenues from the sales
      of
      our products, if any, which may result in future operating losses.





WE
      NEED
      TO RAISE ADDITIONAL FUNDS, THE AVAILABILITY OF WHICH CANNOT BE
      ASSURED.





As
      of
      October 31, 2006, we had cash balances of $54,235.87 and current liabilities
      of
      $5,518,756. Many of our current liabilities involve past due borrowings and
      accounts payable. We require additional financing as soon as possible in order
      to provide for these obligations and our other liquidity needs, as well as
      to
      satisfy our current business plan. We are seeking additional debt and/or equity
      financing but at the present time, have no commitments for any additional
      financing. There can be no assurance that, if needed, additional capital will
      be
      available to us on commercially acceptable terms or at all. We may have
      difficulty obtaining additional funds as and if needed, and we may have to
      accept terms that would adversely affect our shareholders. Additional equity
      financings are likely to be dilutive to holders of our common stock and debt
      financing, if available, may involve significant payment obligations and
      covenants that restrict how we operate our business.





9




We
      will
      be required to seek additional financing in the future to respond to increased
      expenses or shortfalls in anticipated revenues, accelerate product development
      and deployment, respond to competitive pressures, develop new or enhanced
      products, or take advantage of unanticipated acquisition opportunities. We
      cannot be certain we will be able to find such additional financing on
      commercially reasonable terms, or at all. If we are unable to obtain additional
      financing now and when needed in the future, we could be required to modify
      our
      business plan in accordance with the extent of available financing. We also
      may
      not be able to accelerate the development and deployment of our products,
      respond to competitive pressures, develop new or enhanced products or take
      advantage of unanticipated acquisition opportunities.





WE
      HAVE
      NO AGREEMENT RELATING TO REVENUE GENERATING ACTIVITIES FOR OUR TRACE PRODUCTS
      OR
      FACTOR 4 ® CARD. NO
      ASSURANCE CAN BE PROVIDED THAT WE WILL SUCCESSFULLY CONCLUDE ANY SUCH
      AGREEMENT.





Although
      we are beyond Beta stages of testing of Trace’s Location Service, the Trace
      Asset Tag and the Factor 4 ® card,
      there is no assurance that it will be able to successfully develop sales of
      its
      systems and thus we will have no way to evaluate the likelihood that we will
      be
      able to operate the business successfully. Potential investors should be aware
      of the difficulties normally encountered in developing and commercializing
      new
      industrial and technological products and the high rate of failure of such
      enterprises. The likelihood of success must be considered in light of the
      problems, expenses, difficulties, complications and delays encountered in
      connection with the commercialization process that we plan to undertake. These
      potential problems include, but are not limited to, unanticipated problems
      relating to development, manufacture licensing and financing of our products
      and
      services.





It
      is
      anticipated that we will incur increased operating expenses without realizing
      any revenues. It is, therefore, expected that we will incur significant losses
      into the foreseeable future. If we are unable to generate significant revenues
      from the business, or if the business is found to be unmarketable, we will
      not
      be able to earn profits or continue operations. If we are unsuccessful in
      addressing these risks, the business will most likely fail.




WE
      HAVE A
      LIMITED OPERATING HISTORY IN OUR INDUSTRIES AND, CONSEQUENTLY, THERE IS LIMITED
      HISTORICAL FINANCIAL DATA UPON WHICH AN EVALUATION OF OUR BUSINESS PROSPECTS
      COULD BE MADE.




We
      have
      only been engaged in the business of providing physical locking systems for
      the
      transportation and shipping industries since April 2003 and products relating
      to
      a-GPS location services since July 2004. We acquired our interest in Resilent
      in
      2006. As a result, we have little historical financial data that can be used
      in
      evaluating our business prospects and in projecting future operating results.
      For example, we cannot forecast operating expenses based on our historical
      results, and we are instead required to forecast expenses based in part on
      future revenue projections. In addition, our ability to accurately forecast
      our
      revenue going forward is limited.




There
      is
      no history upon which to base any assumption as to the likelihood that we will
      prove successful in our new ventures, and there is no assurance that we will
      be
      able to generate any operating revenues or ever achieve profitable operations.
      If we are unsuccessful in addressing these risks, the business will most likely
      fail.




IF
      WE
      MAKE AN ACQUISITION IN THE FUTURE, OUR OPERATIONS COULD BE MATERIALLY AFFECTED AND
      YOUR
      OWNERSHIP POTENTIALLY DILUTED.


As
      part
      of our business strategy, we expect to review acquisition prospects that
      complement our existing product offerings, augment market coverage or enhance
      technological capabilities that may present us with growth opportunities.
      Acquisitions could result in potentially diluting issuances, equity securities,
      the incurrence of debt and contingent liabilities or amortization expenses
      related to goodwill and other intangible assets, any of which could materially
      adversely affect operating results and/or the price of our common stock.
      Acquisitions entail numerous risks, including difficulties in the assimilation
      of acquired operations, technologies and products, diversion of management’s
      attention from other business concerns, risks of entering markets in which
      we
      have no or limited prior experience and potential loss of key employees of
      acquired organizations. No assurance can be given as to our ability to
      successfully integrate any businesses, products, technologies or personnel
      that
      might be acquired in the future, and the failure to do so could have an adverse
      effect on our business and financial condition or results of
      operations.




10




WE
        COULD
        LOSE OUR COMPETITIVE ADVANTAGES IF WE ARE NOT ABLE TO PROTECT ANY PROPRIETARY TECHNOLOGY
        AND INTELLECTUAL PROPERTY RIGHTS AGAINST INFRINGEMENT, AND ANY RELATED
        LITIGATION COULD BE TIME-CONSUMING
        AND COSTLY.
  Our
        success and ability to compete depends to a significant degree on our
        proprietary technology incorporated in security systems. We have taken some
        reasonable steps to protect our proprietary technology, but if any of our
        competitors copies or otherwise gains access to our proprietary technology
        or
        develops similar technologies independently, we would not be able to compete
        as
        effectively. We also consider our service marks and family of common law
        trademarks invaluable to our ability to continue to develop and maintain
        the
        goodwill and recognition associated with our brand. The measures we take
        to
        protect the proprietary technology, and other intellectual property rights,
        which presently are based upon a combination of copyright, trade secret and
        trademark laws, may not be adequate to prevent their unauthorized use. Further,
        the laws of foreign countries may provide inadequate protection of such
        intellectual property rights .





We
      may
      need to bring legal claims to enforce or protect such intellectual property
      rights. Any litigation, whether successful or unsuccessful, could result in
      substantial costs and diversions of resources. In addition, notwithstanding
      any
      rights we have secured in our intellectual property, other persons may bring
      claims against us that we have infringed on their intellectual property rights,
      including claims based upon the content we license from third parties or claims
      that our intellectual property right interests are not valid. Any claims against
      us, with or without merit, could be time consuming and costly to defend or
      litigate, divert our attention and resources, result in the loss of goodwill
      associated with our service marks or require us to make changes to our website
      or other of our technologies.




OUR
      SERVICES MAY BECOME OBSOLETE AND UNMARKETABLE IF WE ARE UNABLE TO RESPONDADEQUATELY
      TO RAPIDLY CHANGING TECHNOLOGY AND CUSTOMER DEMANDS.





Our
      industry is characterized by rapid changes in technology and customer demands.
      As a result, our products may quickly become obsolete and unmarketable. Our
      future success will depend on our ability to adapt to technological advances,
      anticipate customer demands, develop new products and enhance our current
      products on a timely and cost-effective basis. Further, our products must remain
      competitive with those of other companies with substantially greater resources.
      We may experience technical or other difficulties that could delay or prevent
      the development, introduction or marketing of new products or enhanced versions
      of existing products. Also, we may not be able to adapt new or enhanced services
      to emerging industry standards, and our new products may not be favorably
      received.




UNLESS
      WE
      CAN ESTABLISH SIGNIFICANT SALES OF OUR CURRENT PRODUCTS, OUR POTENTIALREVENUES
      MAY BE SIGNIFICANTLY REDUCED.





We
      expect
      that a substantial portion, if not all, of our future revenue will be derived
      from the sale of our security products. We expect that these product offerings
      and their extensions and derivatives will account for a majority, if not all,
      of
      our revenue for the foreseeable future. Broad market acceptance of our security
      products is, therefore, critical to our future success and our ability to
      generate revenues. Failure to achieve broad market acceptance of our security
      products, as a result of competition, technological change, or otherwise, would
      significantly harm our business. Our future financial performance will depend
      primarily on the successful introduction and market acceptance of our current
      security product offerings, and on the development, introduction and market
      acceptance of any future enhancements. There can be no assurance that we will
      be
      successful in marketing our current product offerings or any new product
      offerings, applications or enhancements, and any failure to do so would
      significantly harm our business.




OUR
      REVENUES MAY BE SIGNIFICANTLY REDUCED DUE TO THE ECONOMIC CONDITIONS OF
      CUSTOMERS,SUPPLIERS,
      AND COMPETITORS.





Other
      factors, many of which are beyond our control, may contribute to fluctuations
      in
      quarterly operating results, including the timing of product introductions
      or
      enhancements, our suppliers and our competitors, competition and pricing, market
      acceptance of new products, reduction in demand for existing products, product
      quality problems, personnel changes, and general economic
      conditions.





11




The
      sales
      cycle for our products typically ranges from one to 100 weeks. However, signing
      of new customers may be delayed for a number of reasons outside of our control.
      Since our products are generally sent when orders are received, we have
      historically operated without significant backlog. In addition, we currently
      intend to increase operating expenses in anticipation of continued growth and
      to
      fund expanded product development efforts. To the extent such expenses come
      before, or are not subsequently followed by, increased revenues, our business,
      financial condition and results of operations could be materially and adversely
      affected.




ANY
      EVENT
      WHICH ADVERSELY AFFECTS THE SALE OF OUR PRODUCT OR SERVICE MAY ADVERSELY AFFECT
      OUR ABILITY TO GENERATE REVENUES.


Our
      revenues are currently derived from sales of products along with all supporting
      services. In the near term, our products and related support services are
      expected to continue to account for substantially all of our revenues. Any
      event
      that adversely affects the sale of products or services, a change in the
      competitions’ product strategies, significant quality problems, negative
      publicity or evaluation, reduced market acceptance or obsolescence of our
      products, or changes in environments in which the Company operates could have
      a
      material adverse effect on our business, financial condition and results of
      operations.





Our
      business depends substantially upon the capital expenditures relating to
      technology of small, midsize and large companies and organizations. A recession
      or other adverse event affecting the marketplace for technology spending in
      the
      United States and Canada could impact such demand, forcing the companies in
      our
      target market to curtail or postpone such expenditures. Any adverse change
      in
      the amount or timing of expenditures by our target customers could have a
      material adverse effect on our business, financial condition and results of
      operations.




WE
      MAY
      FACE LARGER AND BETTER-FINANCED COMPETITORS.


Although
      management is not aware of similar products which would compete directly with
      us
      through our WAR-LOK TM series
      products, the Trace Location Service, the Trace Asset Tag, and the Factor
      4 ® card, it
      is anticipated that larger, better-financed companies will develop products
      similar or superior to our systems. Such competition will potentially affect
      our
      chances of achieving profitability, and ultimately adversely affect our ability
      to continue as a going concern.




CERTAIN
      OF OUR PRINCIPAL STOCKHOLDERS WILL CONTINUE TO HAVE SIGNIFICANT VOTING POWERAND
      MAY
      TAKE ACTIONS THAT MAY NOT BE IN THE BEST INTEREST OF OTHER
      STOCKHOLDERS.





Certain
      of our officers, directors and principal stockholders continue to control a
      significant percentage of our outstanding common stock. If these stockholders
      act together, they may be able to exert significant control over our management
      and affairs requiring stockholder approval, including approval of significant
      corporate transactions. This concentration of ownership may have the effect
      of
      delaying or preventing a change in control and might adversely affect the market
      price of our common stock. This concentration of ownership may not be in the
      best interests of all our stockholders.




THE
      LOSS
      OF KEY PERSONNEL WOULD HAVE A MATERIAL ADVERSE AFFECT UPON THE
      COMPANY.


Our
      success depends to a significant extent upon a number of key employees and
      members of senior management of the Company, including Keith Feilmeier, our
      President and Chief Executive Officer; Maurice Shanley, the President of Trace;
      Don Chicoine, the President of Gabriel LLC; Steven Campisi, the President of
      Resilent; Allan Angus, our Chief Technology Officer; and Robert Weinberg, our
      Vice President of Operations. The loss of service of one or more of these key
      employees could have a materially adverse affect. We believe that our future
      success is highly reliant upon recruiting exceptionally skilled technical,
      managerial and marketing personnel. Competition for such personnel is intense.
      There can be no assurance that we will be successful in attracting and retaining
      the personnel we require.




FUTURE
      SALES OF COMMON STOCK OR OTHER DILUTIVE EVENTS MAY ADVERSELY AFFECT PREVAILING MARKET
      PRICES FOR OUR COMMON STOCK.




12


As
      of
      October 31, 2006, we had 37,407,771 2  shares
      of
      our common stock issued and outstanding. As of October 31, 2006, an additional
      15,124,352 shares of common stock were reserved for issuance upon the exercise
      of outstanding options and warrants exercisable at an exercise price of $1.00
      per share. Many of the above options and warrants contain provisions that
      require the issuance of increased numbers of shares of common stock upon
      exercise in the event of stock splits, redemptions, mergers or other
      transactions.





The
      occurrence of any such event or the exercise of any of the options or warrants
      described above would dilute the interest in the Company represented by each
      share of common stock and may adversely affect the prevailing market price
      of
      our common stock. Finally, we may need to raise additional capital through
      the
      sale of shares of common stock or other securities exercisable for or
      convertible into common stock. The occurrence of any such sale would dilute
      the
      interest in the Company represented by each share of common stock and may
      adversely affect the prevailing market price of our common stock.




OUR
      STOCK
      PRICE MAY BE VOLATILE.


The
      market price of our common stock will likely fluctuate significantly in response
      to the following factors, some of which are beyond our control:





·
            Variations
                in our quarterly operating results due to a number of factors, including
                but not limited to those identified in this “Risk
                Factors”
                section;





·
            Changes
                in financial estimates of our revenues and operating results by securities
                analysts or investors;





·
            Changes
                in market valuations of telecommunications equipment
                companies;





·
            Announcements
                by us of commencement to, changes to, or cancellation of significant
                contracts, acquisitions, strategic partnerships, joint ventures or
                capital
                commitments;





·
            Additions
                or departures of key personnel;





·
            Future
                sales of our common stock;





·
            Stock
                market price and volume fluctuations attributable to inconsistent
                trading
                volume levels of our stock;





·
            Commencement
                of or involvement in
                litigation; and





·
            Announcements
                by us or our competitors of technological innovations or new
                products.




WE
      DO NOT
      ANTICIPATE PAYING ANY DIVIDENDS ON OUR COMMON STOCK.


We
      have
      not paid any dividends on our common stock since our inception and do not
      anticipate paying any dividends on our common stock in the foreseeable future.
      Instead, we intend to retain any future earnings for use in the operation and
      expansion of our business.




ADDITIONAL
      BURDENS IMPOSED UPON BROKER-DEALERS BY THE APPLICATION OF THE “PENNY STOCK”RULES
      TO
      OUR COMMON STOCK MAY LIMIT THE MARKET FOR OUR COMMON STOCK.





The
      SEC
      has adopted regulations concerning low-priced (or “penny”) stocks. The
      regulations generally define “penny stock” to be any equity security that has a
      market price less than $5.00 per share, subject to certain exceptions. If
      our shares continue to be offered at a market price less than $5.00 per
      share, and do not qualify for any exemption from the penny stock regulations,
      our shares will continue to be subject to these additional regulations relating
      to low-priced stocks.







2Excludes
        3,000,000 shares of
        the Company's common stock issued in the name of the Company and held
        by an investor as security for the Company's obligations to the
        investor.
  13


The
      penny
      stock regulations require that broker-dealers who recommend penny stocks to
      persons other than institutional accredited investors, make a special
      suitability determination for the purchaser, receive the purchaser’s written
      agreement to the transaction prior to the sale and provide the purchaser with
      risk disclosure documents that identify risks associated with investing in
      penny
      stocks. Furthermore, the broker-dealer must obtain a signed and dated
      acknowledgment from the purchaser demonstrating that the purchaser has actually
      received the required risk disclosure document before effecting a transaction
      in
      penny stock. These requirements have historically resulted in reducing the
      level
      of trading activity in securities that become subject to the penny stock
      rules.





The
      additional burdens imposed upon broker-dealers by these penny stock requirements
      may discourage broker-dealers from effecting transactions in the common stock,
      which could severely limit the market liquidity of our common stock and our
      shareholders’ ability to sell our common stock in the secondary
      market.




SHARES
      ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
      STOCK, AS THE FUTURE SALE OF A SUBSTANTIAL AMOUNT OF OUR RESTRICTED STOCK IN
      THE
      PUBLIC MARKETPLACE COULD REDUCE THE PRICE OF OUR COMMON STOCK.


From
      time
      to time, certain of our stockholders may be eligible to sell all or some of
      their shares of common stock by means of ordinary brokerage transactions in
      the
      open market pursuant to Rule 144, promulgated under the Securities Act (“Rule
      144”), subject to certain limitations. In general, pursuant to Rule 144, a
      stockholder (or stockholders whose shares are aggregated) who has satisfied
      a
      one-year holding period may, under certain circumstances, sell within any
      three-month period a number of securities which does not exceed the greater
      of
      1% of the then outstanding shares of common stock or the average weekly trading
      volume of the class during the four calendar weeks prior to such sale. Rule
      144
      also permits, under certain circumstances, the sale of securities, without
      any
      limitations, by a non-affiliate of our Company that has satisfied a two-year
      holding period. Any substantial sale of common stock pursuant to Rule 144 or
      pursuant to any resale prospectus may have an adverse effect on the market
      price
      of our securities.





**ITEM
      2.** **DESCRIPTION
      OF PROPERTY**





We
      do not
      own any real property. Our corporate headquarters are located at 4538 South
      140th Street, Omaha, Nebraska 68137. The premises are occupied under a lease
      which commenced on February 1, 2004 and expires on March 31, 2009. The current
      monthly fixed minimum rent is $9,470.44. Our premises occupy 18,053 square
      feet,
      which we believe is adequate for our current operations. ****** We
      also
      rent space in Flower Mound, Texas for $475 per month. The lease commenced in
      April, 2005 and expires on March 31, 2007, which may be renewed on a
      month-to-month basis thereafter.





Trace
      Technologies, LLC leases 829 square feet of office space in Bellevue,
      Washington, under a lease which commenced on August 1, 2006, and expires on
      November 1, 2006, but thereafter may be renewed on a month-to-month basis.
      The
      monthly rent under the lease is $1,036.





Resilent
      leases approximately 4,000 square feet of office space in Omaha, Nebraska,
      under
      a lease which commenced on August 1, 2005 and expires on July 31, 2015. The
      current monthly rental under this lease is $5,983.33.





**ITEM
      3.** **LEGAL
      PROCEEDINGS**





There
      are
      no material pending legal proceedings to which we are a party or to which any
      of
      our properties are subject. There are no material proceedings known to us to
      be
      contemplated by any governmental authority.





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





No
      matter
      was submitted to a vote of security holders during the three months ended June
      30, 2006.





**PART
      II**





**ITEM
      5.** **MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**





14




Our
      common stock is currently traded on the Nasdaq Stock Market’s OTC Bulletin Board
      under the trading symbol “GWLK.”





The
      following table sets forth the high and low bid prices for the common stock
      on
      the OTC Bulletin Board for the periods indicated. These prices represent
      inter-dealer quotations without retail markup, markdown or commission and may
      not necessarily represent actual transactions. Investors should not rely on
      historical stock price performance as an indication of future price performance.
      The closing price of our common stock on October 31, 2006 was $0.50 **** per
      share.





**HIGH**
            
            
            
            **LOW**JULY
                2005 THROUGH JUNE 2006First
                Quarter
            $
            1.70
            
            
            
            $
            0.80Second
                Quarter
            $
            1.43
            
            
            
            $
            0.78Third
                Quarter
            $
            1.63
            
            
            
            $
            0.86Fourth
                Quarter
            $
            1.33
            
            
            
            $
            0.80JULY
                2004 THROUGH JUNE 2005First
                Quarter
            $
            4.70
            (1)
            
            
            $
            3.00
            (1)Second
                Quarter
            $
            3.25
            (1)
            
            
            $
            2.85
            (1)Third
                Quarter
            $
            3.40
            
            
            
            $
            2.00Fourth
                Quarter
            $
            2.75
            
            
            
            $
            1.20


____________________


(1)  Our
      common stock traded on the “Pink Sheets” during the first and second quarter of
      the fiscal year ended June 2005.





**SHAREHOLDERS**





As
      of
      October 31, 2006, there were approximately 667 holders of record of our common
      stock. We believe that a significant number of shares of our common stock are
      held in either nominee name or street name brokerage accounts.





**DIVIDENDS**





We
      have
      not declared or paid any cash dividends on our capital stock and do not
      anticipate paying any cash dividends on our capital stock in the foreseeable
      future. Payment of dividends on the common stock is within the discretion of
      our
      Board of Directors. The Board currently intends to retain future earnings,
      if
      any, to finance our business operations and fund the development and growth
      of
      our business. The declaration of dividends in the future will depend upon our
      earnings, capital requirements, financial condition, and other factors deemed
      relevant by the Board of Directors.





**SALES
      OF UNREGISTERED SECURITIES**





During
      the fiscal year ended June 30, 2006, we sold or issued unregistered securities
      as follows:





In
      July
      2005, we issued:




(i) 600,000
      shares of common stock and warrants to purchase 300,000 shares of common stock
      at an exercise price of $1.00 per share to 18 investors in connection with
      the
      closing of a private placement resulting in gross proceeds of
      $600,000;




(ii) 340,000
      shares of common stock and warrants to purchase 170,000 shares of common stock
      at an exercise price of $1.00 per share to 17 investors in connection with
      the
      closing of a private placement resulting in gross proceeds of $340,000;
      and




(iii) warrants
      to purchase 517,840 shares of common stock at an exercise price of $1.00 per
      share to 9 placement agents as compensation for services valued at $523,000.





In
      August
      2005, we issued warrants to purchase 300,000 shares of common stock at an
      exercise price of $1.00 per share to a placement agent as compensation for
      services valued at $81,000.





15




In
      November 2005, we issued 1,500,000 shares of common stock to a consultant as
      compensation for services valued at $1,200,000.





In
      December 2005, we issued:




(i) warrants
      to purchase 182,315 shares of common stock at an exercise price of $1.00 per
      share to a consultant as compensation for services valued at $91,158;
      and




(ii) 70,000
      shares of common stock to a placement agent as compensation for services valued
      at $57,750.





In
      January 2006, we issued:




(i) warrants
      to purchase 1,465,000 shares of common stock at an exercise price of $1.00
      per
      share to 21 placement agents as compensation for services valued at
      $717,850;




(ii) 1,593,750
      shares of common stock with a value of $1,593,750 to Mutual Protective Insurance
      in connection with the purchase of its membership interests of
      Resilent;




(iii) options
      to purchase 3,647,000 shares of common stock at an exercise price of $1.00
      per
      share to 12 employees as compensation for services valued at
      $1,856,730;




(iv) 3,000,000
      shares of common stock with a value of $3,000,000 to Resilent as consideration
      for the purchase of its membership interests;




(v) warrants
      to purchase 70,000 shares of common stock at an exercise price of $2.09 per
      share to a consulting firm as compensation for public relation services valued
      at $30,100; and




(vi) a
      convertible promissory note in the principal amount of $1,000,000 convertible
      into shares of common stock at a conversion price of $.60 per share to a
      note-holder and warrants to purchase 1,000,000 shares of common stock at an
      exercise price of $1.00 per share to the note-holder as consideration for making
      the loan.





In
      February 2006, we issued warrants to purchase 20,833 shares of common stock
      at
      an exercise price of $1.00 per share to a consultant as compensation for
      services valued at $15,416.





In
      March
      2006, we issued:




(i) 500,000
      shares of common stock and options to purchase 750,000 shares of common stock
      at
      an exercise price of $1.00 per share to 5 directors for serving on our board
      of
      directors;




(ii) 1,000,000
      shares of common stock and warrants to purchase 500,000 shares of common stock
      at an exercise price of $1.00 per share to an investor upon the conversion
      of a
      convertible promissory note, resulting in the cancellation of principal and
      note
      obligations then outstanding and due of $1,000,000; and




(ii) warrants
      to purchase 20,833 shares of common stock at an exercise price of $1.00 per
      share to a consultant as compensation for services valued at
      $15,416.





In
      April
      2006, we issued:




(i) 20,000
      shares of common stock to an investor in connection with the closing of a
      private placement resulting in gross proceeds of $20,000;




(ii) 1,255,000
      shares of common stock and warrants to purchase 627,500 shares of common stock
      at an exercise price of $1.00 per share to 23 investors in connection with
      the
      closing of a private placement resulting in gross proceeds of
      $1,255,000;




16




(iii) warrants
      to purchase 150,000 shares of common stock at an exercise price of $1.00 per
      share to a note-holder in connection with waiving the default event under our
      note payable;




(iv) promissory
      notes in the principal amount of $100,000 in the aggregate to a note-holder
      and
      warrants to purchase 50,000 shares of common stock at an exercise price of
      $1.00
      per share to the note-holder as consideration for making the loan;
      and




(v) warrants
      to purchase 20,833 shares of common stock at an exercise price of $1.00 per
      share to a consultant as compensation for services valued at
      $15,416.





In
      May
      2006, we issued:




(i) promissory
      notes in the principal amount of $175,000, in the aggregate, to 2 note-holders
      and warrants to purchase 125,000 shares of common stock, in the aggregate,
      at an
      exercise price of $1.00 per share to the note-holders as consideration for
      making the loans; and




(ii) warrants
      to purchase 20,833 shares of common stock at an exercise price of $1.00 per
      share to a consultant as compensation for services valued at
      $15,416.





In
      June
      2006, we issued:




(i) 40,755
      shares of common stock to an independent contractor as compensation for services
      valued at $44,831;




(ii) 1,000,000
      shares of common stock and warrants to purchase 1,000,000 shares of common
      stock
      at an exercise price of $1.00 per share to 4 investors in connection with the
      closing of a private placement resulting in gross proceeds of
      $1,000,000;




(iii) warrants
      to purchase 500,000 shares of common stock at an exercise price of $1.00 per
      share to 8 placement agents as compensation for services valued at
      $305,000;




(iv) 1,000,000
      shares of common stock and warrants to purchase 750,000 shares of common stock
      at an exercise price of $1.00 per share to an investor in connection with the
      closing of a private placement resulting in gross proceeds of $1,000,000;
      and




(v) warrants
      to purchase 20,833 shares of common stock at an exercise price of $1.00 per
      share to a consultant as compensation for services valued at
      $15,416.





In
      July
      2006, subsequent to the year ended June 30, 2006, we issued:




(i) warrants
      to purchase 300,000 shares of common stock at an exercise price of $1.00 per
      share to a vendor in connection with the settlement of our outstanding payables
      for inventory valued at $95,020;




(ii) 286,250
      shares of common stock and warrants to purchase 286,250 shares of common stock
      at an exercise price of $1.00 per share to a note-holder in exchange for the
      cancellation of our note payable, with principal and accrued interest due and
      outstanding at the time of the exchange of $214,045.76; and




(iii) warrants
      to purchase 20,833 shares of common stock at an exercise price of $1.00 per
      share to a consultant as compensation for services valued at
      $15,416.





In
      August
      2006, subsequent to the year ended June 30, 2006, we issued:




(i) warrants
      to purchase 100,000 shares of common stock at an exercise price of $1.00 per
      share to 2 investors in connection with raising working capital resulting in
      gross proceeds of $250,000; and




17




(ii) warrants
      to purchase 20,833 shares of common stock at an exercise price of $1.00 per
      share to a consultant as compensation for services valued at
      $15,416.





In
      September 2006, subsequent to the year ended June 30, 2006, we
      issued:




(i) 207,200
      shares of common stock and warrants to purchase 100,000 shares of common stock
      at an exercise price of $1.00 per share to 2 note-holders in exchange for the
      cancellation of our notes payable, with principal and accrued interest due
      and
      outstanding at the time of the exchange of $207,200, in the aggregate;




(ii) 342,000
      shares of common stock and warrants to purchase 342,000 shares of common stock
      at an exercise price of $1.00 per share to 5 investors in connection with
      raising working capital resulting in gross proceeds of $342,000;




(iii) 100,000
      shares of common stock and options to purchase 150,000 shares of common stock
      at
      an exercise price of $1.00 per share to a director for serving on our board
      of
      directors; and




(iv) warrants
      to purchase 20,833 shares of common stock at an exercise price of $1.00 per
      share to a consultant as compensation for services valued at
      $15,416.





In
      October 2006, subsequent to the year ended June 30, 2006, we
      issued:




(i) 75,000
      shares of common stock and warrants to purchase 75,000 shares of common stock
      at
      an exercise price of $1.00 per share to 2 investors in connection with raising
      working capital resulting in gross proceeds of $75,000;




(ii) warrants
      to purchase 230,000 shares of common stock at an exercise price of $1.00 per
      share to 3 investors in connection with raising working capital resulting in
      gross proceeds of $230,000; and




(iii) warrants
      to purchase 20,833 shares of common stock at an exercise price of $1.00 per
      share to a consultant as compensation for services valued at
      $15,416.




All
      of
      the securities issued in the transactions described above were in reliance
      upon
      the exemptions provided in Section 4(2) of the Securities Act. The recipients
      of
      securities in each such transaction acquired the securities for investment
      only
      and not with a view to or for sale in connection with any distribution thereof.
      Appropriate legends were affixed to the share certificates issued in all of
      the
      above transactions. Each of the recipients represented that they were
“accredited investors” within the meaning of Rule 501(a) of Regulation D under
      the Securities Act, or had such knowledge and experience in financial and
      business matters as to be able to evaluate the merits and risks of an investment
      in its common stock. All recipients had adequate access, through their
      relationships with us and our officers and directors, to information about
      us.
      None of the transactions described above involved general solicitation or
      advertising.





**EQUITY
      COMPENSATION PLAN INFORMATION**





We
      have
      one compensation plan (excluding individual stock option grants outside of
      such
      plan), the 2006 Equity Incentive Plan (the “2006 Plan”), under which our equity
      securities are authorized for issuance to employees, directors and consultants
      in exchange for services. The 2006 Plan has not yet been submitted to the
      shareholders for approval.




18
 
  The
        following table presents information as October 31, 2006, with respect to
        compensation plans under which equity securities were authorized for issuance,
        including the 2006 Plan, and agreements granting options or warrants outside
        of
        these plans.





**Number
                of Securities**
              **to
                be issued Upon**
              **Exercise
                of**
              **Outstanding**
              **Options,
                Warrants**
              **or
                Rights**
            
            **Weighted-Average**
              **Exercise
                Price of**
              **Outstanding**
              **Options,
                Warrants**
              **or
                Rights**
            
            **Number
                of Securities**
              **Remaining
                Available for**
              **Future
                Issuance Under**
              **Equity
                Compensation Plans**Equity
                compensation plansapproved
                by security holders
            0
            
            $0.00
            
            0Equity
                compensation plans notapproved
                by security holders
            4,899,315
            
            $1.00
            
            3,103,000Total
            4,899,315
            
            $1.00
            
            3,103,000





***Non-Shareholder
      Approved Plans***





The
      following is a description of options and warrants granted to employees,
      directors and consultants as of June 30, 2006:





We
      have
      outstanding options to purchase an aggregate of 750,000 shares of common stock
      that were granted on March 21, 2006, under the 2006 Plan to five outside
      directors of the Company. These options expire five years from their grant
      date,
      and have an exercise price of $1.00 per share. All of these options have
      vested.





We
      have
      outstanding options to purchase an aggregate of 3,147,000 shares of common
      stock
      that were granted on January 18, 2006 under the 2006 Plan to eleven of our
      employees. These options expire five years from their grant date, and have
      an
      exercise price of $1.00 per share. All of these options have
      vested.





We
      have
      an outstanding option to purchase 500,000 shares of our common stock that was
      granted on January 19, 2006 under the 2006 Plan to Steven Campisi pursuant
      to
      his employment agreement with the Company on the same date. The option expires
      five years from its grant date, and has an exercise price of $1.00 per share.
      The option will not vest until 2007, and the vesting schedule is based on the
      performance of Resilent.





We
      have
      an outstanding warrant to purchase up to 182,315 shares of our common stock
      that
      we granted to a consultant of the Company on December 6, 2005. The warrant
      expires five years from its grant date, and has an exercise price of $1.00
      per
      share. All of the warrants have vested.





We
      have
      an outstanding warrant to purchase up to 250,000 shares of our common stock
      that
      we granted to a consultant of the Company on January 1, 2006. The warrant
      expires five years from its grant date, and has an exercise price of $1.00
      per
      share. The warrant vests in twelve equal monthly installments of 20,833 shares
      of our common stock commencing on February 25, 2006.





We
      have
      an outstanding warrant to purchase up to 70,000 shares of our common stock
      that
      we granted to a consultant of the Company on January 19, 2006. The warrant
      expires on June 1, 2010, and has an exercise price of $2.09 per share. All
      of
      the warrants have vested.




19


**ITEM
      6.** **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





*We
      urge you to read the following discussion in conjunction with our unaudited
      consolidated financial statements and the notes thereto included elsewhere
      in
      this Annual Report on Form 10-KSB. The audit of our consolidated financial
      statements at June 30, 2006, is in progress but was not completed in time to
      include audited consolidated financial statements and a Report of Independent
      Registered Public Accounting Firm in this Annual Report on Form 10-KSB. When
      the
      audit is completed and a Report of Independent Registered Public Accounting
      Firm
      is issued, we intend to file an amended Annual Report on Form
      10-KSB.*





**CAUTION
      REGARDING FORWARD-LOOKING STATEMENTS**





Our
      prospects are subject to uncertainties and risks. In this Annual Report on
      Form
      10-KSB, we make forward-looking statements under the headings “Item 1.
      Business,” “Item 6. Management’s Discussion and Analysis or Plan of Operation,”
and elsewhere, that also involve substantial uncertainties and risks. These
      forward-looking statements are based upon our current expectations, estimates
      and projections about our business and our industry, and that reflect our
      beliefs and assumptions based upon information available to us at the date
      of
      this report. In some cases, you can identify these statements by words such
      as
“if,” “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “predicts,” “potential,” “continue,” and other similar
      terms. These forward-looking statements include, among other things, projections
      of our future financial performance and our anticipated growth, descriptions
      of
      our strategies, our product and market development plans, the trends we
      anticipate in our business and the markets in which we operate, and the
      competitive nature and anticipated growth of those markets.





We
      caution readers that forward-looking statements are predictions based on our
      current expectations about future events. These forward-looking statements
      are
      not guarantees of future performance and are subject to risks, uncertainties
      and
      assumptions that are difficult to predict. Our actual results, performance
      or
      achievements could differ materially from those expressed or implied by the
      forward-looking statements as a result of a number of factors, including but
      not
      limited to the risks and uncertainties discussed under the heading “RISK
      FACTORS” in Item 1 of this Annual Report and in our other filings with the SEC.
      We undertake no obligation to revise or update any forward-looking statement
      for
      any reason.





**OVERVIEW**





Through
      our wholly-owned subsidiary, Gabriel Technologies, LLC, we develop, manufacture
      and sell a series of physical locking systems for the transportation and
      shipping industries collectively known as the WAR-LOKTM Security
      System. With the WAR-LOKTM System
      there are 260 million key combinations possible and the ability to master key
      20,000 different locks. All WAR-LOKTM internal
      locking cores are designed with a flat-keyed locking system. Each component
      of
      this high security disc type cylinder has been designed to withstand the harsh
      environments of the transportation industry. All components are made of chrome
      plated hardened steel, brass or stainless steel. The WAR-LOKTM is pick
      resistant, drill resistant and key duplication is rendered
      improbable.





We
      have
      established Trace Location Services through our subsidiary, Trace Technologies,
      LLC, a Nevada limited liability company. Trace has developed a modern,
      web-services-oriented platform for the delivery of location i-based service
      to
      its customers. This platform can track wireless devices using assisted or
      autonomous GPS capabilities in an optimized fashion to achieve minimum fix
      times
      and bandwidth and maximum sensitivity and battery life. Using multi-mode GPS
      end-devices, trace expects a wide variety of successful applications in tracking
      assets and personnel. Trace’s servers and end-devices utilize Snaptrack’s MM-GPS
      technology as incorporated in many cellular CDMA networks for E911 service.
      GPS
      technology provides accurate location information in environments where
      traditional, autonomous GPS is unable to properly function, such as inside
      buildings, parking garages, vehicle trunks, cargo areas, areas with dense
      foliage, and “urban canyons.” Subscribers and licensees will pay a fee to access
      the Trace-enhanced location information to determine the location of enabled
      devices, such as the Trace Asset Tag. We are also currently developing a Trace
      Location Services WAR-LOKTM version
      of our WAR-LOKTM product
      that will be able to communicate its position and status of the lock, rail
      car
      or semi-trailer wirelessly over existing wireless communication
      networks.





In
      January 2006, we acquired a controlling interest in Resilent LLC d/b/a Digital
      Defense Group, a Nebraska limited liability company (“Resilent”). Resilent has
      developed the Factor 4® biocards, which is an identification card that
      incorporates biometric fingerprints with the ability to self-enroll and
      authenticate without a need for a central database or any other computer
      assisted software or hardware.





20




**CRITICAL
      ACCOUNTING POLICIES**





Management’s
      discussion and analysis of financial condition and results of operations are
      based upon our unaudited consolidated financial statements. These statements
      have been prepared in accordance with generally accepted accounting principles
      in the United States of America, and have been consistently applied. All
      intercompany balances and transactions have been eliminated in
      consolidation.





***Use
      of estimates in preparation of financial statements***





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make certain estimates, judgments
      and assumptions that affect the reported amounts of assets, liabilities,
      revenues and expenses, and related disclosure of contingent assets and
      liabilities. On an on-going basis, we evaluate our estimates, based on
      historical experience, and various other assumptions that are believed to be
      reasonable under the circumstances, the results of which form the basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions. The following critical
      accounting policies rely upon assumptions, judgments and estimates and were
      used
      in the preparation of our unaudited consolidated financial
      statements.





***Derivative
      Instruments***





The
      Financial Accounting Standards Board issued Statement of Financial Accounting
      Standards No. 133, “Accounting for Derivative Instruments and Hedging
      Activities,” (hereinafter “SFAS No. 133”) as amended by SFAS No. 137,
“Accounting for Derivative Instruments and Hedging Activities - Deferral of
      the
      Effective Date of FASB No. 133”, and SFAS No. 138, “Accounting for Certain
      Derivative Instruments and Certain Hedging Activities” and SFAS No. 149,
“Amendment of Statement 133 on Derivative Instruments and Hedging Activities”.
      These statements establish accounting and reporting standards for derivative
      instruments, including certain derivative instruments embedded in other
      contracts, and for hedging activities. They require that an entity recognize
      all
      derivatives as either assets or liabilities in the consolidated balance sheet
      and measure those instruments at fair value.




If
      certain conditions are met, a derivative may be specifically designated as
      a
      hedge, the objective of which is to match the timing of gain or loss recognition
      on the hedging derivative with the recognition of (i) the changes in the fair
      value of the hedged asset or liability that are attributable to the hedged
      risk
      or (ii) the earnings effect of the hedged forecasted transaction. For a
      derivative not designated as a hedging instrument, the gain or loss is
      recognized in income in the period of change.




We
      have
      issued convertible debt securities with warrants. We account for such securities
      in accordance with Emerging Issues Task Force Issue Nos. 98-5, 00-19, 00-27,
      05-02, 05-04 and 05-08, and Statement of Financial Accounting Standards No.
      133,
“Accounting for Derivative Instruments and Hedging Activities” as amended (“SFAS
      133”).




In
      accordance with SFAS 133, the holder’s conversion right provision, interest rate
      adjustment provision, liquidated damages clause, cash premium option, and the
      redemption option (collectively, the debt features) contained in the terms
      governing the notes are not clearly and closely related to the characteristics
      of the notes. Accordingly, the features qualified as embedded derivative
      instruments at issuance and, because they do not qualify for any scope exception
      within SFAS 133, they were required by SFAS 133 to be accounted for separately
      from the debt instrument and recorded as derivative financial
      instruments.




At
      each
      balance sheet date, we adjust the derivative financial instruments to their
      estimated fair value and analyzes the instruments to determine their
      classification as a liability or equity.





21




***Accounts
      Receivable***





The
      carrying amount of accounts receivable is reduced by a valuation allowance
      that
      reflects management’s best estimate of the amount that will not be collected. On
      a periodic basis, management reviews all accounts receivable balances and
      considers the need for an allowance for doubtful accounts based on our past
      and
      expected collections and current credit conditions.





***Impairment
      of Long Lived Assets***





We
      assess
      the potential impairment of our long lived assets, which include our property
      and equipment and our identifiable intangibles such as our trade secrets under
      the guidance of Statement of Financial Standards No. 144 “Accounting for the
      Impairment or Disposal of Long Lived Assets”. Once annually, or as events and
      circumstances indicate that an asset may be impaired, we assess the potential
      impairment of our long lived assets. We determine impairment by measuring the
      undisclosed future cash flows generated by the assets, comparing the results
      to
      the assets’ carrying value and adjusting the assets to the lower of the carrying
      value to fair value and charging currant operations for any measured
      impairment.





***Revenue
      Recognition***





Products
      are shipped freight on board (FOB) shipping point and title passes upon
      shipment. We recognize revenue from sales when there is persuasive evidence
      that
      a sales arrangement exists, delivery has occurred, our price to the buyer is
      determinable and collectibility is reasonably assured.





**RESULTS
      OF OPERATIONS**





COMPARISON
      OF THE YEAR ENDED JUNE 30, 2006 (the “2006 PERIOD”) AND THE YEAR ENDED
      JUNE 30, 2005 (the “2005 PERIOD”)





The
      following table provides a breakdown of selected results of operations for
      the
      years ended June 30, 2006 and 2005, respectively, and is the basis for the
      following discussion of the results of operations:





Year
                Ended June 30,2006
            
            2005REVENUES
            
            $
            1,241,773
            
            $
            921,976COST
                OF GOODS SOLD
            
            
            889,007
            
            
            573,244GROSS
                PROFIT
            
            
            352,766
            
            
            348,732GENERAL
                AND ADMINISTRATIVE EXPENSESSelling,
                office and general
            
            
            9,598,593
            
            
            4,244,427Professional
                fees
            
            
            617,358
            
            
            451,670Total
                Expenses
            
            
            10,215,951
            
            
            4,696,097LOSS
                FROM OPERATIONS
            
            
            (9,863,185
            )
            
            (4,347,365
            )OTHER
                INCOME (EXPENSE)Interest
                income
            
            
            104,168
            
            
            34,539Financing
                expense
            
            
            (1,036,766
            )
            
            (440,000
            )Gain
                from disposal of subsidiary
            
            
            —
            
            
            22,500Loss
                from change in derivative liability
            
            
            (637,050
            )
            
            —Interest
                expense
            
            
            (1,104,952
            )
            
            (35,261
            )Other
            
            
            5,642
            
            
            (2,013
            )Total
                Other Income (Expense)
            
            
            (2,668,958
            )
            
            (420,235
            )LOSS
                BEFORE TAXES
            
            
            (12,252,143
            )
            
            (4,767,600
            )BENEFIT
                (PROVISION) FOR TAXES
            
            
            (2,017,438
            )
            
            1,322,048NET
                LOSS
            
            $
            (14,549,581
            )
            $
            (3,445,552
            )




22


**REVENUES**





The
      following table summarizes Gabriel LLC’s three revenue segments as a percentage
      of Total Revenue respectively for the following fiscal years:





Year
                Ended June 30,2006
            
            2005Trucking
            
            72.0
            %
            
            87.0
            %Consumer/Other
            
            21.8
            %
            
            8.3
            %Intermodal/Railroad
            
            6.2
            %
            
            4.7
            %100.0
            %
            
            100.0
            %





Details
      of the most significant changes for the years ended June 30, 2006 and 2005
      are
      as follows:





TRUCKING - The
      Trucking segment represents $894,611 or 72.0% of total revenue earned for the
      year ended June 30, 2006, as compared to $802,119 or 87.0% of total revenue
      for
      the year ended June 30, 2005. The Trucking segment continues to be Gabriel
      LLC’s
      primary market. Renewed effort will be placed on Intermodal/Railroad in the
      next
      12 months.





CONSUMER/OTHER - The
      Consumer/Other segment represented $270,764 or 21.8% of total revenue earned
      for
      the year ended June 30, 2006, compared to $76,219 or 8.3% of total revenue
      earned for the year ended June 30, 2005. The percentage increase is due to
      the
      Company’s development of retail packaging and expanding distribution channels
      through national retail chains.





INTERMODAL/RAILROAD - The
      Intermodal/Railroad segment represents $76,398 or 6.2% of total revenue earned
      for the year ended June 30, 2006, as compared to $43,638 or 4.7% of total
      revenue for the year ended June 30, 2005. The increasing revenue percentage
      relates primarily to taking a more balanced approach to meeting demands in
      all
      market segments.





**GROSS
      PROFIT**





Our
      consolidated Gross Profit decreased to 28.4% for the year ended June 30, 2006,
      from 37.8% for the year ended June 30, 2005. This decrease in Gross Profit
      trend
      is attributed to the increase sales made to customers who are given a discount
      for volume sales for the year ended June 30, 2006.





**SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES**





We
      incurred Selling, General and Administrative Expenses totaling $6,823,518 for
      the year ended June 30, 2006, verses $4,244,427 for the year ended June 30,
      2005, as reflected in the following table:





Year
                Ended June 30,2006
            
            2005Selling,
                General and Administrative Expenses
            
            $
            9,598,593
            
            $
            4,244,427




23




The
      following table highlights the major operating expenses which contributed to
      the
      increase for the year ended June 30, 2006.





Year
                Ended June 30,2006
            
            2005Including
              Resilent
                LLC
            
            Excluding
              Resilent
                LLCMajor
                Operating ExpensesConsulting
                Fees
            
            $
            1,590,520
            
            $
            371,015Insurance
            
            
            133,672
            
            
            101,074Bad
                Debts Expense
            
            
            753,967
            
            
            275,802Airfare
            
            
            152,364
            
            
            105,597Advertising
            
            
            143,432
            
            
            61,376Rent
            
            
            239,698
            
            
            134,591License
                Rights Expense
            
            
            —
            
            
            605,000Depreciation
                and amortization
            
            
            170,866
            
            
            72,109Commissions
            
            
            125,134
            
            
            217,729Research
                and development
            
            
            201,054
            
            
            54,157Technical
                support
            
            
            104,286
            
            
            25,202Software
                maintenance fees
            
            
            119,717
            
            
            91,667Public
                relations
            
            
            125,881
            
            
            71,192Salary
                and wages, net
            
            
            5,049,698
            
            
            1,369,309Total
                Major Operating Expenses
            
            
            8,910,289
            
            
            3,555,820Non-major
                Operating Expenses, net
            
            
            688,304
            
            
            688,607Total
                Selling, General and Administrative
                Expense
            
            $
            9,598,953
            
            $
            4,244,427





In
      many
      cases, Selling, General and Administrative expenses have increased for the
      year
      ended June 30, 2006. On January 19, 2006, we acquired a majority interest in
      Resilent. The following table illustrates the impact of Resilent’s operations on
      consolidated results.





Year
                Ended June 30,2006
            
            2005Including
              Resilent
                LLC
            
            Less
              Resilent
                LLC
            
            Excluding
              Resilent
                LLC
            
            Excluding
              Resilent
                LLCMajor
                Operating ExpensesConsulting
                Fees
            
            $
            1,590,520
            
            $
            48,905
            
            $
            1,541,615
            
            $
            371,015Insurance
            
            
            133,672
            
            
            5,327
            
            
            128,345
            
            
            101,074Bad
                Debts Expense
            
            
            753,967
            
            
            —
            
            
            753,967
            
            
            275,802Airfare
            
            
            152,364
            
            
            20,315
            
            
            132,049
            
            
            105,597Advertising
            
            
            143,432
            
            
            77,692
            
            
            65,740
            
            
            61,376Rent
            
            
            239,698
            
            
            95,972
            
            
            143,726
            
            
            134,591License
                Rights Expense
            
            
            —
            
            
            —
            
            
            —
            
            
            605,000Depreciation
                and amortization
            
            
            170,866
            
            
            43,909
            
            
            126,957
            
            
            72,109Commissions
            
            
            125,134
            
            
            28,456
            
            
            96,678
            
            
            105,229Research
                and development
            
            
            201,054
            
            
            199,898
            
            
            1,156
            
            
            54,157Technical
                support
            
            
            104,286
            
            
            39,200
            
            
            65,086
            
            
            25,202Software
                maintenance fees
            
            
            119,717
            
            
            1,741
            
            
            117,976
            
            
            91,667Public
                relations
            
            
            125,881
            
            
            15,374
            
            
            110,507
            
            
            71,192Salary
                and wages, net
            
            
            5,049,698
            
            
            432,393
            
            
            4,617,305
            
            
            1,481,809Total
                Major Operating Expenses
            
            
            8,910,289
            
            
            1,009,182
            
            
            7,901,107
            
            
            3,555,820Non-major
                Operating Expenses, net
            
            
            688,304
            
            
            154,694
            
            
            533,610
            
            
            688,607Total
                Selling, General andAdministrative
                Expense
            
            $
            9,598,593
            
            $
            1,163,876
            
            $
            8,434,717
            
            $
            4,244,427




24




The
      following explains the changes during the periods presented:





CONSULTING
      FEES - For
      the year ended June 30, 2006, Consulting Fees totaled $1,590,520 as compared
      to
      $371,015 for the year ended June 30, 2005. The increase is primarily due to
      the
      Company entering into a consulting services agreement on October 8, 2005. The
      consultant and shareholder received 1,500,000 shares of 144 restricted common
      stock valued at $1,200,000 in exchange for providing services including, but
      not
      limited to identifying and securing business opportunities, acquisitions and
      combinations for the Company, investment banking advice, marketing advice,
      interfacing with marketers, all at the direction of the Company.





INSURANCE - For
      the year ended June 30, 2006, insurance expenditures total $133,672 compared
      to
      $101,074 for the year ended June 30, 2005. Increase in insurance expense is
      attributable to liability insurance covering Directors and Officers of the
      Company. Prior to May 2005, the Company had not incurred expense for this type
      of insurance.




BAD
      DEBTS EXPENSE-For
      the
      year ended June 30, 2006 bad debts expense amounted to $753,967 compared to
      $275,802 for the year ended June 30, 2005. The increase in bad debts expense
      can
      be directly attributed to increasing the allowance for uncollectible notes
      receivable. Notes receivable and related accrued interest have been fully
      reserved at June 30, 2006 resulting in a charge to bad debts expense of
      $685,740.





AIR
      FARE - For
      the year ended June 30, 2006, air fare expenditures were $152,364 as compared
      to
      $105,597 for the year ended June 30, 2005. The increase can be attributed to
      rising fuel costs, increased travel related to marketing and financing the
      Company.





ADVERTISING - For
      the year ended June 30, 2006, advertising expense was $143,432 compared to
      $61,376 for the year ended June 30, 2005. The Company has updated its business
      model to focus on distribution sales for the WAR-LOKTM product
      line versus direct sales to keep advertising costs reasonable. The increase
      in
      advertising expense is primarily due to the purchase of Resilent and expenses
      related to product shows and conventions.





RENT - Rent
      expense for the year ended June 30, 2006 totaled $239,698 as compared to
      $134,591 for the same year ended June 30, 2005. The increase was due to
      increases in our rental contracts and the acquisition of Resilent.





LICENSE
      RIGHTS EXPENSE - We
      incurred $-0 - expense for license rights for the year ended June 30, 2006
      compared to $605,000 for the year ended June 30,2005. This decrease is due
      to
      the expense being a one-time charge in 2005 to reacquire
      the international marketing rights from Kaschke Investments, LLC





DEPRECIATION
      AND AMORTIZATION - For
      the year ended June 30, 2006, these expenses were $170,866 as compared to
      $72,109 for the year ended June 30, 2005. The increase is due to equipment
      additions, primarily computers, which have a shorter depreciable life than
      other
      property acquisitions.





COMMISSIONS - For
      the year ended June 30, 2006, commissions amounted to $125,134 as compared
      to
      $105,229 for the year ended June 30, 2005. The increase in commissions is due
      primarily to a distributor agreement providing for commission on the sale of
      our WAR-LOK TAB-30.





RESEARCH
      AND DEVELOPMENT - For
      the year ended June 30, 2006, research and development expenditures total
      $201,054 compared to $54,157 for the year ended June 30, 2005. The increase
      in
      research and development expenditures is due to the acquisition of Resilent
      as
      they continue to explore new biometric security opportunities.





TECHNICAL
      SUPPORT - For
      the year ended June 30, 2006, technical support expenditures were $104,286
      compared to $25,202 for the year ended June 30, 2005. The increase in technical
      support expenditures is due to the increased investment in our network
      infrastructure as well as expenses related to the acquisition of Resilent and
      costs associated with integrating operations.





SOFTWARE
      MAINTENANCE FEES - For
      the year ended June 30, 2006, software maintenance expenditures total $119,717
      compared to $91,667 for the year ended June 30, 2005. The increase in software
      maintenance fees is due timing of expenses related to the purchase of our
      accounting software in the prior year and to our primary software maintenance
      agreement beginning in August 2004 and therefore only 11 months of expense
      for
      the year ended June 30, 2005.




25




PUBLIC
      RELATIONS - For
      the year ended June 30, 2006, public relations expenditures total $125,881
      compared to $71,192 for the year ended June 30, 2005. The increase in public
      relations is due to the Company outsourcing investor relations services through
      Hawk Associates. Hawk Associates is on a monthly retainer with the
      Company.





SALARY
      AND WAGES - For
      the year ended June 30, 2006, salary and wage expenditures totaled $5,049,698
      (net of $115,435 that was absorbed in manufacturing) compared to $1,369,309
      (net
      of $25,396 absorbed in manufacturing) for the year ended June 30, 2005. The
      increase in salary and wage expense can be attributed to having more employees
      in the current fiscal year than during the prior fiscal year increased rates
      of
      pay, and $2,151,730 for employee stock options granted in January 2006. Current
      accounting treatment requires the expensing of options as they become vested
      using an estimated fair market value at the date of the award.





The
      remaining Non-Major Operating expenses were $688,304 for the year ended June
      30,
      2006 compared to $688,307 for the year ended June 30, 2005.





**PROFESSIONAL
      FEES**





For
      the
      year ended June 30, 2006 Professional Fees totaled $617,358 as compared to
      $451,670 for the 12 month period ended June 30, 2005. The increase during the
      last 12 months over the prior period is due to increased legal and audit costs
      resulting from becoming a public reporting company, professional fees associated
      with the acquisition of Resilent and the increase in legal documents associated
      with debt-related financing.





**INCOME
      (LOSS) FROM OPERATIONS**





For
      the
      12 months ended June 30, 2006 the loss from operations was $9,863,185 as
      compared to a loss of $4,347,365 for the 12 months ended June 30, 2005. The
      reason for the increased loss was mainly due to the increase in selling, general
      and administrative cost as previously discussed and professional fees paid
      to
      legal and accounting firms.





**OTHER
      INCOME (EXPENSES)**





Other
      expenses for the year ended June 30, 2006 totaled $2,668,958, as compared to
      $420,235 for the 12 months ended June 30, 2005. The increase was due mainly
      in
      three categories. The Company recognized a loss on derivative transactions
      of
      $637,050 as compared to $-0- for the 12 months ended June 30, 2005. In addition
      the Company recorded Interest Expense of $1,104,952 in fiscal year 2006 as
      compared to $35,261 in fiscal year 2005. Finally, the Company incurred financing
      fees of $1,036,766 in fiscal year 2006 as compared to $440,000 in fiscal year
      2005. The increases in the interest and financing expense components are
      directly related to the costs of raising capital for the Company and an increase
      in debt financing compared to equity financing in the prior year. Such costs
      include the estimated fair market value of warrants issued in connection with
      various debt and equity financings.





**INCOME
      (LOSS) AFTER TAXES**





The
      loss
      after taxes for the year ended June 30, 2006 was $14,549,581 as compared to
      a
      loss of $3,445,552 for the 12 month period ended June 30, 2005. As stated above,
      the main reasons for the increased loss during the period ended June 30, 2006
      was mainly due to increased Selling, General and Administrative costs and
      Professional fees attributed to becoming a publicly-owned company and increased
      costs associated with raising capital for the Company. Additionally, writing
      down the deferred tax asset to its net realizable value contributed
      significantly to the net loss for the year.





**NET
      (LOSS) AVAILABLE TO COMMON STOCKHOLDERS**





For
      the
      year ended June 30, 2006, we had net (loss) available to common stockholders
      identical to the net loss of the Company.




26




**LIQUIDITY
      AND CAPITAL RESOURCES**





Cash
        balances totaled approximately $54,000 at October 31, 2006. At June 30, 2006
        and
        2005, our cash and cash equivalents totaled $155,423 and $96,257,
        respectively.
 
 Net
        cash
        used in operating activities was $5,169,950 in fiscal 2006, compared to
        $3,640,990 in fiscal 2005. The increase in cash used in operations was
        principally the result of the following items:
 
 ·
            an
                increase in the net loss, which was $14,549,582 in the 2006 period,
                compared with $3,445,552 in the 2005
                period; 
 ·
            an
                increase in the 2006 period of accounts payable and accrued expenses
                of
                $1,411,026, compared to an increase of accounts payable and accrued
                expenses in the 2005 period of $861,471, resulting in a net increase
                in
                cash used of $549,555; and 
 ·
            bad
                debt expense of $753,967 in the 2006 period, compared to $275,802
                in the
                2005 period; 
 impacted
        by the following non-cash items:
 
 ·
            increased
                amortization and depreciation expense, which were $170,866 in the
                2006
                period, compared to $72,109 in the 2005
                period; 
 ·
            increased
                common stock and stock rights issued for services, which were $4,877,341
                in the 2006 period, compared to $485,362 in the 2005
                period; 
 ·
            a
                loss on derivatives of $637,050 in the 2006 period that did not occur
                in
                the comparable period of 2005, and 
 ·
            a
                decrease in deferred tax asset of $2,017,438 in the 2006 period,
                compared
                to an increase in deferred tax asset of $1,322,048 in the 2005
                period. 
 Net
        cash
        used in investing activities in fiscal 2006 was $869,492 compared to $2,064,993
        in fiscal 2005. Net cash used in investing activities for the 2006 period
        was
        the result of the acquisition of equipment of $262,373, patent costs of $18,800
        and software of $588,316. For the 2005 period, cash used in investing activities
        was comprised of issuance of notes receivable of $331,100, acquisition of
        equipment of $169,364, patent costs of $30,805, licenses of $600,000 and
        software of $933,724.
 
 Net
        cash
        provided by financing activities was $6,098,608 in fiscal 2006 compared to
        $4,675,377 in fiscal 2005. Net cash provided by financing activities in fiscal
        2006 was the result of proceeds from our line of credit of $751,929, the
        issuance of common stock and other equity transactions amounting to $2,525,000,
        and proceeds from notes payable of $3,457,557, offset by repayments of notes
        payable and a related party note payable, net, of $635,878. Net cash provided
        by
        financing activities in fiscal 2005 was principally due to proceeds from
        the
        issuance of common stock and other equity transactions in the amount of
        $5,151,000 and a related party note payable, net, of $235,905, offset by
        repayment of notes payable of $207,500, decreased proceeds from our line
        of
        credit amounting to $486,422, and adjustment to investor deposits of
        $17,606.
 
 We
        have
        an immediate need for additional capital. We have been operating at a loss
        since
        inception and expect to continue to incur net losses for the foreseeable
        future
        as we continue to develop our products and technology. We have been funding
        our
        operations principally through borrowings and the sale of our securities
        and
        expect to continue doing so for the foreseeable future. We cannot assure
        you
        that we will achieve or sustain profitability or that our operating losses
        will
        not increase in the future. If we do achieve profitability, we cannot be
        certain
        that we can sustain or increase profitability on a quarterly or annual basis
        in
        the future. We expect to increase expense levels on research and development,
        engineering, manufacturing, marketing, sales and administration as we continue
        to develop our Trace location products, and to invest in new Trace technologies.
        These expenditures will necessarily precede the realization of substantial
        revenues from the sales of our products, if any, which may result in future
        operating losses.
 
 As
        of
        October 31, 2006, we had cash balances of $54,235.87 and current liabilities
        of
        $5,518,756. Many of our current liabilities involve past due borrowings and
        accounts payable. We require additional financing as soon as possible in
        order
        to provide for these obligations and our other liquidity needs, as well as
        to
        satisfy our current business plan. We are seeking additional debt and/or
        equity
        financing but at the present time, have no commitments for any additional
        financing. There can be no assurance that, if needed, additional capital
        will be
        available to us on commercially acceptable terms or at all. We may have
        difficulty obtaining additional funds as and if needed, and we may have to
        accept terms that would adversely affect our shareholders. Additional equity
        financings are likely to be dilutive to holders of our common stock and debt
        financing, if available, may involve significant payment obligations and
        covenants that restrict how we operate our business.


**GOING
      CONCERN CONSIDERATION**





We
      have
      had continued losses in each of our years of operation and negative cash flow,
      and have had liquidity problems. The accompanying unaudited consolidated
      financial statements do not include any adjustments relating to the
      recoverability of reported assets or liabilities should we be unable to continue
      as a going concern.





We
      have
      been able to continue based upon our receipt of funds from the issuance of
      equity securities and borrowings, and by acquiring assets or paying expenses
      by
      issuing stock. Our continued existence is dependent upon our continued ability
      to raise funds through the issuance of securities or borrowings, and our ability
      to acquire assets or satisfy liabilities by the issuance of stock. Management’s
      plans in this regard are to obtain other debt and equity financing until
      profitable operation and positive cash flow are achieved and
      maintained.





**IMPACT
      OF RECENTLY ISSUED ACCOUNTING STANDARDS**





In
      September 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 157, “Fair Value Measurements” which defines
      fair value, establishes a framework for measuring fair value in generally
      accepted accounting principles (GAAP), and expands disclosures about fair value
      measurements. Where applicable, SFAS No. 157 simplifies and codifies related
      guidance within GAAP and does not require any new fair value measurements.
      SFAS
      No. 157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal years. Earlier
      adoption is encouraged. We do not expect the adoption of SFAS No. 157 to have
      a
      material effect on our financial condition or results of operation.





In
      June
      2006, the Financial Accounting Standards Board issued FASB Interpretation No.
      48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
      Statement No. 109”, which prescribes a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. FIN 48 also provides
      guidance on de-recognition, classification, interest and penalties, accounting
      in interim periods, disclosure and transition. FIN 48 is effective for fiscal
      years beginning after December 15, 2006. We do not expect the adoption of FIN
      48
      to have a material effect on our financial condition, and we are currently
      evaluating the impact, if any, the adoption of FIN 48 will have on our
      disclosure requirements.





27




In
      March
      2006, the Financial Accounting Standards Board issued Statement of Financial
      Accounting Standards No. 156, “Accounting for Servicing of Financial Assets—an
      Amendment of FASB Statement No. 140.” This statement requires an entity to
      recognize a servicing asset or servicing liability each time it undertakes
      an
      obligation to service a financial asset by entering into a servicing contract
      in
      any of the following situations: a transfer of the servicer’s financial assets
      that meets the requirements for sale accounting; a transfer of the servicer’s
      financial assets to a qualifying special-purpose entity in a guaranteed mortgage
      securitization in which the transferor retains all of the resulting securities
      and classifies them as either available-for-sale securities or trading
      securities in accordance with FASB Statement No. 115; or an acquisition or
      assumption of an obligation to service a financial asset that does not relate
      to
      financial assets of the servicer or its consolidated affiliates. The statement
      also requires all separately recognized servicing assets and servicing
      liabilities to be initially measured at fair value, if practicable and permits
      an entity to choose either the amortization or fair value method for subsequent
      measurement of each class of servicing assets and liabilities. This statement
      is
      effective for fiscal years beginning after September 15, 2006, with early
      adoption permitted as of the beginning of an entity’s fiscal year. We do not
      expect the adoption of this statement to have a material effect on our financial
      condition or results of operations.





In
      February 2006, the Financial Accounting Standards Board issued Statement of
      Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial
      Instruments, an Amendment of FASB Standards No. 133 and 140.” This statement
      established the accounting for certain derivatives embedded in other
      instruments. It simplifies accounting for certain hybrid financial instruments
      by permitting fair value remeasurement for any hybrid instrument that contains
      an embedded derivative that otherwise would require bifurcation under SFAS
      No.
      133 as well as eliminating a restriction on the passive derivative instruments
      that a qualifying special-purpose entity may hold under SFAS No. 140. This
      statement allows a public entity to irrevocably elect to initially and
      subsequently measure a hybrid instrument that would be required to be separated
      into a host contract and derivative in its entirety at fair value (with changes
      in fair value recognized in earnings) so long as that instrument is not
      designated as a hedging instrument pursuant to the statement. SFAS No. 140
      previously prohibited a qualifying special-purpose entity from holding a
      derivative financial instrument that pertains to a beneficial interest other
      than another derivative financial instrument. This statement is effective for
      fiscal years beginning after September 15, 2006, with early adoption permitted
      as of the beginning of an entity’s fiscal year. We do not expect the adoption of
      this statement to have a material effect on our financial condition or results
      of operations.





**ITEM
      7.** **FINANCIAL
      STATEMENTS**





Our
      unaudited consolidated financial statements are included following the “Index to
      Financial Statements” contained in this Annual Report on Form 10-KSB. The audit
      of our consolidated financial statements at June 30, 2006, is in progress but
      was not completed in time to include audited consolidated financial statements
      and a Report of Independent Registered Public Accounting Firm in this Annual
      Report on Form 10-KSB. When the audit is completed and a Report of Independent
      Registered Public Accounting Firm is issued, we intend to file an amended 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**





EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES. The Company, under the supervision and
      with the participation of the Company’s management, including the Company’s
      Chief Executive Officer has evaluated the effectiveness of the design and
      operation of the Company’s “disclosure controls and procedures,” as such term is
      defined in Rule 13a-15(e) promulgated under the Exchange Act as of this report.
      Based on that evaluation, the Chief Executive Officer has concluded that the
      Company’s disclosure controls and procedures were effective as of the end of the
      period covered by this report to provide reasonable assurance that material
      information required to be disclosed by the Company in reports that it files
      or
      submits under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the SEC rules and forms.





A
      control
      system, no matter how well conceived and operated, can provide only reasonable,
      not absolute, assurance that the objectives of the control system are met.
      Because of the inherent limitations in all control systems no evaluation of
      controls can provide absolute assurance that all control issues, if any, within
      a company have been detected. Such limitations include the fact that human
      judgment in decision-making can be faulty and that breakdowns in internal
      control can occur because of human failures, such as simple errors or mistakes
      or intentional circumvention of the established process.




28




CHANGES
      IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. During the three months ended
      June 30, 2006, there have been no changes in our internal controls over
      financial reporting that have materially affected, or are reasonably likely
      to
      materially affect, these controls.





**ITEM
      8B.** **OTHER
      INFORMATION**





None.





**PART
      III**





**ITEM
      9.** **DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16(A)
      OF THE EXCHANGE ACT**





**MANAGMENT**





Our
      executive officers and directors and their respective ages and positions are
      as
      follows:





**Name**
            
            **Age**
            
            **Position**Keith
                R. Feilmeier
            
            57
            
            Chief
                Executive Officer, Principal Financial Officer, President and Chairman
                of
                the BoardMaurice
                Shanley(1)
            
            61
            
            Secretary
                and Treasurer, President of Trace Technologies, LLCSteven
                Campisi
            
            48
            
            Director,
                President of Resilent LLCDennis
                Blackman
            
            54
            
            DirectorRoy
                G. Breeling, Jr.
            
            61
            
            DirectorJerry
                Suess
            
            59
            
            DirectorDarius
                Anderson
            
            41
            
            DirectorMatthew
                Gohd
            
            50
            
            Director


____________________


(1)  Mr.
      Shanley resigned as our Chief Financial Officer in May, 2006, to focus on his
      new position as the President of Trace Technologies, LLC.





The
      business experience, principal occupations and employment, as well as the
      periods of service, of each of our directors and executive officers during
      at
      least the last five years are set forth below.





***Keith
      R. Feilmeier*** **-** ***Chief
      Executive Officer, President, Principal Financial Officer and Chairman of the
      Board*** .
      Mr.
      Feilmeier has served the Company in various roles since July, 2004. He served
      as
      our Chief Executive Officer and President since July, 2004, and was our sole
      director from July, 2004 to March 20, 2006. Mr. Feilmeier has been the Chairman
      of the Board since March 21, 2006 and our Principal Financial Officer since
      May,
      2006. In July, 2004, he was elected the Chairman of the Board. Prior
      to
      founding Gabriel Technologies, LLC, Mr. Feilmeier was one of the original
      founders and President of Gabriel Technologies Inc., a Delaware corporation.
       Prior to his affiliation with Gabriel, Mr. Feilmeier was Director of Sales
      for the Midwest Region of ADT from 2000 to 2002. From 1997 to 1999 Feilmeier
      was
      Vice President of ISecureTrac Corp., a public company, which sells global
      positioning tracking services used on persons on probation, parole, and/or
      work
      release.  Mr. Feilmeier was also Owner/Executive Vice President of then
      start-up PSI, a pre-sorting mailing service company, which was eventually sold
      to Pitney Bowes. Prior to his PSI endeavor, Mr. Feilmeier was Owner/Executive
      Vice President for Electronic Media One, an outdoor advertising company.
 Electronic Media One was sold to Pioneer Corporation, a Division of the
      Omaha World Herald and the McCarthy Group .





***Maurice
      Shanley - Secretary and Treasurer, President of Trace Technologies,
      LLC*** .
      Mr.
      Shanley has served as our Secretary and Treasurer since July, 2004. He served
      as
      our Chief Financial Officer from July, 2004 to May, 2006. Mr. Shanley has served
      as the President of Trace Technologies, LLC since March 22, 2006. From
      March, 2001 until July, 2004, he was an accounting and financial consultant
      for
      RHI Management Resources, a consulting company. Mr. Shanley is a Certified
      Public Accountant with 28 years experience in a variety of business disciplines.
       After several years in public accounting Mr. Shanley has worked in
      positions as Chief Financial Officer, Vice President Finance and as General
      Manager. He received his undergraduate degree from the University of Nebraska
      at
      Omaha and is a member of the Nebraska Society of Certified Public Accountants
      and the American Institute of Certified Public Accountants .




29




***Steven
      Campisi - Director, President of Resilent LLC*** .
      Mr.
      Campisi was elected to the Board of Directors on March 21, 2006, for a one-year
      term. Mr.
      Campisi is the President of Resilent LLC and founder of Dataflo Corporation.
      Mr.
      Campisi has been utilizing innovative high-tech solutions to increase business
      efficiency for more than 20 years at Dataflo.





***Dennis
      Blackman - Director*** .
      Mr.
      Blackman was elected of the Board of Directors on March 21, 2006, for a one-year
      term. Mr. Blackman is also the sole member of the Company’s Audit Committee.
      Since 1998, Mr.
      Blackman has worked with Blackman & Associates, P.C. and CBIZ Tax &
Advisory Services of Nebraska, Inc., of which he is currently the President.
      Mr.
      Blackman has been involved in the accounting profession for the past 30 years.
      Mr. Blackman received both is an undergraduate and graduate degree in business
      from the University of Nebraska at Omaha.





***Roy
      G. Breeling, Jr. - Director*** .
      Mr.
      Breeling was elected to the Board of Directors on March 21, 2006, for a one-year
      term. Mr. Breeling is also a member of the Company’s Compensation Committee.
      Since January, 2000, Mr. Breeling
      has worked with TTI Technologies, Inc, a company with primary interests in
      the
      energy and waste industries, as its Executive Vice President and General
      Counsel. From March, 2004 to March, 2005, Mr. Breeling served as the Chairman
      and Director for Oxford Ventures, Inc., a video game company. Mr. Breeling
      received his law degree from Creighton University School of Law.





***Jerry
      Suess - Director*** .
      Mr.
      Suess was elected to the Board of Directors on March 21, 2006, for a one-year
      term. Since 1984, Mr.
      Suess
      has been the Chief Executive Officer of Nebraska Leasing Services, Inc., a
      capital equipment leasing company, which he founded in 1984. Mr. Suess is also
      the founder and director of JJ Development in South Carolina.  Mr. Suess
      just ended his term as director of Hilton Hotels in South Carolina.





***Darius
      Anderson - Director*** .
      Mr.
      Anderson was elected to the Board of Directors on March 21, 2006, for a one-year
      term. Mr. Anderson is also a member of the Company’s Compensation Committee.
      Since 1999, Mr.
      Anderson has been the Chief Executive Officer of Platinum Advisors, LLC, a
      government relations and public affairs firm, and Kenwood Investments, LLC,
      a
      California private equity real estate development firm, both of which he found
      in 1999. Mr.
      Anderson has over 20 years experience in business, real estate and politics.
      Mr.
      Anderson is currently the master developer on the development of former Naval
      Base at Treasure Island, winning the exclusive rights to the project from the
      City and County of San Francisco in 1999. With Kenwood Investments, Mr. Anderson
      is the managing member of Treasure Island Enterprises, LLC and Treasure Island
      Community Development, LLC. Mr. Anderson is also the master developer for the
      Sacramento Docks, the Marketplace at Anaheim, and a transit oriented development
      in Contra Costa County, California.





Before
      founding Kenwood Investments, LLC and Platinum Advisors, LLC in 1999, Darius
      spent five years at The Yucaipa Companies as Chief of Staff and as Vice
      President of External Affairs for Ralphs Grocery Stores, Inc., a Fortune 500
      company. During that time, Mr. Anderson was responsible for The Yucaipa
      Companies business developments, including property acquisition and development,
      government affairs, community relations, external corporate communications
      and
      public relations. As a Senior Member at The Yucaipa Companies he played an
      integral role in the real estate development of the River West Development
      in
      Sacramento. Mr.
      Anderson is currently the new Chair of the National Advisory Board at The
      Institute of Governmental Studies at UC California at Berkeley, a member of
      the
      Toigo Foundation’s Board of Directors, serves on the Board of Directors of the
      Jackie Robinson Foundation, and served as the Executive Director of the
      Ralphs/Food 4 Less Foundation. Mr.
      Anderson holds a BS degree in Marketing and Research Statistics from Brigham
      Young University.





***Matthew
      Gohd - Director*** .
      Mr.
      Gohd was elected to the Board of Directors on September 13, 2006, for a one-year
      term. Mr. Gohd has been an active public and private equity investor for almost
      30 years and advises several public companies on strategic and capital structure
      issues. Since 2001, Mr. Gohd has served as the Senior Managing Director of
      Pali
      Capital, Inc., (“Pali”), a SEC registered, execution-only brokerage
      firm ***.*** Mr. Gohd
      is the founder and board member of Pelion Financial, Inc, and was a founding
      board member of the Starlight Foundation of New York. Mr. Gohd has also served
      on the executive committee of the board of directors of eDiets.com, Iconic
      Brands and Onstage Entertainment. Additionally, Mr. Gohd served as Chairman
      of
      Bluestone Capital, an investment banking boutique, which originated over $1
      billion in sole managed public offerings across technology, retail, biotech,
      and
      the internet, until its sale in 2001.





30




Pursuant
      to a letter agreement between the Company and Pali, Pali has the right to name
      one director to the Company’s Board of Directors. Mr. Gohd is the representative
      of Pali.





COMMITTEES
      OF THE BOARD OF DIRECTORS





Our
      Board
      of Directors operates with the assistance of the Audit Committee and the
      Compensation Committee. Due to the small size of our Board, we do not presently
      maintain a formal nominating committee. The entire Board participates in the
      process of nominating candidates for the Board of Directors.





The
      function of the Audit Committee is to oversee (i) the quality and integrity
      of
      the Company’s financial statements, (ii) compliance with legal and regulatory
      requirements, (iii) the selection of independent auditors, and (iv) the
      performance of the Company’s internal audit function and its independent
      auditors.





The
      Audit
      Committee held two meetings during the year ended June 30, 2006. James Moran
      resigned from the Audit Committee on August 31, 2006, upon his resignation
      as a
      director of the Company. Dennis Blackman was appointed to the Audit Committee
      on
      March 21, 2006, and is presently the sole member of the committee. The Board
      of
      directors has determined that Mr. Blackman is an “Audit Committee Financial
      Expert” for purposes of the SEC’s rules. The Board believes that Mr. Blackman
      meets the independence criteria set out in Rule 4200(a)(14) of the Marketplace
      Rules of the National Association of Securities Dealers and the rules and other
      requirements of the SEC.





The
      Compensation Committee sets compensation policy and administers the Company’s
      cash and equity incentive programs for the purpose of attracting and retaining
      skilled executives who will enhance the Company’s performance and the long-term
      interests of our shareholders. The Committee is also responsible for reviewing
      and making recommendations to the Board regarding all forms of compensation
      to
      be provided to the Company’s named executive officers, including stock
      compensation and bonuses. The Compensation Committee met two times during the
      2006 fiscal year. Roy Breeling and Darius Anderson are the members of the
      Compensation Committee.





BOARD
      OF
      DIRECTORS; ELECTION OF OFFICERS





All
      directors are elected by a plurality vote at the annual meeting of the
      shareholders, and shall hold office until the earlier of: his successor is
      elected and qualified; his resignation; his removal by the shareholders (by
      2/3
      affirmative vote of the shares issued and outstanding and entitled to vote);
      or
      his death. Any vacancy occurring in the board of directors may be filled by
      the
      vote of a majority of the directors then in office, though less than a quorum,
      or at a special meeting of stockholders called for that purpose. A director
      elected to fill a vacancy is elected for the unexpired term of his predecessor
      in office or until the earlier of: his successor is elected and qualified;
      his
      resignation; his removal from office by the stockholders; or his
      death.





Our
      executive officers are elected by our board of directors. Each officer shall
      hold office until the earlier of: his death; resignation or removal from office;
      or the election and qualification of his successor.





COMPENSATION
      OF DIRECTORS





It
      is our
      policy to pay each outside director $25,000 for each year of service, paid
      in
      quarterly installments. Additionally, Mr. Blackman will receive an additional
      $25,000 per year in consideration of his services rendered as the Chairman
      of
      the Audit Committee, and Mr. Breeling will receive an additional $25,000 per
      year in consideration of his services rendered as the Chairman of the
      Compensation Committee. We also reimburse our directors for reasonable expenses
      incurred in traveling to and from board or committee meetings and will pay
      certain continuing education expenses for the directors.





In
      addition, we have granted stock and stock options to the directors to compensate
      them for their services. For the first year of service on the board, each
      independent director received 100,000 shares of common stock and an option
      to
      purchase 150,000 shares of our common stock at $1.00 per share. Our directors
      are also eligible to participate in the 2006 Equity Incentive Plan. For
      information regarding option grants to our employee directors, see “Item 10 -
      Executive Compensation.”





31




**SECTION
      16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**





Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires each of
      our
      officers and directors and each person who owns more than 10% of a registered
      class of our equity securities to file with the SEC an initial report of
      ownership and subsequent reports of changes in such ownership. Such persons
      are
      further required by SEC regulation to furnish us with copies of all Section
      16(a) forms (including Forms 3, 4 and 5) that they file. Based solely on our
      review of the copies of such forms received by us with respect to fiscal year
      2006, or written representations from certain reporting persons, we believe
      all
      of our directors and executive officers met all applicable filing requirements,
      except as described in this paragraph. Steven Campisi, Dennis Blackman, Roy
      Breeling, Jerry Suess, Darius Anderson and James Moran, who joined us a director
      in March 2006, each filed a late Form 3 in October 2006. Matthew Gohd, who
      joined us as a director in September 2006, filed a late Form 3 in October 2006.
      Keith Feilmeier filed a late Form 4 in November 2006 reporting four
      transactions, which should have been reported earlier. Maurice Shanley filed
      an
      amended Form 3 in October 2006 and a late Form 4 in October 2006 reporting
      seven
      transactions, which should have been reported earlier. James Moran, a former
      director, filed a late Form 4 in October 2006 reporting two transactions, which
      should have been reported earlier. Darius Anderson filed a late Form 4 in
      October 2006 reporting two transactions, which should have been reported
      earlier. Dennis Blackman filed a late Form 4 in October 2006 reporting two
      transactions, which should have been reported earlier. Roy Breeling filed a
      late
      Form 4 in October 2006 reporting two transactions, which should have been
      reported earlier. Jerry Suess filed a late Form 4 in October 2006 reporting
      two
      transactions, which should have been reported earlier. Matthew Gohd filed a
      late
      Form 4 in October 2006 reporting two transactions, which should have been
      reported earlier.





**CODE
      OF ETHICS**





We
      have
      adopted a code of ethics that applies to our chief executive officer, chief
      operating officer, chief financial officer, chief technical officer and
      controller and others performing similar executive and financial functions
      at
      the Company. This code of ethics is posted on our website located at www.gabrieltechnologies.com .
      The
      code of ethics may be found as follows: From our main Web page, first click
      on
“Investors” at the top of the page. Next, click on “Corporate Governance” on the
      left hand side. Finally, click on “Code of Ethics For Principal and Senior
      Financial Officers” at the bottom of the page. We intend to satisfy the
      disclosure requirement under Item 10 of Form 8-K regarding an amendment to,
      or
      waiver from, a provision of this code of ethics by posting such information
      on
      our website, at the address and location specified above.





**ITEM
      10.** **EXECUTIVE
      COMPENSATION**





The
      following table sets forth all compensation for each of the last three fiscal
      years awarded to, or earned by, our Chief Executive Officer and all other
      executive officers serving as such at the end of 2006 whose salary and bonus
      exceeded $100,000.00 for the year ended June 30, 2006, or who, as of June 30,
      2006, was being paid a salary at a rate of at least $100,000.00 per
      year.





**Summary
      Compensation Table**





Name
                and Principal
              Position(s)
            
            Year
            
            Salary
            
            Bonus
            
            Other
                Annual
              Compensation
            
            Securities
              Underlying
              Options**Keith
                R. Feilmeier**
            
            2006
            
            $288,000
            
            $0.00
            
            
            
            1,500,000Chief
                Executive Officer
            
            2005
            
            $288,000
            
            $0.002004
            
            $250,000
            
            $0.00**Maurice
                Shanley**
            
            2006
            
            $175,000
            
            $0.00
            
            
            
            950,000Chief
                Financial Officer
            
            2005
            
            $130,000
            
            $0.002004
            
            $130,000
            
            $0.00
            
            $20,000(1)


____________________


(1)  Represents
      the issuance to Mr. Shanley in 2004 of 200,000 shares of common stock valued
      at
      $20,000 as compensation.




32


**Option
      Grants In The Last Fiscal Year**





The
      following table sets forth information concerning individual grants of stock
      options made during the year ended June 30, 2006, to each of the named executive
      officers:





**Name**
            
            **Number
                of**
              **Securities**
              **Underlying**
              **Options**
              **Granted**
            
            **%
                of Total**
              **Options**
              **Granted
                to**
              **Employees
                in**
              **Fiscal**
              **Year**
            
            **Exercise**
              **Price**
            
            **Expiration
                Date**Keith
                R. Feilmeier
            
            1,500,000
            
            34.114%
            
            $1.00
            
            01-17-11Maurice
                Shanley
            
            950,000
            
            21.606%
            
            $1.00
            
            01-17-11





**Aggregate
      Options Exercised in 2006 and Year-End Option Values**





The
      following table sets forth information as of June 30, 2006, concerning options
      held by the named executive officers.





**Shares**
              **Acquired**
              **on**
              **Exercise**
            
            **Value**
              **Realized**
            
            **Number
                of Securities**
              **Underlying
                Unexercised**
              **Options
                at Fiscal Year End**
            
            **Value
                of Unexercised**
              **In-The-Money**
              **Options
                at Fiscal Year End****(#)**
            
            **($)**
            
            **Exercisable**
            
            **Unexercisable**
            
            **Exercisable**
            
            **Unexercisable**Keith
                R. Feilmeier
            —
            
            —
            
            1,500,000
            
            —
            
            —
            
            —Maurice
                Shanley
            —
            
            —
            
            950,000
            
            —
            
            —
            
            —





EMPLOYMENT
      AGREEMENTS WITH EXECUTIVE OFFICERS





*Keith
      R. Feilmeier.* On
      January 1, 2005, we entered into an employment agreement with Keith Feilmeier
      pursuant to which Mr. Feilmeier was retained as our Chief Executive
      Officer. The employment agreement has a three-year initial term, with automatic
      12 month renewal terms unless terminated by either party upon forty-five days
      written notice prior to the end of the initial term or any renewal term.
      Pursuant to the employment agreement, Mr. Feilmeier was to receive an
      initial base salary of $250,000, with a $250,000 bonus be paid to Mr. Feilmeier
      upon a successful private placement and listing of the Company’s securities on a
      NASDAQ OTC Bulletin Board and warrants to purchase a certain number of shares
      of
      our common stock in the event certain performance goals were met. Mr. Feilmeier
      did not receive any bonus payments or warrants. The Company may terminate the
      agreement at any time for any reason or upon advance written notice if Mr.
      Feilmeier becomes permanently disabled.





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





The
      following table sets forth information as of the close of business on October
      31, 2006, concerning shares of our common stock beneficially owned by (i) each
      director; (ii) each named executive officer; (iii) by all directors and
      executive officers as a group; and (iv) each person known by the Company to
      own
      beneficially more than 5% of the outstanding shares of common
      stock.





In
      accordance with the rules of the SEC, the table gives effect to the shares
      of
      common stock that could be issued upon the exercise of outstanding options
      and
      warrants within 60 days of October 31, 2006. Unless otherwise noted in the
      footnotes to the table and subject to community property laws where applicable,
      the following individuals have sole voting and investment control with respect
      to the shares beneficially owned by them. We have calculated the percentages
      of
      shares beneficially owned based on 37,407,771 3 shares
      of
      common stock outstanding at October 31, 2006. The address for each of the
      directors and executive officers set forth below is c/o Gabriel
      Technologies Corporation, 4538 S. 140th Street, Omaha, Nebraska
      68137.




3Excludes
          3,000,000 shares of
          the Company's common stock issued in the name of the Company and held
          by an investor as security for the Company's obligations to the
          investor.
  33


**Shares
                Beneficially Owned****Person
                or Group**
            
            **Number**
            
            **Percent
                (%)**Keith
                R. Feilmeier
            
            4,146,750
            (1)
            
            10.66
            %Maurice
                Shanley
            
            1,030,000
            (2)
            
            2.69
            %Steven
                Campisi
            
            0
            
            
            *Dennis
                Blackman
            
            250,000
            (3)
            
            *Roy
                G. Breeling, Jr.
            
            250,000
            (4)
            
            *Jerry
                Suess
            
            2,125,000
            (5)
            
            5.66
            %Darius
                Anderson
            
            400,000
            (6)
            
            1.06
            %Matthew
                Gohd
            
            2,138,043
            (7)
            
            5.44
            %All
                executive officers and directors as a group (8 persons)
            
            10,339,793
            
            
            24.37
            %Nicholas
                Fegen
            
            3,572,500
            (8)
            
            9.35
            %Elliot
                Broidy
            
            3,900,000
            (9)
            
            9.60
            %


____________________


*
            Less than 1% of the class.(1)
            Includes
                (i) 446,750 shares of common stock
                held of record by his wife, Judith Feilmeier, (ii) an option to purchase
                1,500,000 shares of common stock., and (iii) 2,200,000 shares of
                common
                stock held by Judith Feilmeier that were pledged pursuant to a pledge
                agreement dated April 15, 2005 between Judith Feilmeier and Equities
                First
                Holdings, LLC and delivered to Equities First Holdings, LLC. Upon
                repayment of the loan for which the 2,200,000 shares of common stock
                serve
                as collateral under the pledge agreement, Equities First Holdings,
                LLC is
                obligated to return the shares to Judith Feilmeier.(2)
            Includes
                (i) 50,000 shares held of record by
                his wife, Patricia Shanley, and (ii) an option to purchase 950,000
                shares
                of common stock.(3)
            Includes
                an option to purchase 150,000 shares
                of common stock.(4)
            Includes
                an option to purchase 150,000 shares
                of common stock.(5)
            Includes
                (i) 1,975,000 shares held of record by
                Wayzata LLC, a South Dakota limited liability company controlled
                by Mr.
                Suess, 30 Widewater Road, Hilton Head Island, South Carolina, and
                (ii) an
                option to purchase 150,000 shares of common stock.(6)
            Includes
                (i) a warrant to purchase 50,000
                shares of common stock, and (ii) an option to purchase 150,000 shares
                of
                common stock.(7)
            Includes
                (i) a warrant to purchase 1,769,043
                shares of common stock, and (ii) an option to purchase 150,000 shares
                of
                common stock.(8)
            Includes
                warrants to purchase 786,250 shares of
                our common stock. Mr. Fegen’s address is 675 Southfork Drive, Waukee, IA
                50263.(9)
            Includes
                (i) warrants to purchase 1,725,000
                shares of our common stock, and (ii) 1,500,000 shares of common stock
                available upon conversion of a convertible promissory note. Mr. Broidy’s
                address is 1801 Century Park East, Suite 2150, Las Angeles, CA
                90067.




**ITEM
      12.** **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**





*Keith
      R. Feilmeier - Shareholder, Chairman and Chief Executive
      Officer.*





OFFICER
      LOAN *.* Keith
      R.
      Feilmeier made loans to the Company totaling $426,145 from February 2005 through
      June 2005. On February 10, 2006, the Company executed a promissory note to
      Mr.
      Feilmeier in the amount of $75,000 due April 10, 2006 with simple interest
      at
      9%. The note was not collateralized, but was deemed a full recourse note. The
      note was paid in full on March 8, 2006.





PIT
      CREW
      EXPRESS TRANSACTION. On
      June
      4, 2004, Gabriel LLC entered into a retail distribution agreement to sell
      various WAR-LOKTM products
      through convenience stores throughout the United States. As part of the
      agreement, Gabriel LLC, purchased a $200,000 debenture from Pit Crew Express,
      convertible at Gabriel LLC’s option, into shares of Pit Crew Express common
      stock. Additionally, Gabriel LLC loaned Pit Crew Express $200,000 evidenced
      by a
      demand note.




34




On
      October 30, 2004, Mr. Feilmeier loaned $131,100 to Pit Crew Express on behalf
      of
      the Company. On November 22, 2004, the Company reimbursed Mr. Feilmeier for
      such
      amount. On December 7, 2004, Pit Crew Express executed a promissory note in
      favor of the Company in the amount of $131,100. The note bears interest at
      12%
      and is secured by a marketing agreement with CMI Wireless and Pit Crew Express.
      As of June 30, 2006, Pit Crew Express owes the Company $531,100.





On
      July
      10, 2006, the District Court of Douglas County, Nebraska ordered a default
      judgment of $531,000 plus interest in favor of the Company against Pit Crew
      Express and others associated with the two outstanding notes receivable in
      the
      principal amounts of $200,000 and 331,000. The defendants reside in Texas.
      The
      Nebraska default judgment has been conformed to be enforceable in Texas as
      against any assets of the defendants. As of June 30, 2006, potential
      collection efforts on the default judgment are being conducted in
      Texas.





Oxford
      Ventures, Inc. Transactions. On
      June
      30, 2005, the Company borrowed $100,000 at 7% interest, due on August 29, 2005,
      from First Community Bank of Nebraska. The note was secured by a security
      agreement dated June 30, 2005 and a commercial pledge agreement dated June
      30,
      2005 from the Company, and personal guarantees from Mr. Feilmeier and Dennis
      D.
      Blackman. The loan was repaid with interest of $1,167 on August 25, 2005. Of
      the
      $98,500 advanced under the loan, $88,500 was paid to Mr. Feilmeier to reduce
      his
      loans to the Company. $10,000 was advanced to Oxford Ventures, Inc. and charged
      to Mr. Feilmeier’s loan account. The advance to Oxford was a personal
      transaction of Mr. Feilmeier and not a loan or advance by the
      Company.





At
      June
      30, 2005, Oxford Ventures, Inc. (OXFV.OB) listed the same business address
      as
      the Company. Oxford Ventures shared no offices and the Company provides no
      services to Oxford Ventures. The president of Oxford Ventures, Daniel K.
      Leonard, is also a principle officer of Secure-Lok Distribution, LLC. Secure-Lok
      purchased $180,134 of the Company’s products in March 2005. In December 2005,
      Mr. Leonard was retained as a consultant to the Company. His consulting
      agreement has a term of two years with a monthly payment of
      $12,500.





*Nicholas
      A. Fegen - Shareholder/Consultant.*





INITIAL
      CONSULTING AGREEMENT. On
      July
      27, 2004, the Company entered into a consulting and investment banking services
      agreement with Nicholas A. Fegen. Mr. Fegen agreed to perform for the Company
      all necessary services required in working to bring about the effectiveness
      of
      the Company’s business plan of operations. As such, Mr. Fegen would provide bona
      fide services to the Company. Services to the Company, throughout the term,
      included, but were not limited to, identifying and securing business
      opportunities, acquisitions and combinations for the Company, investment banking
      advice, marketing advice and interfacing with marketers, all at the direction
      of
      the Company. Mr. Fegen was to dedicate all of the necessary time and facilities
      required to perform under the consulting and investment banking services
      agreement. However, Mr. Fegen was only obligated to perform such services on
      a
      non-exclusive basis and was permitted to provide similar services to others
      provided they were not directly competitive with the Company’s businesses. The
      services to be provided by Mr. Fegen were not to be in connection with the
      offer
      or sale of securities in a capital-raising transaction, and were not to directly
      or indirectly promote or maintain a market for the Company’s
      securities.





The
      consulting and investment banking services agreement was cancelled on May 31,
      2005. Mr. Fegen was issued 1,000,000 shares of the Company’s common stock as
      compensation for the cancellation of the agreement. There was no charge to
      operations for this transaction.





SUBSCRIPTION
      RECEIVABLE. On
      November 1, 2004, the Company issued 750,000 shares of its common stock to
      Mr.
      Fegen upon the exercise of outstanding warrants at an exercise price of $2.50
      per share. The Company executed a note receivable with Mr. Fegen for $1,875,000.
      The Company received $380,000 in December 2004 from Mr. Fegen as partial payment
      of the note receivable and $650,000 in August 2005 from Mr. Fegen as partial
      payment of the note receivable.





In
      December 2004, the Company issued 250,000 shares of its common stock to Mr.
      Fegen upon the exercise of outstanding warrants at an exercise price of $2.50
      per share. The Company executed a note receivable with Mr. Fegen for $625,000.
      The Company issued a new note receivable in the amount of $2,500,000 to reflect
      the principal amounts of the two previous notes receivable ($1,875,000 and
      $625,000). The maturity date of the note receivable was extended to August
      31,
      2006. The aggregate amount outstanding and due on this note receivable as of
      June 30, 2006, is $1,470,000.




35




SECOND
      CONSULTING AGREEMENT. On
      November 23, 2005, the Company issued 1,500,000 shares of common stock valued
      at
      $.80 per share for a Consulting Services Agreement with Mr. Fegen, dated October
      8, 2005. The shares have piggyback rights attached upon filing a registration.
      Pursuant to the consulting agreement, Mr. Fegen agreed to perform for the
      Company all necessary services required in working to bring about the
      effectiveness of the Company’s business plan of operations. As such, Mr. Fegen
      will provide bona fide services to the Company. Services to the Company
      throughout the term shall include, but not be limited to, identifying and
      securing business opportunities, acquisitions and combinations for the Company,
      investment banking advice, marketing advice and interfacing with marketers,
      all
      at the direction of the Company. Mr. Fegen shall dedicate all of the necessary
      time and facilities required to perform under the consulting agreement. However,
      Mr. Fegen is only obligated to perform such services on a non-exclusive basis
      and may provide similar services to others provided they are not directly
      competitive with the Company’s businesses. The services to be provided by Mr.
      Fegen will not be in connection with the offer or sale of securities in a
      capital-raising transaction and will not directly or indirectly promote or
      maintain a market for the Company’s securities.





CTSL
      NOTE *.* The
      Company executed a $400,000 convertible promissory demand note (the “CTSL Note”)
      with CTSL Investment LLC, an Iowa limited liability company (“CTSL”), on
      December 23, 2005. CTSL is affiliated with Nicholas A. Fegen. The loan closed
      on
      January 9, 2006 and the Company netted $360,000 after a $40,000 discount for
      fees and expenses which were charged to operations. The CTSL Note provided
      for
      repayment of $400,000 plus 150% of the principal amount ($600,000 interest)
      by
      December 31, 2006 or upon demand by CTSL. The terms of the CTSL Note provided
      for repayment either in cash or 1,000,000 shares of the Company’s common
      stock.





In
      connection with the CTSL Note, the Company issued a warrant certificate to
      purchase at any time or from time to time up to the fifth anniversary of the
      date of the warrant (December 23, 2010) 500,000 shares of the Company’s common
      stock at an exercise price of $1.00 per share (the “CTSL Warrant”).





CTSL
      demanded repayment of the CTSL Note on March 10, 2006, and the Company issued
      1,000,000 shares of its common stock upon conversion of the CTSL Note to
      Nicholas A. Fegen, individually.





The
      Company entered into certain other covenants and agreements with CTSL, as more
      fully set forth in the CTSL Note and CTSL Warrant. The foregoing description
      of
      the CTSL transaction is qualified in its entirety by the full text of the CTSL
      Note and CTSL Warrant which are attached as Exhibits.




NOTE
      PAYABLE. On
      February 14, 2006, the Company executed a promissory note with Mr. Fegen in
      the
      amount of $250,000. The note bore interest at 9% and matured on April 14, 2006.
      The note was not collateralized, but was deemed a full recourse note. In July
      2006, the Company entered into a Debt Settlement Agreement and Release with
      Mr.
      Fegen whereby Mr. Fegen received 286,000 shares of common stock and a warrant
      certificate for 286,000 shares of common stock at an exercise price of $1.00
      per
      share in exchange for canceling the note.




*Jerry
      Suess - Shareholder/Director.* Jerry
      Suess has provided and personally guarantees credit cards used by the Company.
      Total charges on the credit card accounts for the year ended June 30, 2006
      were
      $669,876, with the highest monthly charges being $97,260. For the quarter ended
      June 30, 2006, $169,494 was charged and the highest monthly charges amounted
      to
      $71,937. Mr. Suess receives no compensation for the use of his credit
      cards.




Mr.
      Suess
      also is a principal in Nebraska Leasing. The Company leases a vehicle and office
      equipment from Nebraska Leasing. Lease payments to Nebraska Leasing totaled
      $45,218 and $28,709 for the years ended June 30, 2006 and 2005,
      respectively.




*Matt
      Gohd - Shareholder/Director/Placement Agent Consultant.* On
      September 13, 2006, the Board of Directors of the Company appointed Matt Gohd
      to
      fill a vacancy on the Board. Mr. Gohd is the representative of Pali Capital
      Inc.
      (“Pali”) on the Board. Gohd is a
      Principal and Senior Managing Director with Pali. Pursuant
      to a letter agreement between the Company and Pali dated March 22, 2005, Pali
      has the right to name one director to the Company’s Board of
      Directors.




Pursuant
      to the letter agreement, Pali has been hired as a representative of the Company
      to raise money for the Company by introducing it to investors to purchase the
      Company’s securities. Pali is entitled to a fee of 9% of the gross proceeds from
      any equity or debt financing procured by Pali. In addition, Pali is entitled
      to
      warrants to purchase common shares equal to 9% of the total face amount of
      any
      equity financing with an exercise price equal to the price at which the
      investors acquire such shares and with such other terms including registration
      rights and duration as any warrants issued to investors.





36




On
      March
      22, 2006, the Company entered into a consulting agreement with Voyager
      Consulting LLC (“Voyager”) of which Mr. Gohd is a managing member. The Company
      retained the services of Voyager to assist the Company in the marketing and
      selling of its security products to a major retail chain. In exchange for these
      services, the Company agrees to pay a fee to Voyager equal to 5% of all the
      gross revenues received by the Company, directly or indirectly, from the sale
      of
      its security products to the retail chain stores. In addition to the fee,
      Voyager will be entitled to warrants to purchase up to 2,000,000 shares of
      the
      Company’s common stock at an exercise price of $1.00 per share at any time on or
      before the fourth anniversary of the consulting agreement if and when certain
      conditions are met. ******





*Steven
      Campisi - Shareholder, Director, President of Resilent LLC.* On
      January 19, 2006, the Company entered into an employment agreement with Steven
      Campisi, pursuant to which Mr. Campisi was retained as the President of
      Resilent. Pursuant to the employment agreement, Mr. Campisi cannot be terminated
      for any reason other than for “good cause” until January 18, 2008, after which
      time Mr. Campisi can be terminated at any time for any reason by the Company.
      Mr. Campisi is to receive an annual base salary of $175,000 and an option
      to purchase 500,000 shares of our common stock at an exercise price of $1.00
      per
      share. The option expires on January 18, 2011. The option does not vest until
      2007, and the vesting schedule is based on the performance of Resilent. The
      agreement provides that all work product developed by Mr. Campisi during his
      course of employment shall be assigned to the Company, and that Mr. Campisi
      will
      not compete with the Company for a period of six months following his
      termination of employment with the Company.





**ITEM
      13.** **EXHIBITS**





1.1
            First
                Plan of Liquidation of Princeton Video Image, Inc. (incorporated
                by
                reference to Exhibit 2 of the Company’s Form 8-K filed with the Commission
                on December 1, 2004)2.1
            Agreement
                and Plan of Reorganization between Gabriel Technologies Corporation
                and
                Gabriel Technologies (incorporated by reference to Exhibit 2 of the
                Company’s Form 8-K filed with the Commission on July 30,
                2004)2.2
            Securities
                Exchange Agreement dated as of January 19, 2006, between the Company
                and
                Resilent, LLC* (1)2.3
            Plan
                of Exchange Agreement dated as of January 19, 2006, between the Company
                and Resilent, LLC* (2)2.4
            Asset
                Purchase Agreement dated as of July 25, 2006, between the Company,
                Trace
                Technologies, LLC and CSI Wireless, LLC*(3)2.5
            Letter
                Agreement dated August 4, 2006, between the Company, Trace Technologies,
                LLC and CSI Wireless, LLC*3.1
            Certificate
                of Incorporation (incorporated by reference to Exhibit 3.1 of the
                Company’s Form 8-K filed with the Commission on September 17,
                2001)3.2
            Certificate
                of Amendment dated July 20, 2004, implementing the reverse merger
                pursuant
                to the Bankruptcy Court Order Confirming First Modified Plan of
                Liquidation and filed with the Secretary of State of the State of
                Delaware
                on the 23rd day of July, 2004 (incorporated by reference to Exhibit
                3.1.1
                of the Company’s Form 8-K filed with the Commission on July 27,
                2004)3.3
            Certificate
                of Amendment dated July 21, 2004, changing the Company’s name to Gabriel
                Technologies Corporation and filed with the Secretary of State of
                the
                State of Delaware on the 23rd day of July, 2004 (incorporated by
                reference
                to Exhibit 3.1.2 of the Company’s Form 8-K filed with the Commission on
                July 27, 2004)3.4
            Bylaws
                (incorporated by reference to Exhibit 3 of the Company’s Form 8-K filed
                with the Commission on December 1, 2004)4.1
            Specimen
                Stock Certificate*4.2
            Promissory
                Note dated August 12, 2005, by Gabriel Technologies, LLC and Nebraska
                State Bank as modified by that certain Change in Terms Agreement
                dated
                August 12, 2006*4.3
            Promissory
                Note dated January 19, 2006, by the Company in favor of Resilent,
                LLC*10.1
            Lease
                Agreement dated as of December 2003, between Gabriel Technologies,
                LLC and
                M.D. Properties, L.L.C., as modified on May 6, 2004*10.2
            Employment
                Agreement dated as of March 31, 2004, between the Company and Maurice
                Shanley*(4)




37




10.3
            Employment
                Agreement dated as of January 1, 2005, between the Company and Keith
                Feilmeier*(4)10.4
            Letter
                Agreement dated March 22, 2005, as modified, between the Company
                and Pali
                Capital, Inc.*10.5
            Form
                of Class A Warrant in connection with compensation for services pursuant
                to the Letter Agreement between the Company and Pali Capital, Inc.
                dated
                March 22, 2005*10.6
            Consulting
                Agreement dated as of June 1, 2005, between Hawk Associates, Inc.,
                and the
                Company*10.7
            Lease
                Agreement effective as of August 1, 2005, between Resilent, LLC and
                SMWK
                LLC*10.8
            Promissory
                Note dated September 19, 2005, by Resilent, LLC in favor of American
                National Bank*10.9
            Consulting
                and Investment Banking Services Agreement dated as of October 8, 2005
                between Nicholas Fegen and the Company*10.10
            Lease
                Agreement dated as of October 17, 2005, between the Company and Nebraska
                Leasing, Inc.*10.11
            Consulting
                Agreement dated as of December 6, 2005 between Daniel K. Leonard
                and the
                Company*10.12
            Lease
                Agreement dated as of December 19, 2005, between Trace Technologies,
                LLC
                and Nebraska Leasing Services, Inc.*10.13
            Promissory
                Note dated December 23, 2005, by the Company in favor of CTSL Investment
                LLC*10.14
            Class
                A Warrant Certificate dated December 23, 2005 between the Company
                and CTSL
                Investment LLC*10.15
            Convertible
                Senior Promissory Note Subscription Agreement dated January 6, 2006,
                by
                the Company in favor of Broidy Capital Management and Elliot
                Broidy*10.16
            Securities
                Exchange Agreement dated as of January 11, 2006, between Mutual Protective
                Insurance Company and the Company*10.17
            Amended
                and Restated License Agreement dated as of January 16, 2006, by and
                between Trace Technologies, L.L.C., and SnapTrack, Inc.******(Confidential
                treatment has been requested with respect to certain portions of
                this
                exhibit. Omitted portions have been filed separately with the
                Commission)*10.18
            Non-Qualified
                Stock Option Agreement under the 2006 Equity Incentive Plan dated
                January
                19, 2006, between Steven Campisi and the Company*(4)10.19
            Employment
                Agreement dated as of January 19, 2006, between the Company and Steven
                Campisi*(4)10.20
            Consulting
                Agreement dated as of January 31, 2006 between Barry Nussbaum and
                the
                Company*10.21
            Promissory
                Note dated February 10, 2006, by the Company in favor of Keith R.
                Feilmeier*10.22
            Promissory
                Note dated February 14, 2006, by the Company in favor of Broidy Capital
                Management*10.23
            Promissory
                Note dated February 14, 2006, by the Company in favor of Nicolas
                Fegen*10.24
            Form
                of Board Member Letter dated February 20, 2006, provided to Mssrs.
                Anderson, Suess and Moran (incorporated by reference to Exhibit 99.1
                of
                the Company’s Form 8-K filed with the Commission on March 27,
                2006)10.25
            Form
                of Board Member Letter dated February 20, 2006, provided to Mssrs.
                Blackman and Breeling (incorporated by reference to Exhibit 99.2
                of the
                Company’s Form 8-K filed with the Commission on March 27,
                2006)10.26
            Gabriel
                Technologies Corporation 2006 Equity Incentive Plan (incorporated
                by
                reference to Exhibit 10.1 of the Company’s Form 8-K filed with the
                Commission on March 13, 2006)(4)10.27
            Form
                of Non-Qualified Stock Option Agreement under the 2006 Equity Incentive
                Plan (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K
                filed with the Commission on March 13, 2006)(4)10.28
            Lease
                Agreement dated as of March 9, 2006 between the Company and Nebraska
                Leasing Services, Inc.*10.29
            Representation
                Agreement dated as of March 15, 2006, between the Company and Jefferson
                Consulting Group, and Notice of Termination dated October 19,
                2006*10.30
            Consulting
                Agreement dated as of March 22, 2006, between the Company and Voyager
                Consulting, LLC*10.31
            Statement
                of Steven Campisi’s and Outside Directorship terms dated March 27,
                2006 (incorporated by reference to Exhibit 99.3 of the Company’s Form 8-K
                filed with the Commission on March 27, 2006)10.32
            Finder’s
                Agreement dated as of April 3, 2006, between the Company and Empire
                Financial Group, Inc.*




38




10.33
            Form
                of Class A Warrant in connection with the Finder’s Agreement dated as
                April 3, 2006, between the Company and Empire Financial Group,
                Inc.*10.34
            Form
                of Securities Purchase Agreement dated as of June 5, 2006, between
                the
                Company and each of Smithfield Fiduciary, LLC, Cranshire Capital,
                LP,
                Rockmore Investments Master Fund Ltd and IROQUIS Master Fund Ltd.
                (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed
                with the Commission on June 8, 2006)10.35
            Form
                of Registration Rights Agreement dated as of June 5, 2006, between
                the
                Company and each of Smithfield Fiduciary, LLC, Cranshire Capital,
                LP,
                Rockmore Investments Master Fund Ltd and IROQUIS Master Fund Ltd.
                (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed
                with the Commission on June 8, 2006)10.36
            Form
                of Class A Warrant dated as of June 5, 2006, between the Company
                and each
                of Smithfield Fiduciary, LLC, Cranshire Capital, LP, Rockmore Investments
                Master Fund Ltd and IROQUIS Master Fund Ltd. (incorporated by reference
                to
                Exhibit 10.3 of the Company’s Form 8-K filed with the Commission on June
                8, 2006)10.37
            Form
                of Lock-Up Agreement dated as of June 5, 2006, between the Company
                and
                each of Smithfield Fiduciary, LLC, Cranshire Capital, LP, Rockmore
                Investments Master Fund Ltd and IROQUIS Master Fund Ltd. (incorporated
                by
                reference to Exhibit 10.4 of the Company’s Form 8-K filed with the
                Commission on June 8, 2006)10.38
            Lease
                Agreement dated as of July 18, 2006, between Trace Technologies,
                LLC and
                Five Pilgrims, LLC*10.39
            Class
                A Warrant Certificate dated July 19, 2006 between the Company and
                Nicholas
                Fegen*10.40
            Debt
                Settlement Agreement and Release dated July 19, 2006, between the
                Company
                and Nicolas Fegen*10.41
            Amended
                and Restated Installment Note by Nicholas Fegen in favor of the Company,
                dated October, 2006*21.1
            Subsidiaries
                of Registrant*


____________________





*Filed
      herewith.


(1)
      As
      permitted by Item 601(b)(2) of Regulation S-B, the following exhibits are
      omitted, but will be provided to the Commission upon request:


·
            Exhibit
                B - Intellectual Property


·
            Exhibit
                C - Confidentiality, Intellectual Property and Nondisclosure
                Agreement.


(2)
      As
      permitted by Item 601(b)(2) of Regulation S-B, the following exhibits are
      omitted, but will be provided to the Commission upon request:


·
            Exhibit
                A - Operating Agreement of Resilent,
                LLC


·
            Exhibit
                B - Promissory Note


·
            Exhibit
                C - Irrevocable Voting Proxy


(3)
      As
      permitted by Item 601(b)(2), the following exhibits and schedules are omitted,
      but will be provided to the Commission upon request:


·
            Exhibit
                C-1 - Promissory Note


·
            Exhibit
                C-2 - Promissory Note


·
            Exhibit
                D - Onyx Capital Assets


·
            Exhibit
                E - Onyx Manufacturing Package


·
            Exhibit
                F - Share Pledge Agreement


·
            Exhibit
                H - Seller’s Terms and Conditions for
                Products


·
            Exhibit
                I - Bill of Sale


·
            Schedule
                2.1(a) - Liens


·
            Schedule
                2.1(b) - Consents and Approvals


·
            Schedule
                2.1(c) - Intellectual Property


(4)
      Signifies a management agreement or compensatory plan or
      arrangement.




39


**ITEM
      14.** **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





Aggregate
      fees for professional services rendered for the Company by Williams &
Webster, P.S., the Company’s independent registered public accountants, for the
      fiscal years ended June 30, 2006 and 2005 are set forth below.





Fiscal
                Year Ended June 30,2006
            
            2005Audit
                Fees
            
            $
            88,965.25
            
            $
            36,980Audit
                Related Fees
            
            $
            4,887.50
            
            $
            9,451Tax
                Fees
            
            $
            —
            
            $
            —All
                Other Fees
            
            $
            —
            
            $
            —Total
            
            $
            93,852.75
            
            $
            46,431





*Audit
      Fees* were for
      professional services rendered for the audits of the consolidated financial
      statements of the Company, quarterly review of the financial statements included
      in Quarterly Reports on Form 10-QSB, consents, and other assistance required
      to
      complete the year-end audit of the consolidated financial statements. *Audit
      Related Fees* were for
      assurance and related services reasonably related to the performance of the
      audit or review of financial statements and not reported under the caption
      Audit
      Fees. *Tax
      Fees* were for
      professional services related to tax compliance, tax authority audit support
      and
      tax planning. *All
      Other Fees* include
      any other fees charged by the Company’s auditors that are not otherwise
      specified.





The
      Audit
      Committee preapproves all audit and permissible non-audit services to be
      provided by the Company’s independent registered public accountants and the
      estimated fees for these services. None of the services provided by the
      independent registered public accountants that are described above were approved
      by the Audit Committee pursuant to a waiver of the preapproval requirements
      of
      the SEC’s rules and regulations.





40




**SIGNATURES**


In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.


GABRIEL
              TECHNOLOGIES CORPORATIONDATE:
              November 15,
              2006
            By:
            /s/
              Keith R.
              FeilmeierKeith R. Feilmeier
              President and Chief Executive Officer
              (principal
                  executive officer and principal
                financial
                    and accounting officer)




In
        accordance with Exchange Act, this report has been signed below by the following
        persons on behalf of the registrant and in the capacities and on the dates
        indicated.
 
 **Signature**
              
              **Title(s)**
              
              **Date**/s/
                  Keith R. Feilmeier
              
              President,
                  Chief Executive Officer and Director (principal executive officer
                  and
                  principal financial and accounting officer)
              
              November
                  15, 2006Keith
                  R. FeilmeierDirectorSteven
                  Campisi/s/
                  Dennis Blackman
              
              Director
              
              November
                  15, 2006Dennis
                  Blackman/s/
                  Roy G. Breeling, Jr.
              
              Director
              
              November
                  15, 2006Roy
                  G. Breeling, Jr.DirectorJerry
                  Suess/s/
                  Darius Anderson
              
              Director
              
              November
                  15, 2006Darius
                  Anderson/s/
                  Matthew Gohd
              
              Director
              
              November
                  15, 2006Matthew
                  Gohd




41




**INDEX
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
  Consolidated
                  Balance Sheets
                at
                  June 30, 2006 and 2005
              F-1
                  to F-2Consolidated
                  Statements of Operations
                for
                  the Years Ended June 30, 2006 and 2005
              F-3Consolidated
                  Statements of Cash Flows
                for
                  the Years Ended June 30, 2006 and 2005
              F-4
                  to F-5Consolidated
                  Statements of Stockholders’ Equity (Deficit)
                for
                  the Years Ended June 30, 2006 and 2005
              F-6
                  to F-10Notes to the Unaudited Consolidated Financial
                  Statements
              F-11
                  to
                  F-39
   42
 **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 (UNAUDITED)
 
 Year
                  Ended June 30,2006
              
              2005**ASSETS**CURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              155,423
              
              $
              96,257Accounts
                  receivable, net
              
              
              268,123
              
              
              318,196Inventory
              
              
              1,437,634
              
              
              1,126,925Notes
                  receivable, net
              
              
              —
              
              
              583,545Accrued
                  interest receivable
              
              
              —
              
              
              —Note
                  receivable from related party
              
              
              14,576
              
              
              —Prepaid
                  expenses and deposits
              
              
              95,990
              
              
              47,789Total
                  Current Assets
              
              
              1,971,746
              
              
              2,172,712OTHER
                  ASSETSEquipment,
                  net
              
              
              1,164,692
              
              
              354,699Patents,
                  net
              
              
              111,610
              
              
              61,493Licenses,
                  net
              
              
              9,439,598
              
              
              9,775,453Goodwill
              
              
              1,861,542
              
              
              1,517,792Proprietary
                  technology
              
              
              4,586,768
              
              
              1,813,938Deferred
                  tax asset
              
              
              —
              
              
              2,017,438Other
                  assets
              
              
              68,313
              
              
              59,516Total
                  Other Assets
              
              
              17,232,523
              
              
              15,600,329**TOTAL
                  ASSETS**
              
              $
              19,204,269
              
              $
              17,773,041
 
 The
        accompanying notes are an integral part of the unaudited consolidated financial
        statements.
 F-1
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 (UNAUDITED)
  Year
                  Ended June 30,2006
              
              
              
              2005**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**CURRENT
                  LIABILITIESAccounts
                  payable
              
              
              
              
              
              
              
              $
              1,909,625
              
              
              
              $
              1,005,318Accrued
                  expenses
              
              
              
              
              
              
              
              
              226,336
              
              
              
              
              61,725Line
                  of Credit
              
              
              
              
              
              
              
              
              851,929
              
              
              
              
              —Note
                  payable to bank
              
              
              
              
              
              
              
              
              —
              
              
              
              
              100,000Note
                  payable to related party
              
              
              
              
              
              
              
              
              —
              
              
              
              
              235,905Notes
                  payable
              
              
              
              
              
              
              
              
              2,088,082
              
              
              
              
              —Discount
                  on notes payable
              
              
              
              
              
              
              
              
              (495,783
              )
              
              
              
              —Derivative
                  liability
              
              
              
              
              
              
              
              
              1,234,350
              
              
              
              
              —Current
                  portion of long-term notes and leases
              
              
              
              
              
              
              
              
              113,720
              
              
              
              
              12,271Other
                  Liabilities
              
              
              
              
              
              
              
              
              249,450
              
              
              
              
              387,000Total
                  Current Liabilities
              
              
              
              
              
              
              
              
              6,177,709
              
              
              
              
              1,802,219Note
                  payable to bank
              
              
              
              
              
              
              
              
              189,651
              
              
              
              
              —Capital
                  lease obligations
              
              
              
              
              
              
              
              
              268,493
              
              
              
              
              33,481Total
                  Liabilities
              
              
              
              
              
              
              
              
              6,635,853
              
              
              
              
              1,835,700COMMITMENTS
                  AND CONTINGENCIES
              
              
              
              —
              
              
              
              
              —STOCKHOLDERS’
                  EQUITY (DEFICIT)Preferred
                  stock, $0.001 par value; 10,000,000 shares authorized, no shares
                  issued
                  and outstanding
              
              
              
              
              
              
              
              
              —
              
              
              
              
              —Common
                  stock, $0.001 par value; 60,000,000 shares 36,397,321 authorized,
                  and
                  24,916,971 shares issued and outstanding, respectively
              
              
              
              
              
              
              
              
              36,397
              
              
              
              
              24,917Additional
                  paid-in capital
              
              
              
              
              
              
              
              
              34,384,005
              
              
              
              
              22,864,828Subscriptions
                  receivable
              
              
              
              
              
              
              
              
              (2,470,000
              )
              
              
              
              (2,120,000
              )Accumulated
                  deficit
              
              
              
              
              
              
              
              
              (19,381,986
              )
              
              
              
              (4,832,404
              )TOTAL
                  STOCKHOLDERS’ EQUITY (DEFICIT)
              
              
              
              
              
              
              
              
              12,568,416
              
              
              
              
              15,937,341**TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY**
              
              
              $
              19,204,269
              
              
              
              $
              17,773,041
 
 The
        accompanying notes are an integral part of the unaudited consolidated financial
        statements.
 F-2
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF OPERATIONS**
 (UNAUDITED)
 
 Year
                  Ended June 30,2006
              
              2005REVENUES
              
              $
              1,241,773
              
              $
              921,976COST
                  OF GOODS SOLD
              
              
              889,007
              
              
              573,244GROSS
                  PROFIT
              
              
              352,766
              
              
              348,732GENERAL
                  AND ADMINISTRATIVE EXPENSESSelling,
                  office and general
              
              
              9,598,593
              
              
              4,244,427Professional
                  fees
              
              
              617,358
              
              
              451,670Total
                  Expenses
              
              
              10,215,951
              
              
              4,696,097LOSS
                  FROM OPERATIONS
              
              
              (9,863,185
              )
              
              (4,347,365
              )OTHER
                  INCOME (EXPENSE)Interest
                  income
              
              
              104,168
              
              
              34,539Financing
                  expense
              
              
              (1,036,767
              )
              
              (440,000
              )Gain
                  from disposal of subsidiary
              
              
              —
              
              
              22,500Loss
                  from change in derivative liability
              
              
              (637,050
              )
              
              —Interest
                  expense
              
              
              (1,104,951
              )
              
              (35,261
              )Other
              
              
              5,641
              
              
              (2,013
              )Total
                  Other Income (Expense)
              
              
              (2,668,959
              )
              
              (420,235
              )LOSS
                  BEFORE TAXES
              
              
              (12,532,144
              )
              
              (4,767,600
              )BENEFIT
                  (PROVISION) FOR TAXES
              
              
              (2,017,438
              )
              
              1,322,048NET
                  LOSS
              
              $
              (14,549,582
              )
              $
              (3,445,552
              )BASIC
                  AND DILUTEDNET
                  LOSS PER COMMON SHARE
              
              
              (0.50
              )
              
              (0.17
              )WEIGHTED
                  AVERAGE NUMBER OFCOMMON
                  STOCK SHARES OUTSTANDINGFOR
                  BASIC AND DILUTED CALCULATION
              
              
              29,388,855
              
              
              20,310,489
 
 The
        accompanying notes are an integral part of the unaudited consolidated financial
        statements.
 F-3
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF CASH FLOWS**
 (UNAUDITED)
 
 Year
                  Ended June 30,2006
              
              2005CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  Income (loss)
              
              $
              (14,549,582
              )
              $
              (3,445,552
              )Adjustments
                  to reconcile net income to net cash used byoperating
                  activities:Amortization/Depreciation
                  expense
              
              
              170,866
              
              
              72,109Gain
                  from disposal of subsidiary
              
              
              —
              
              
              (22,500
              )Common
                  stock issued for services
              
              
              1,845,189
              
              
              235,362Stock
                  rights issued for services
              
              
              3,032,152
              
              
              250,000Loss
                  on derivatives
              
              
              637,050
              
              
              —Bad
                  debt expense
              
              
              753,967
              
              
              275,802Changes
                  in assets and liabilities:Decrease
                  (increase) in:Prepaid
                  expenses
              
              
              (48,201
              )
              
              (42,789
              )Other
                  assets
              
              
              (8,797
              )
              
              34,663Accounts
                  receivable
              
              
              (18,154
              )
              
              (260,943
              )Accrued
                  interest receivable
              
              
              (102,195
              )
              
              (29,945
              )Inventory
              
              
              (310,709
              )
              
              (422,929
              )Deferred
                  tax asset
              
              
              2,017,438
              
              
              (1,322,048
              )Increase
                  (decrease) in:Accounts
                  payable
              
              
              1,246,415
              
              
              799,746Accrued
                  expenses
              
              
              164,611
              
              
              61,725Other
                  liabilities
              
              
              —
              
              
              176,309Net
                  cash used by operating activities
              
              
              (5,169,950
              )
              
              (3,640,990
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Issuance
                  of notes receivable
              
              
              —
              
              
              (331,100
              )Acquisition
                  of equipment
              
              
              (262,376
              )
              
              (169,364
              )Patent
                  costs
              
              
              (18,800
              )
              
              (30,805
              )Licenses
              
              
              —
              
              
              (600,000
              )Software
              
              
              (588,316
              )
              
              (933,724
              )Net
                  cash used by investing activities
              
              
              (869,492
              )
              
              (2,064,993
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Proceeds
                  from line of credit
              
              
              751,929
              
              
              (486,422
              )Adjustments
                  to investor deposits
              
              
              —
              
              
              (17,606
              )Proceeds
                  from stock and equity transactions
              
              
              2,525,000
              
              
              5,151,000Proceeds
                  from notes payable
              
              
              3,457,557
              
              
              —Payment
                  of notes payable
              
              
              (385,396
              )
              
              (207,500
              )Payment
                  of related party note payable, net
              
              
              (250,482
              )
              
              235,905Net
                  cash provided by financing activities
              
              
              6,098,608
              
              
              4,675,377Net
                  increase/(decrease) in cash and cash equivalents
              
              
              59,166
              
              
              (1,030,606
              )Cash
                  and cash equivalents beginning of period
              
              
              96,257
              
              
              1,126,863Cash
                  and cash equivalents end of period
              
              $
              155,423
              
              $
              96,257SUPPLEMENTAL
                  CASH FLOW DISCLOSURES:Income
                  taxes paid
              
              $
              —
              
              $
              —Interest
                  paid
              
              $
              378,834
              
              $
              29,619
  F-4
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF CASH FLOWS**
 (UNAUDITED)
 
 Year
                  Ended June30,2006
              
              2005NON-CASH
                  INVESTING AND FINANCING TRANSACTIONNotes
                  payable for license
              $
              —
              
              $
              307,500Notes
                  payable for equipment
              $
              122,602
              
              $
              300,150Common
                  stock issued for services
              $
              1,845,189
              
              $
              409,110Investment
                  deposits converted to stock
              $
              —
              
              $
              7,412,030Common
                  stock issued in acquisition
              $
              7,593,750
              
              $
              4,900,000Stock
                  rights issued for services
              $
              3,755,302
              
              $
              250,000Common
                  stock issued for debt conversion
              $
              1,000,000
              
              $
              37,500Other
                  liabilities from deferred licenses agreements
              $
              —
              
              $
              200,000Common
                  stock issued for subscription receivable
              $
              1,000,000
              
              $
              —Receipt
                  of treasury stock for property subject to debt
              $
              —
              
              $
              225,000Gain
                  from disposal of subsidiary
              $
              —
              
              $
              22,500Investment
                  exchanged for debt retirement
              $
              —
              
              $
              50,000Cash
                  advance exchanged for debt retirement
              $
              —
              
              $
              32,109
 
  
 The
        accompanying notes are an integral part of the unaudited consolidated financial
        statements.
 F-5
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)**
 (UNAUDITED)
  **Common
                  Stock**
              
              **Section**
                **1145
                  Stock****Warrants**
              
              **Additional**
                **Paid-In**
                **Capital**
              
              **Treasury****Stock**
              
              **Subscriptions
Receivable**
              
              **Accumulated
Deficit**
              
              **Total****Shares**
              
              **Amount**
              
              **Shares**Pre-merger
                  capitalization-Princeton Video:Surviving
                  Princeton Video Shares
              
              
              61,626
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Rounding
              
              
              1,758
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Debtor
                in possession holders
              
              
              200,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Original
                  Princeton shares outstanding in bankruptcy
              
              
              263,384
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Stock
                  issued for note payable taken subject to bankruptcy court
              
              
              443,750
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —707,134
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Warrants
                  issued under bankruptcy agreements, $25 exercise price, no fair
                  market
                  value
              
              
              —
              
              
              —
              
              
              5,500,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
                  shares and warrants from Princeton Video
              
              
              707,134
              
              $
              707
              
              
              5,500,000
              
              $
              (707
              )
              
              
              
              
              
              
              
              
              
              
              —Gabriel
                  Technologies, LLC conversion merger shares
              
              
              10,000,000
              
              $
              10,000
              
              
              —
              
              $
              2,727,972
              
              
              —
              
              
              —
              
              
              (1,386,852
              )
              
              1,351,120Balance,
                  June  30, 2004
              
              
              10,000,000
              
              
              10,000
              
              
              —
              
              
              2,727,265
              
              
              —
              
              
              —
              
              
              (1,386,852
              )
              
              1,350,413Common
                  stock issued for note receivable at $1.00 per share
              
              
              137,500
              
              
              138
              
              
              —
              
              
              137,362
              
              
              —
              
              
              —
              
              
              —
              
              
              137,500Common
                  stock issued in acquisition
              
              
              50,000
              
              
              50
              
              
              —
              
              
              49,950
              
              
              —
              
              
              —
              
              
              —
              
              
              50,000
 F-6
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)**
 (UNAUDITED)
 
 **Common
                  Stock**
              
              
              **Section**
                **1145
                  Stock****Warrants**
              
              
              **Additional**
                **Paid-In**
                **Capital**
              
              
              **Treasury
Stock**
              
              
              **Subscriptions
Receivable**
              
              
              **Accumulated
Deficit**
              
              
              **Total****Shares**
              
              
              **Amount**
              
              
              **Shares**Common
                  stock issued for investments at $2.80 per share
              
              
              1,250,000
              
              
              1,250
              
              
              —
              
              
              3,498,750
              
              
              —
              
              
              —
              
              
              —
              
              
              3,500,000Common
                  stock issued for cash at an average of $1.20 per share
              
              
              3,297,822
              
              
              3,297
              
              
              —
              
              
              3,863,866
              
              
              —
              
              
              —
              
              
              —
              
              
              3,867,163Cost
                  associated with equity financing
              
              
              —
              
              
              —
              
              
              —
              
              
              (552,260
              )
              
              —
              
              
              —
              
              
              —
              
              
              (552,260
              )Common
                  stock issued for subscription receivable at $2.50 per share
              
              
              750,000
              
              
              750
              
              
              —
              
              
              1,874,250
              
              
              —
              
              
              (1,875,000
              )
              
              —
              
              
              —Cash
                  received from subscription receivable
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              380,000
              
              
              —
              
              
              380,000Common
                  stock issued for services at an average of $0.31 per share
              
              
              1,648,860
              
              
              1,649
              
              
              —
              
              
              511,177
              
              
              —
              
              
              —
              
              
              —
              
              
              512,826Warrants
                  exercised at $2.00 per share
              
              
              2,307,250
              
              
              2,308
              
              
              (2,307,250
              )
              
              4,612,193
              
              
              —
              
              
              —
              
              
              —
              
              
              4,614,501Common
                  stock issued for acquisition at $2.80 per share
              
              
              1,750,000
              
              
              1,750
              
              
              —
              
              
              4,898,250
              
              
              —
              
              
              —
              
              
              —
              
              
              4,900,000Warrants
                  exercised for services at $0.10 per share
              
              
              2,500,000
              
              
              2,500
              
              
              (2,500,000
              )
              
              247,500
              
              
              —
              
              
              —
              
              
              —
              
              
              250,000
  F-7
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)**
 (UNAUDITED)
  **Common
                  Stock**
              
              
              **Section**
                **1145
                  Stock****Warrants******
              
              
              **Additional
                  Paid-In****Capital**
              
              
              **Treasury
Stock**
              
              
              **Subscriptions
Receivable**
              
              
              **Accumulated
Deficit**
              
              
              **Total****Shares**
              
              
              **Amount**
              
              
              **Shares**Common
                  stock issued for subscription receivable at $2.50 per share
              
              
              250,000
              
              
              250
              
              
              —
              
              
              624,750
              
              
              —
              
              
              (625,000
              )
              
              —
              
              
              —Common
                  stock reacquired in disposal of subsidiary
              
              
              (100,000
              )
              
              —
              
              
              —
              
              
              —
              
              
              (225,000
              )
              
              —
              
              
              —
              
              
              (225,000
              )Common
                  stock issued for repurchase of license rights at $2.16 per
                  share
              
              
              250,000
              
              
              250
              
              
              —
              
              
              539,750
              
              
              —
              
              
              —
              
              
              —
              
              
              540,000Cancellation
                  of treasury shares
              
              
              —
              
              
              (100
              )
              
              —
              
              
              (224,900
              )
              
              225,000
              
              
              —
              
              
              —
              
              
              —Common
                  stock issued for equity financing at $0.83 per share
              
              
              70,000
              
              
              70
              
              
              —
              
              
              57,680
              
              
              —
              
              
              —
              
              
              —
              
              
              57,750Miscella-neous
                  corrections and adjustments
              
              
              48,405
              
              
              48
              
              
              —
              
              
              (48
              )
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  loss for the year ended June 30, 2005
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (3,445,552
              )
              
              (3,445,552
              )Balance,
                  June 30, 2005
              
              
              24,916,971
              
              
              24,917
              
              
              692,750
              
              
              22,864,828
              
              
              —
              
              
              (2,120,000
              )
              
              (4,832,404
              )
              
              15,937,341
  F-8
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)**
 (UNAUDITED)
  **Common
                  Stock**
              
              
              **Section**
                **1145
                  Stock****Warrants******
              
              
              **Additional
                  Paid-In Capital**
              
              
              **Treasury
Stock**
              
              
              **Subscriptions
Receivable**
              
              
              **Accumulated
Deficit**
              
              
              **Total****Shares**
              
              
              **Amount**
              
              
              **Shares**Warrants
                  exercised at $1.00 per share
              
              
              600,000
              
              
              600
              
              
              (600,000
              )
              
              599,400
              
              
              —
              
              
              —
              
              
              —
              
              
              600,000Cancellation
                  of Section 1145 warrants
              
              
              —
              
              
              —
              
              
              (92,750
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Cash
                  received from subscription receivable
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              650,000
              
              
              —
              
              
              650,000Common
                  stock issued for services at $0.80 per share
              
              
              1,500,000
              
              
              1,500
              
              
              —
              
              
              1,198,500
              
              
              —
              
              
              —
              
              
              —
              
              
              1,200,000Common
                  stock issued for acquisition at $1.00 per share
              
              
              4,593,750
              
              
              4,594
              
              
              —
              
              
              4,589,156
              
              
              —
              
              
              —
              
              
              —
              
              
              4,593,750Common
                  stock issued for equity financing at $1.00 per share
              
              
              3,275,000
              
              
              3,275
              
              
              —
              
              
              3,271,725
              
              
              —
              
              
              (1,000,000
              )
              
              —
              
              
              2,275,000Common
                  stock issued for services at $1.38 per share
              
              
              500,000
              
              
              500
              
              
              —
              
              
              689,500
              
              
              —
              
              
              —
              
              
              —
              
              
              690,000Common
                  stock issued for conversion of note payable at $1.00 per
                  share
              
              
              1,000,000
              
              
              1,000
              
              
              —
              
              
              999,000
              
              
              —
              
              
              —
              
              
              —
              
              
              1,000,000Common
                  stock issued for services at $1.10 per share
              
              
              40,755
              
              
              41
              
              
              —
              
              
              44,790
              
              
              —
              
              
              —
              
              
              —
              
              
              44,831
  F-9
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)**
 (UNAUDITED)
  **Common
                  Stock**
              
              
              **Section**
                **1145
                  Stock****Warrants******
              
              
              **Additional
                  Paid-In Capital**
              
              
              **Treasury
Stock**
              
              
              **Subscriptions****Receivable**
              
              
              **Accumulated
Deficit**
              
              
              **Total****Shares**
              
              
              **Amount**
              
              
              **Shares**Miscellaneous
                  corrections and adjustments
              
              
              (29,155
              )
              
              (30
              )
              
              —
              
              
              30
              
              
              —
              
              
              —
              
              
              —
              
              
              —Fair
                  value of stock options issued for services
              
              
              —
              
              
              —
              
              
              —
              
              
              2,259,855
              
              
              —
              
              
              —
              
              
              —
              
              
              2,259,855Fair
                  value of warrants issued for services
              
              
              —
              
              
              —
              
              
              —
              
              
              77,646
              
              
              —
              
              
              —
              
              
              —
              
              
              77,646Fair
                  value of warrants issued with debt financing
              
              
              —
              
              
              —
              
              
              —
              
              
              789,575
              
              
              —
              
              
              —
              
              
              —
              
              
              789,575Equity
                  eliminated in consolidation
              
              
              —
              
              
              —
              
              
              —
              
              
              (3,000,000
              )
              
              —
              
              
              —
              
              
              —
              
              
              (3,000,000
              )Net
                  loss for the year ended June 30, 2006
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (14,549,582
              )
              
              (14,549,582
              )Balance
                  at June 30, 2006
              
              
              36,397,321
              
              $
              36,397
              
              
              —
              
              $
              34,384,005
              
              $
              —
              
              $
              (2,470,000
              )
              $
              (14,549,582
              )
              $
              12,568,416
  The
        accompanying notes are an integral part of the unaudited consolidated financial
        statements.
 F-10
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        1 - ORGANIZATION AND DESCRIPTION OF BUSINESS**
 
 Gabriel
        Technologies Corporation (the “Company”) is the holding company for two
        wholly-owned and one majority-owned subsidiary. The Company
        was originally incorporated in 1990 as Princeton Video Image, Inc., a Delaware
        corporation. In 2004, Princeton Video Image, Inc. filed for Chapter 11
        Bankruptcy and emerged as a reorganized company on June 10, 2004. On July
        23,
        2004, the Company changed its name to Gabriel Technologies Corporation. On
        July
        29, 2004, the Company entered into a share exchange with Gabriel Technologies,
        LLC, a Nebraska limited liability company (“Gabriel LLC”), which became a
        wholly-owned subsidiary of the Company.
 
 Gabriel
        LLC designs, develops, produces, markets and supports a proprietary series
        of
        advanced locking systems under the WAR-LOKTM name.
        These locking devices are primarily used for securing shipping containers
        and
        trailers used in the railroad and trucking industries. Gabriel LLC sells
        the WAR-LOK TM
series
        products through a direct sales force and a network of qualified distributors
        in
        specific vertical industries. Gabriel LLC originally had a year ended
        December 31 and adopted a June 30 fiscal year end in 2004.
 
 In
        November 2004, the Company acquired a controlling interest in Trace
        Technologies, LLC, a Nevada limited liability company (“Trace”). Trace is a
        wholly-owned subsidiary of the Company. See Note 9.
 
 In
        January 2006, the Company acquired a controlling interest in Resilent LLC
        d/b/a
        Digital Defense Group, a Nebraska limited liability company (“Resilent”).
        Resilent is a majority-owned subsidiary of the Company. See Note 9.
 
 The
        audit
        of Gabriel Technologies Corporation’s consolidated financial statements at June
        30, 2006, is in progress but was not completed in time to include audited
        consolidated financial statements and a Report of Independent Registered
        Public
        Accounting Firm in this Annual Report on Form 10-KSB. When the audit is
        completed and a Report of Independent Registered Public Accounting Firm is
        issued, Gabriel Technologies Corporation intends to file an amended Annual
        Report on Form 10-KSB.
 
 **NOTE
        2 - SUMMARY OF CRITICAL ACCOUNTING POLICIES**
 
 This
        summary of critical accounting policies of the Company is presented to assist
        in
        understanding the Company’s financial statements. The financial statements and
        notes are representations of the Company’s management, which is responsible for
        their integrity and objectivity. These statements have been prepared in
        accordance with generally accepted accounting principles in the United States
        of
        America, and have been consistently applied.
 
 **Accounting
        Method**
 
 The
        Company uses the accrual method of accounting in accordance with accounting
        principles generally accepted in the United States of America.
 
 **Advertising
        Expenses**
 
 Advertising
        expenditures consist primarily of costs incurred in the design, development,
        and
        printing of Company literature and marketing materials. The Company expenses
        all
        advertising expenditures as incurred. The Company’s advertising expenses for the
        years ended June 30, 2006 and June 30, 2005, were $143,432 and $61,376,
        respectively.
 
 F-11
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **Accounts
        Receivable**
 
 The
        carrying amount of accounts receivable is reduced by a valuation allowance
        that
        reflects the Company’s best estimate of the amount that will not be collected.
        On a periodic basis, the Company reviews its accounts receivable balances
        and
        considers the need for an allowance for doubtful accounts based on the Company’s
        past and expected collections and current credit conditions. Accounts Receivable
        consists of the following items at June 30, 2006 and June 30, 2005:
  June
                  30,2006
              
              
              2005Accounts
                  receivable
              
              $
              328,123
              
              $
              478,998Allowance
                  for uncollectible accounts
              
              $
              (60,000
              )
              $
              (160,802
              )$
              268,123
              
              $
              318,196
 
 At
        June
        30, 2006, 100% of the Company’s accounts receivable balance serves as collateral
        for Gabriel LLC’s line of credit with Nebraska State Bank. See Note
        7.
 
 The
        Company’s bad debt expense related to its accounts receivable for the year ended
        June 30, 2006 and June 30, 2005 was $68,227 and $160,802,
        respectively.
 
 **Cash
        and Cash Equivalents**
 
 For
        purposes of its statement of cash flows, the Company considers all short-term
        debt securities purchased with a maturity of three months or less to be cash
        equivalents. Such cash equivalents include letters of credit entered into
        for
        the benefit of certain vendors. The Company maintains its cash in bank accounts,
        which may at times exceed federal insured limits and in money market accounts
        that are not federally insured.
 
 **Cost
        of Goods Sold**
 
 Cost
        of
        goods sold consists primarily of the raw materials, labor and overhead of
        products sold, inbound and outbound shipping charges, and packaging
        supplies.
 
 **Derivative
        Instruments**
 
 The
        Financial Accounting Standards Board issued Statement of Financial Accounting
        Standards No. 133, “Accounting for Derivative Instruments and Hedging
        Activities,” (hereinafter “SFAS No. 133”) as amended by SFAS No. 137,
“Accounting for Derivative Instruments and Hedging Activities - Deferral of
        the
        Effective Date of FASB No. 133”, and SFAS No. 138, “Accounting for Certain
        Derivative Instruments and Certain Hedging Activities” and SFAS No. 149,
“Amendment of Statement 133 on Derivative Instruments and Hedging Activities”.
        These statements establish accounting and reporting standards for derivative
        instruments, including certain derivative instruments embedded in other
        contracts, and for hedging activities. They require that an entity recognize
        all
        derivatives as either assets or liabilities in the consolidated balance sheet
        and measure those instruments at fair value.
 
 If
        certain conditions are met, a derivative may be specifically designated as
        a
        hedge, the objective of which is to match the timing of gain or loss recognition
        on the hedging derivative with the recognition of (i) the changes in the
        fair
        value of the hedged asset or liability that are attributable to the hedged
        risk
        or (ii) the earnings effect of the hedged forecasted transaction. For a
        derivative not designated as a hedging instrument, the gain or loss is
        recognized in income in the period of change.
 
 The
        Company has issued convertible debt securities with warrants. The Company
        accounts for such securities in accordance with Emerging Issues Task Force
        Issue
        Nos. 98-5, 00-19, 00-27, 05-02, 05-04 and 05-08, and Statement of Financial
        Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging
        Activities” as amended (“SFAS 133”).
 
 F-12
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **Derivative
        Instruments** **(Continued)**
 
 In
        accordance with SFAS 133, the holder’s conversion right provision, interest rate
        adjustment provision, liquidated damages clause, cash premium option, and
        the
        redemption option (collectively, the debt features) contained in the terms
        governing the notes are not clearly and closely related to the characteristics
        of the notes. Accordingly, the features qualified as embedded derivative
        instruments at issuance and, because they do not qualify for any scope exception
        within SFAS 133, they were required by SFAS 133 to be accounted for separately
        from the debt instrument and recorded as derivative financial
        instruments.
 
 At
        each
        balance sheet date, the Company adjusts the derivative financial instruments
        to
        their estimated fair value and analyzes the instruments to determine their
        classification as a liability or equity. As of June 30, 2006, the estimated
        fair
        value of the Company’s derivative liability was $1,234,350. The estimated fair
        value of the debt features was determined using the Black-Scholes Model.
        The
        model uses several assumptions including: historical stock price volatility
        (65%), risk-free interest rate (4.00%), remaining maturity, and the closing
        price of the Company’s common stock to determine estimated fair value of the
        derivative liability. There was a decrease in the market value of the Company’s
        common stock to $.95 at June 30, 2006 from $1.35 at March 31, 2006.
 
 **Earnings
        (Loss) Per Share**
 
 The
        Company adopted Statement of Financial Accounting Standards No. 128, which
        provides for calculation of “basic” and “diluted” earnings/loss per share. Basic
        earnings/loss per share includes no dilution and is computed by dividing
        net
        income available to common shareholders by the weighted average common shares
        outstanding for the period. Diluted earnings/loss per share reflects the
        potential dilution of securities that could share in the earnings of an entity
        similar to fully diluted earnings/loss per share. Although there were common
        stock equivalents outstanding at June 30, 2006, they were not included in
        the
        calculation of loss per share because they would have been considered
        anti-dilutive.
 
 **Economic
        Dependencies**
 
 The
        Company purchases its products from six major suppliers which provided
        approximately 60% of its total purchases for the year ended June 30,
        2006.
 
 The
        Company had ten major customers for the year ended June 30, 2006, which comprise
        approximately 73% of its sales.
 
 **Fair
        Value of Financial Instruments**
 
 The
        Company’s financial instruments as defined by Statement of Financial Accounting
        Standards No. 107, “Disclosures about Fair Value of Financial Instruments,”
include cash, accounts receivable, notes receivable, accounts payable, accrued
        expenses and notes payable. All instruments are accounted for on a historical
        cost basis, which, due to the short maturity of these financial instruments,
        approximates fair value at June 30, 2006 and 2005.
 
 **Income
        Taxes**
 
 The
        Company accounts for income taxes under the provisions of Statement of Financial
        Accounting Standards No. 109, “Accounting for Income Taxes”. This statement
        requires the recognition of deferred tax liabilities and assets for the future
        consequences of events that have been recognized in the Company’s unaudited
        consolidated financial statement or tax returns. Measurement of the deferred
        items is based on enacted tax laws. See Note 11.
 
 F-13
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **Inventories**
 
 The
        Company records inventories at the lower of cost or market on a first-in,
        first-out basis. See Note 3.
 
 **Property
        and Equipment**
 
 Property
        and equipment are stated at cost. Depreciation of property and equipment
        is
        calculated using the straight-line method over the estimated useful lives
        of the
        assets, which range from three to seven years. See Note 5.
 
 **Principles
        of Consolidation**
 
 The
        unaudited consolidated financial statements include the accounts of the Company,
        its wholly-owned subsidiaries and its majority owned subsidiary after
        elimination of intercompany accounts and transactions. Wholly-owned subsidiaries
        of the Company are Trace and Gabriel LLC. The majority owned subsidiary is
        Resilent. See Note 9.
 
 **Recent
        Accounting Pronouncements**
 
 In
        September 2006, the Financial Accounting Standards Board issued Statement
        of
        Financial Accounting Standards No. 157, “Fair Value Measurements” which defines
        fair value, establishes a framework for measuring fair value in generally
        accepted accounting principles (GAAP), and expands disclosures about fair
        value
        measurements. Where applicable, SFAS No. 157 simplifies and codifies related
        guidance within GAAP and does not require any new fair value measurements.
        SFAS
        No. 157 is effective for financial statements issued for fiscal years beginning
        after November 15, 2007, and interim periods within those fiscal years. Earlier
        adoption is encouraged. The Company does not expect the adoption of SFAS
        No. 157
        to have a material effect on its financial condition or results of
        operation
 
 In
        June
        2006, the Financial Accounting Standards Board issued FASB Interpretation
        No.
        48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
        Statement No. 109”, which prescribes a recognition threshold and measurement
        attribute for the financial statement recognition and measurement of a tax
        position taken or expected to be taken in a tax return. FIN 48 also provides
        guidance on de-recognition, classification, interest and penalties, accounting
        in interim periods, disclosure and transition. FIN 48 is effective for fiscal
        years beginning after December 15, 2006. The Company does not expect the
        adoption of FIN 48 to have a material effect on its financial condition,
        and the
        Company is currently evaluating the impact, if any, the adoption of FIN 48
        will
        have on its disclosure requirements.
 
 In
        March
        2006, the Financial Accounting Standards Board issued Statement of Financial
        Accounting Standards No. 156, “Accounting for Servicing of Financial Assets—an
        Amendment of FASB Statement No. 140.” This statement requires an entity to
        recognize a servicing asset or servicing liability each time it undertakes
        an
        obligation to service a financial asset by entering into a servicing contract
        in
        any of the following situations: a transfer of the servicer’s financial assets
        that meets the requirements for sale accounting; a transfer of the servicer’s
        financial assets to a qualifying special-purpose entity in a guaranteed mortgage
        securitization in which the transferor retains all of the resulting securities
        and classifies them as either available-for-sale securities or trading
        securities in accordance with FASB Statement No. 115; or an acquisition or
        assumption of an obligation to service a financial asset that does not relate
        to
        financial assets of the servicer or its consolidated affiliates. The statement
        also requires all separately recognized servicing assets and servicing
        liabilities to be initially measured at fair value, if practicable and permits
        an entity to choose either the amortization or fair value method for subsequent
        measurement of each class of servicing assets and liabilities. This statement
        is
        effective for fiscal years beginning after September 15, 2006, with early
        adoption permitted as of the beginning of an entity’s fiscal year. The Company
        does not expect the adoption of this statement to have a material effect
        on its
        financial condition or results of operations.
 
 F-14
 
  **GABRIEL
            TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
  **Recent
          Accounting Pronouncements (continued)**
 In
        February 2006, the Financial Accounting Standards Board issued Statement
        of
        Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial
        Instruments, an Amendment of FASB Standards No. 133 and 140” (hereinafter “SFAS
        No. 155”). This statement established the accounting for certain derivatives
        embedded in other instruments. It simplifies accounting for certain hybrid
        financial instruments by permitting fair value remeasurement for any hybrid
        instrument that contains an embedded derivative that otherwise would require
        bifurcation under SFAS No. 133 as well as eliminating a restriction on the
        passive derivative instruments that a qualifying special-purpose entity (“SPE”)
        may hold under SFAS No. 140. This statement allows a public entity to
        irrevocably elect to initially and subsequently measure a hybrid instrument
        that
        would be required to be separated into a host contract and derivative in
        its
        entirety at fair value (with changes in fair value recognized in earnings)
        so
        long as that instrument is not designated as a hedging instrument pursuant
        to
        the statement. SFAS No. 140 previously prohibited a qualifying special-purpose
        entity from holding a derivative financial instrument that pertains to a
        beneficial interest other than another derivative financial instrument. This
        statement is effective for fiscal years beginning after September 15, 2006,
        with
        early adoption permitted as of the beginning of an entity’s fiscal year. The
        Company does not expect the adoption of this statement to have a material
        effect
        on its financial condition or results of operations.
 
 **Reclassification**
 
 Certain
        amounts from prior periods have been reclassified to conform to the current
        period presentation. This reclassification has resulted in no changes to
        the
        Company’s accumulated deficit or net losses presented.
 
 **Revenue
        Recognition**
 
 Products
        are shipped freight on board (FOB) shipping point and title passes upon
        shipment. The Company recognizes revenue from sales when there is persuasive
        evidence that a sales arrangement exists, delivery has occurred, the Company’s
        price to the buyer is determinable and collectibility is reasonably
        assured.
 
 F-15
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**
 
 **Stock-Based
        Compensation**
 
 The
        Company measures compensation costs based on the estimated fair value of
        the
        award and recognizes that cost over the service period. In accordance with
        Statement of Financial Accounting Standards No. 123 (R), the fair value of
        stock
        options and warrants granted are estimated using the Black-Scholes option
        pricing model.
 
 **Use
        of Estimates**
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reported period.
        Actual
        results could differ from those estimates.
 
 **Warranty
        Reserve**
 
 Gabriel
        LLC offers a one year limited warranty from the date of shipment to cover
        defects in materials or workmanship of its products. At June 30, 2006 and
        2005,
        $9,789 and $10,122, respectively has been reserved for warranty related
        expenses.
 
 **NOTE
        3 - INVENTORY**
 
 The
        cost
        of finished goods includes the cost of raw material, direct and indirect
        labor,
        and other indirect manufacturing costs. As of June 30, 2006, the Company
        has not
        incurred losses from write-downs to market.
 
 Inventories
        at June 30, 2006 and 2005 consist of the following:
  June
                  30,2006
              
              
              2005Materials
              
              $
              822,320
              
              $
              675,476Finished
                  goods
              
              
              615,314
              
              
              451,449$
              1,437,634
              
              $
              1,126,925
 
 As
        of
        June 30, 2006, 100% of the Company’s inventory balance serves as collateral for
        bank note payable borrowing. See Note 7.
 
 **NOTE
        4 - NOTES RECEIVABLE**
 
 Notes
        receivable consist of the following at June 30, 2006 and 2005.
  June
                  30,2006
              
              
              2005Notes
                  receivable
              
              $
              668,600
              
              $
              668,600Accrued
                  interest receivable
              
              
              132,140
              
              
              29,945Allowance
                  for uncollectible notes
              
              
              (800,740
              )
              
              (115,000
              )$
              —
              
              $
              583,545
 
 As
        of
        June 30, 2006, the Company has notes receivable of approximately $668,600
        for
        funds advanced to various parties, which are due at various dates during
        the
        fiscal year ending June 30, 2006. These notes bear interest between 8% and
        12%
        and interest
        in the amount of $132,140 has been accrued through June 30,
        2006. See Notes 13 and 14.
 
 F-16
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        4 - NOTES RECEIVABLE (CONTINUED)**
 
 On
        July
        10, 2006, the District Court of Douglas County, Nebraska ordered a default
        judgment of $531,000 plus interest in favor of the Company against various
        defendants associated with two outstanding notes receivable in the principal
        amounts of $200,000 and $331,100. At June 30, 2006, the Company increased
        its
        allowance for uncollectible accounts to $800,740.
 
 The
        Company has recognized $685,740 and $115,000 as a component of its bad debt
        expense for the years ended June 30, 2006 and 2005 for uncollectible notes
        receivable.
 
 **NOTE
        5 - PROPERTY AND EQUIPMENT**
 
 Capital
        assets are recorded at cost or at the present value of future minimum lease
        payments for capitalized lease obligations. Depreciation is calculated using
        the
        straight-line method over a period of three to seven years. The following
        is a
        summary of property, equipment and accumulated depreciation at June 30, 2006
        and
        2005:
 
 June
                  30,2006
              
              2005Equipment
              
              $
              639,464
              
              $
              250,574Furniture
                  and fixtures
              
              
              141,148
              
              
              34,452Tools
                  and dies
              
              
              212,450
              
              
              77,886Leasehold
                  improvements
              
              
              234,393
              
              
              —Proprietary
                  technology
              
              
              146,607
              
              
              68,6051,374,062
              
              
              431,517Accumulated
                  depreciation
              
              
              (209,370
              )
              
              (76,818
              )$
              1,164,692
              
              $
              354,699
 
 Depreciation
        expense for the years ended June 30, 2006 and June 30, 2005, was $134,251
        and
        $56,837, respectively.
 
 **Capital
        leases**
 
 The
        Company has entered into various lease agreements for furniture and equipment.
        These leases are considered capital leases and are amortized over the estimated
        life of the assets. The terms of the leases are from 24 to 60 months with
        monthly payments of $709 to $5,847 including sales tax. The total payments
        including any bargain buyout is $468,927.
 
 The
        Company also leases a vehicle with an estimated useful life of 48 months
        and a
        monthly payment of $983. This lease also has a bargain buyout at the end
        of the
        lease. Total payments including the bargain buyout is $65,660.
 
 The
        following summarizes the Company’s leased property under capital leases included
        in major asset classes:
 
 June
                  30,2006
              
              2005Equipment
              
              $
              277,966
              
              $
              44,987Furniture
                  and fixtures
              
              
              93,245
              
              
              14,104Leasehold
                  improvements
              
              
              234,393
              
              
              -605,604
              
              
              59,091Accumulated
                  depreciation
              
              
              (52,385
              )
              
              (14,347
              )$
              553,219
              
              $
              44,744
 
 F-17
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        6 - INTANGIBLE ASSETS**
 
 In
        June
        2001, the Financial Accounting Standards Board issued Statement of Financial
        Accounting Standards No. 141, “Business Combinations” (hereinafter “SFAS No.
        141”) and Statement of Financial Accounting Standard No. 142,
“Goodwill and Other Intangible Assets” (hereinafter “SFAS No. 142”). SFAS No.
        141 provides for the elimination of the pooling-of-interest method of accounting
        for business combinations with an acquisition date of July 1, 2001 or later.
        SFAS No. 142 prohibits the amortization of goodwill and other
        intangible assets with indefinite lives and requires periodic reassessment
        of
        the underlying value of such assets for impairment. SFAS No. 142 is
        effective for fiscal years beginning after December 15, 2001. The Company
        has
        adopted SFAS No. 142 and expects that the application of the
        nonamortization provision of SFAS No. 142 will result in no change to the
        Company’s results of operations.
 
 Pursuant
        to SFAS No. 142, the Company’s goodwill and intangible assets that have
        indefinite lives will not be amortized but rather will be tested at least
        annually for impairment. Impairment testing under SFAS No. 142 involves a
        two-phase testing process. The first phase (Test 1) compares the fair value
        of
        each reporting unit to its book value. The fair value of each reporting unit
        is
        determined by using discounted cash flow analysis, market approach valuations
        and third-party valuation advisors. If the fair value of the reporting unit
        exceeds its book value, the goodwill and/or intangible asset is not considered
        impaired and no additional analysis is required. At June 30, 2006 the Company’s
        analysis has determined that there is no impairment in the recorded value
        of
        goodwill or intangible assets with indefinite lives.
 
 **Goodwill**
 
 Gabriel
        LLC entered into an asset acquisition with Gabriel Technologies, Inc. in
        April
        2003. In allocating the purchase price, Gabriel LLC assigned $1,517,792 to
        goodwill. In January 2006, the Company purchased 59.8% of Resilent and assigned
        $343,750 to goodwill. See Note 9. Goodwill is reviewed annually by management
        for possible impairment or other adjustments in accordance with Statement
        of
        Financial Accounting Standards No. 142.
 
 **Patents
        and Trademarks**
 
 Costs
        relating to the purchase of patents and trademarks are capitalized and amortized
        using the straight-line method over 17 years, representing the estimated
        life of
        the assets.
 
 The
        following is a summary of the patents and trademarks at June 30, 2006 and
        2005:
  June
                  30,2006
              
              
              2005Patents
                  and Trademarks
              
              $
              122,898
              
              $
              65,825Accumulated
                  amortization
              
              
              (11,288
              )
              
              (4,332
              )$
              111,610
              
              $
              61,493
 
 For
        the
        years ended June 30, 2006 and June 30, 2005, the Company incurred amortization
        expense related to the patents and trademarks of $6,423 and $2,366,
        respectively.
 
 **Licenses**
 
 The
        Company has paid $200,000 for an exclusive license to use A-GPS in the
        transportation business sector. Under an agreement with Locate Networks,
        Inc.
        (“Locate”), the Company will use this technology in its product. This license
        was allocated to Trace. Trace will also be paid royalties for each device
        it
        sells. This agreement is in force for 10 years. The license fee of $200,000
        will
        be amortized over 10 years. For the years ended June 30, 2006 and 2005, no
        royalties were paid or accrued.
 
 F-18
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
          6 - INTANGIBLE ASSETS (CONTINUED)**
 
 **Licenses** **(Continued)**
 
 Resilent
        entered into a license agreement with RF Laboratories, Inc. for which RF
        Laboratories, Inc. grants to the Company a non-exclusive, worldwide, paid-up,
        royalty-free, perpetual, non-transferable license to use the RD technology
        to
        make, have made, use and sell products. As of June 30, 2006, the Company
        has
        made payments totaling $25,000 to RF Laboratories. RF Laboratories is under
        no
        obligation to provide any support or maintenance to the Company or to any
        third
        party with respect to the RD technology. RF Laboratories retains the right
        to
        make, have made, use, improve, and sell products using the RD
        technology.
 
 For
        the
        years ended June 30, 2006 and 2005, the Company incurred amortization expense
        related to the tracking and Micro RX licenses of $20,309 and $17,091,
        respectively.
 
 With
        the
        acquisition of Trace, the Company recorded $9,393,358 in intangible assets
        related to the SnapTrack license. See Note 9. The SnapTrack license has a
        perpetual life and is subject to annual impairment testing. On January 16,
        2006,
        the Company entered into an amended and restated license agreement with
        SnapTrack. The new agreement resulted in $342,108 reduction in deferred payments
        included in the original agreement. At June 30, 2006, pursuant to testing
        in
        accordance with SFAS No. 142, the Company believes that the value ascribed
        thereto has not been impaired.
 
 The
        SnapTrack license agreement, for Assisted Global Positioning, (A-GPS), requires
        annual support and maintenance payments. The server software maintenance
        agreement annual license fee is equal to the greater of a percentage of Trace
        server royalty income or $100,000. Trace Technologies has expensed $100,000
        per
        year for the years ended June 30, 2006 and 2005.
 
 June
                  30,2006
              
              2005Tracking
                  license
              
              $
              200,000
              
              $
              200,000RD
                  technology license
              
              
              25,000
              
              
              —SnapTrack
                  License
              
              
              9,051,250
              
              
              9,393,358Airtime
                  agreements
              
              
              150,000
              
              
              150,000Manufacturing
                  engineering agreement
              
              
              50,000
              
              
              50,000Other
              
              
              2,798
              
              
              —Accumulated
                  amortization
              
              
              (39,450
              )
              
              (17,905
              )$
              9,439,598
              
              $
              9,775,453
 
 **Proprietary
        Technology**
 
 In
        accordance with SFAS 86, the Company has capitalized costs incurred for the
        development of software, after technological feasibility has been established.
        Costs are capitalized and stated at the lower of cost or net realizable value.
        Amortization is provided based on the greater of the amount computed using
        (a)
        the ratio that current gross revenues for a product bears to the total of
        current and anticipated future gross revenues for that product, or (b) the
        straight-line method over the remaining estimated economic life of the product,
        not to exceed five years. No amortization expense has been recorded at June
        30,
        2006. The Company intends to commence amortization when the internally-developed
        software is placed into service.
 
 SFAS
        86
        Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
        Marketed as a separate product or as part of a product or process. SFAS 86
        applies to computer software developed internally and to purchased software.
        The
        Statement specifies that costs incurred internally in creating a computer
        software product shall be charged to expense when incurred as research and
        development until technology feasibility has been established for the product.
        Technological feasibility is established upon completion of a detail program
        design or, in its absence, completion of a working model. Thereafter, all
        software production costs shall be capitalized and subsequently reported
        at the
        lower of cost or net realizable value.
 
 F-19
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        6 - INTANGIBLE ASSETS (CONTINUED)**
 
 **Proprietary
        Technology** **(Continued)**
 
 SOP
        98-1
        addressed Accounting for the Costs of Computer Software Developed or Obtained
        for Internal Use where SFAS 86 addressed the costs of software intended to
        be
        sold. SOP 98-1 requires companies to capitalize and amortized the costs
        associated with developing or obtaining software for internal use. For computer
        software intended for internal use, AcSEC specifies that there are three
        stages
        to software development and use:
 
 The
        preliminary project stage
 The
        application development stage
 The
        post-implementation stage.
 
 Since
        the
        technology Trace acquired from Locate had met the definition of “technological
        feasibility,” the company is in the “Application Development Stage”. At that
        point, the costs incurred to develop or obtain computer software for internal
        use must be capitalized and accounted for as a long-lived asset. Specifically,
        capitalization would begin when the following conditions are met:
 
 (i)
              The
                  preliminary project stage has been completed,
                  and
 
 (ii)
              Management
                  with the relevant authority, explicitly or implicitly, authorizes
                  and
                  commits to funding a computer software project and believes it
                  is probable
                  the project will be completed and software will be used to perform
                  the
                  intended function.
 
 Trace’s
        board of managers entered into a software development contract in August
        2004
        that was completed in February 2006 and turned over to Trace’s information
        technology group.
 
 Capitalization
        would cease no later than the point at which the software is substantially
        complete, including all necessary testing, and ready for use. The costs of
        testing as well as installing the software are capitalizable. Trace
        substantially completed testing and installation of the software in the fourth
        quarter of year ended June 30, 2006, and offered its location based services
        for
        commercial sale in the first quarter of 2007.
 
 The
        capitalized costs included:
 
 (i)
              External
                  direct costs, (third party contractors) materials and services
                  consumed in
                  developing the internal use
                  software.
 
 (ii)
              Payroll
                  and pay-roll related costs for employees directly associated with
                  and who
                  devoted time to the internal use project, and interest costs capitalized
                  in accordance with SFAS No. 34.
 
 (iii)
              No
                  General or Administrative costs, overhead or training costs were
                  capitalized.
 
 In
        accordance with SOP 98-1, management with relevant authority did contract
        with a
        company to write Location Based Services software and acquired the manufacturing
        agreement and contracted for devices to be manufactured. It also entered
        into
        agreements with wireless carriers for airtime agreements and entered into
        agreements with Application Service Providers who were authorized to resell
        Trace’s Location Services. Software costs were therefore capitalized as required
        by SOP 98-1.
 
 June
                  30,2006
              
              2005Website
              
              $
              45,074
              
              $
              45,074Location
                  services software
              
              
              2,273,426
              
              
              1,768,964Factor4TMBiocard
              
              
              2,278,252
              
              
              —Accumulated
                  amortization
              
              
              (9,883
              )
              
              (17,905
              )$
              4,586,869
              
              $
              1,814,038
  F-20
 **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        7 - NOTES PAYABLE AND CREDIT LINE**
 
 The
        following summarizes the Company’s debt obligations at June 30, 2006 and June
        30, 2005:
 
 June
                  30,2006
              
              2005Note
                  payable to bank, interest at 7%, maturing August2005,
                  collateralized by all Company assets
              
              $
              —
              
              $
              100,000Note
                  payable to an Officer and Director, interest at 2%,maturing
                  June 30, 2006, uncollateralized, see Note 13
              
              
              —
              
              
              235,905Line
                  of credit payable, interest at prime plus 2%,
                  collateralizedby
                  all Company assets
              
              
              851,929
              
              
              —Notes
                  payable
              
              
              677,500
              
              
              —Convertible
                  note payable to related party with attached warrants,
                interest
                  rate at 9%, due January 6, 2007
              
              
              1,000,000
              
              
              —Notes
                  payable to related party, interest rate at 9%, due April 14,
                  2006
              
              
              200,000
              
              
              —Note
                  payable to related party, interest rate at 9%, due August 31, 2006
                (see
                  notes 13 and 14)
              
              
              210,582Convertible
                  note payable to related party - CTSL
              
              
              —
              
              
              —2,088,082
              
              
              —Derivative
                  on note payable
              
              
              1,234,350
              
              
              —Discount
                  on notes payable
              
              
              (495,783
              )
              
              —3,678,578
              
              
              335,905Long-Term
                  Notes Payable and Capitalized LeasesNote
                  payable to bank, interest at prime plus 1.5%, maturingAugust
                  31, 2010, collateralized by assets of Resilent LLC
              
              
              234,554
              
              
              —Capital
                  lease liability, (see note 12)
              
              
              337,310
              
              
              45,752571,864
              
              
              45,752Less
                  current portion
              
              
              (113,720
              )
              
              (12,271
              )$
              458,144
              
              $
              33,481
 
 **Line
        of Credit**
 
 On
        August
        12, 2005, the Company entered into a financial arrangement with a commercial
        bank for a revolving line of credit. The maximum credit facility under this
        arrangement is $1,500,000 and matures on August 12, 2006. At June 30, 2006,
        $851,929 has been utilized. On August 12, 2006, the bank extended the maturity
        date for the revolving line of credit until November 14, 2006. See Note
        14.
 
 F-21
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        7 - NOTES PAYABLE AND CREDIT LINE (CONTINUED)**
 
 **Notes
        Payable**
 
 During
        the year ended June 30, 2006, the Company issued notes to third parties.
        The
        interest rates on these notes vary from 9% to the principal amount of note
        plus
        15%. As a part of several of these financing transactions, the Company also
        issued warrants to purchase shares of its common stock at an exercise price
        of
        $1.00.
 
 Notes
              
              
              WarrantsNote
                  date
              Amount
              
              Due
                  date
              
              Number
              
              Exercise
                  Price
              
              Expiration
                  dateApril
                  3, 2006(1)
              $
              50,000
              
              September
                  4, 2006
              
              $
              25,000
              
              $
              1.00
              
              December
                  30, 2009April
                  28, 2006(1)
              $
              50,000
              
              September
                  4, 2006
              
              $
              25,000
              
              $
              1.00
              
              December
                  30, 2009April
                  28, 2006(2)
              $
              115,000
              
              October
                  31, 2006
              
              $
              —
              
              $
              —
              
              —May
                  5, 2006(1)
              $
              75,000
              
              September
                  4, 2006
              
              $
              75,000
              
              $
              1.00
              
              December
                  31, 2009May
                  10, 2006(2)
              $
              86,250
              
              October
                  31, 2006
              
              $
              —
              
              $
              —
              
              —May
                  11, 2006(1)
              $
              100,000
              
              September
                  4, 2006
              
              $
              50,000
              
              $
              1.00
              
              December
                  31, 2009May
                  22, 2006(2)
              $
              201,250
              
              October
                  31, 2006
              
              $
              —
              
              $
              —
              
              —
 ____________________
 (1)
        Interest rate 9%, note discounted for value of attached warrants.
 (2)
        Note
        obligation of principal amount plus 15%. Discount on note accreted over term
        of
        note. No warrants attached.
 
 Proceeds
        from these financing transactions were allocated to the debt features and
        to the
        warrants based upon their fair values. After the latter allocations, the
        remaining value, if any, is allocated to the note on the financial statements.
        The fair value of the warrants at the date of issuance have been classified
        as a
        discount to the notes and a component of additional paid in capital. The
        estimated fair value of the warrants was determined using the Black-Scholes
        option-pricing model with using the closing price of the Company’s stock on the
        date of issuance and the respective exercise price, the remaining life of
        the
        warrant, and the volatility factor relative to the date of issuance. The
        model
        uses several assumptions including: historical stock price volatility (65%),
        risk-free interest rate (4.00%), remaining time till maturity, and the closing
        price of the Company’s common stock to determine estimated fair value of the
        derivative liability.
 
 The
        debt
        discount is being accreted using the effective interest method over the term
        of
        the note. For the year ended June 30, 2006, the Company accreted $457,425
        of debt discount related to the notes.
 
 The
        following table summarizes fair value of the warrants at the date of issuance,
        related accretion during the period, and remaining unamortized discount at
        June
        30, 2006.
 
 Warrant
                  Issue Date
              Number
              
              Discount
                at
                issuance(1)
              
              Accretion
              
              Discount
                  at
                June
                  30, 2006April
                  3, 2006
              25,000
              
              $
              17,250
              
              $
              8,860
              
              $
              8,390April
                  28, 2006
              25,000
              
              $
              16,500
              
              $
              7,159
              
              $
              9,341April
                  28, 2006
              —
              
              $
              15,000
              
              $
              4,849
              
              $
              10,151May
                  5, 2006
              75,000
              
              $
              50,250
              
              $
              16,199
              
              $
              34,051May
                  10, 2006
              —
              
              $
              11,250
              
              $
              3,140
              
              $
              8,109May
                  11, 2006
              50,000
              
              $
              29,000
              
              $
              11,217
              
              $
              17,783May
                  22, 2006
              —
              
              $
              26,250
              
              $
              6,000
              
              $
              20,250Discount
                  on convertible note payable
              387,708$
              495,783
 ____________________
 (1)
        Discount is equal to estimated fair value of warrants as
        applicable.
 
 F-22
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        7 - NOTES PAYABLE AND CREDIT LINE (CONTINUED)**
 
 **Convertible
        Note Payable to Related Party**
 
 On
        January 11, 2006, the Company closed on a $1,000,000 funding of a senior
        convertible promissory note (the “Broidy Note,” which was one component of the
“Broidy Transaction”) with Broidy Capital Management (“Broidy”). The Broidy Note
        was effectively a consolidation of a prior $200,000 convertible promissory
        note
        dated December 9, 2005, and the extension of an additional $800,000 credit,
        minus $25,000 in non-accountable expenses.  The Broidy Note bears interest
        at 9% per annum.  The maturity date of the Note is January 6, 2007. The
        Broidy Note is subject to acceleration under certain conditions. Interest
        due
        for the first quarter was paid on April 11, 2006. No additional interest
        has
        been paid as of June 30, 2006. As of June 30, 2006, the Company is in default
        under the Broidy Note.
 
 In
        connection with the Broidy Note, the Company issued a warrant (the “Broidy
        Warrant”) to acquire 1,000,000 shares of the Company’s common stock at an
        exercise price of $1.00 per share, subject to reduction based on certain
        earnings metrics set forth in a Letter Agreement between Broidy and the Company.
         Unless terminated earlier or extended under a most favored nations clause,
        the expiration date of the Broidy Warrant is November 30, 2009.
 
 Under
        EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to and
        Potentially Settled in, a Company’s Own Stock,” the fair value of the conversion
        warrants issued under the Broidy Transaction have been reported as a liability.
        On the Effective Date, the conversion feature had a value of $240,600 and
        the
        warrants had a value of $356,700 which was determined using the Black-Scholes
        valuation method. The assumptions utilized in computing the fair value of
        the
        warrants were as follows: expected life of two years, estimated volatility
        of
        65% and a risk free interest rate of 4%. On the date of the Broidy Note,
        the
        Broidy Note had a net value of $377,800 or the difference between the proceeds
        and the value of the warrants and conversion features. The conversion features
        and warrants are considered derivative financial instruments and will be
        marked
        to fair value on a quarterly basis. Any changes in the fair value of the
        conversion features and warrants will be recorded through the Consolidated
        Statement of Operations as other income (expense). For the year ended June
        30,
        2006, the Company recognized a non-cash expense of approximately
        $637,050.
 
 Pursuant
        to the Broidy Note, the Company issued in the name of the Company a stock
        certificate for 3,000,000 shares of the Company’s common stock, which stock
        certificate is being held by Broidy as security for the Company’s obligations
        under the Broidy Note (the “Security Shares”). Broidy also received a security
        interest in all of the assets of the Company (the “Security Interest”) to secure
        the Company’s obligations under the Broidy Note. Broidy received an option to
        purchase, for two years after the date of the Broidy Note, any future membership
        interests of Resilent that the Company may purchase, if any.
 
 Pursuant
        to the Broidy Note, the Company agrees that it will register all shares of
        the
        Company’s common stock (i) issuable upon conversion of the Broidy Note, (ii)
        held by Broidy as of the date of the Broidy Note, (iii) the Security Shares,
        and
        (iv) issued upon exercise of warrants held by Broidy as of the date of the
        Broidy Note, including the Broidy Warrant (collectively, the “Registrable
        Securities”), within 150 days of the date of the Broidy Note (June 10, 2006)
        (the “Last Registration Date”). The Company agrees that if the Registrable
        Securities are not registered by the Last Registration Date, and for every
        month
        thereafter that the Registrable Securities are not registered, the exercise
        price set forth in the Broidy Warrant shall be reduced 10% until all of the
        Registrable Securities are registered. The Company considered the provisions
        of
        EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to and
        Potentially Settled in, a Company’s Own Stock.” The Broidy Warrant was issued at
        the same time and in contemplation of a registration rights agreement that
        includes a liquidated damages clause if the common stock issued upon exercise
        of
        the Broidy Warrant are not registered. As of June 30, 2006, the Company has
        not
        file a registration statement with the SEC. As such, the exercise price of
        the
        Broidy Warrant was reduced by 10% to $.90 as of June 30, 2006. See Note 14.
        The Company considers the liability established with the Broidy Warrant
        derivatives adequate for the registration rights.
 
 F-23
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        7 - NOTES PAYABLE AND CREDIT LINE (CONTINUED)**
 
 **Convertible
        Note Payable to Related Party** **(Continued)**
 
 Broidy
        has the right to convert the Broidy Note into at least $1,000,000 worth of
        common stock of the Company at a conversion price of $1.00 per share (the
        “Strike Price”), and such right to convert exists at any time the Broidy Note is
        outstanding. Additionally, as long as any amount is owed under the Broidy
        Note,
        if the Company issues any securities, options, warrants or derivatives of
        any
        kind with a sale, exercise or strike price of less than $1.50 per share,
        then
        the conversion right will be reduced by the percentage of the difference
        between
        $1.50 and the price of the issued security, option, warrant or derivative.
         By way of example, if the Company issues securities with an exercise price
        of $.75, i.e., a total of 50% (75/150) below $1.50, then the Strike Price
        will
        also be reduced by 50%, such that Broidy would have the option of converting
        the
        Broidy Note into a total of 2,000,000 shares. As of June 30, 2006, the Company
        had issued securities, options and warrants with a sale and exercise price
        of
        $1.00. As such, the Strike Price under the Broidy Note is $0.67 and Broidy
        has
        the option of converting the Broidy Note into 1,500,000 shares of the Company’s
        common stock.
 
 Broidy
        also has rights to impose limitations on the Company’s ability to enter into
        transactions resulting in a change of control. The Company must give notice
        of
        any event in which more than 50% of the voting power of the Company is being
        disposed of, and Broidy has the right to object within five days of receipt
        of
        notice of such a change of control event.  If Broidy objects to the change
        in control, the Company may not enter into the transaction unless the surviving
        entity expressly assumes the Broidy Transaction obligations and has a net
        worth
        not less than the consolidated net worth of the Company at the time of change
        of
        control event, or the Company pays the Broidy Note in full within five business
        days after the change in control event.
  The
        derivative liability associated with the note is as follows:
 
 June
                  30, 2006Conversion
                  derivative
              
              $
              507,450Warrant
                  derivative
              
              
              726,900$
              1,234,350
 
 **Notes
        Payable to Related Parties**
 
 *Broidy
        Capital Management*
 
 On
        February 14, 2006, the Company executed a Promissory Note in the principal
        amount of $200,000 in favor of Broidy at 9% interest with principal and accrued
        interest due on April 14, 2006. An interest payment on the note was made
        on
        April 1, 2006. No other payments have been made under the note. The maturity
        date of the note was extended without penalty to June 1, 2006. As of June
        30,
        2006, the Company is in default under the Broidy Note. Broidy received the
        Security Interest as security for the Company’s obligations under the note. The
        note provided, among other things, that (i) Broidy was to receive a warrant
        to
        purchase 50,000 shares of the Company’s common stock with an exercise price of
        $1.00 per share if the note was not paid in full by March 31, 2006 (the “200K
        Warrant”), and (ii) 600,000 shares of the Security Shares shall transfer to
        Broidy if the note was not paid in full by April 14, 2006 (the “Default Event”).
        On or about March 31, 2006, the Company issued Broidy the 200K Warrant.
        O n
        or
        about April 14, 2006, the Company and Broidy entered into an oral agreement
        whereby Broidy agreed to waive the Default Event in exchange for a warrant
        to
        acquire 100,000 shares of the Company’s common stock.
 
 F-24
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        7 - NOTES PAYABLE AND CREDIT LINE (CONTINUED)**
 
 *Nicholas
        A. Fegen*
 
 On
        February 14, 2006, the Company executed a promissory note with Nicholas A.
        Fegen
        in the amount of $250,000. The note bore interest at 9% and matured on April
        14,
        2006. The note was not collateralized, but was deemed a full recourse note.
        In
        July 2006, the Company entered into a Debt Settlement Agreement and Release
        with
        Mr. Fegen whereby Mr. Fegen received 286,000 shares of common stock and a
        warrant certificate for 286,000 shares of common stock at an exercise price
        of
        $1.00 per share in exchange for canceling the note. See Notes 13 and
        14.
 
 *CTSL
        Investment LLC*
 
 The
        Company executed a $400,000 convertible promissory demand note (the “CTSL Note”)
        with CTSL Investment LLC, an Iowa limited liability company (“CTSL”), on
        December 23, 2005. CTSL is affiliated with Nicholas A. Fegen. The loan closed
        on
        January 9, 2006 and the Company netted $360,000 after a $40,000 discount
        for
        fees and expenses which were charged to operations. The CTSL Note provided
        for
        repayment of $400,000 plus 150% of the principal amount ($600,000 interest)
        by
        December 31, 2006 or upon demand by CTSL. The terms of the CTSL Note provided
        for repayment either in cash or 1,000,000 shares of the Company’s common
        stock.
 
 In
        connection with the CTSL Note, the Company issued a warrant certificate to
        purchase at any time or from time to time up to the fifth anniversary of
        the
        date of the warrant (December 23, 2010) 500,000 shares of the Company’s common
        stock at an exercise price of $1.00 per share (the “CTSL Warrant”).
 
 Under
        EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to and
        Potentially Settled In, a Company’s Own Stock”, the fair value of the warrants
        issued under the CTSL Note have been reported as an equity derivative. On
        the
        effective date, the warrants had a value of $268,800, which value was determined
        using the Black-Scholes valuation method. The assumptions utilized in computing
        the fair value of the warrants were a five year life, estimated volatility
        of
        65% and a risk free interest rate of 4%. The CTSL Note was valued at $91,200
        after expensing the $40,000 discount. The warrants are required to be
        registered, but contain no penalties. The Company has considered the provisions
        of EITF 00-19 such as stock purchase warrants that may be issued at the same
        time and in contemplation of a registration rights agreement that includes
        a
        liquidated damages clause. The Company considers the warrant derivative adequate
        for the registration rights.
 
 CTSL
        demanded repayment of the CTSL Note on March 10, 2006, and the Company issued
        1,000,000 shares of its common stock upon conversion of the CTSL Note to
        Nicholas A. Fegen, individually. The Company recorded charges to operations
        with
        the CTSL Note of $908,800 as illustrated in the following table:
 
 June
                  30, 2006Financing
                  expense
              
              $
              268,800Interest
                  expense
              
              
              640,000$
              908,800
 
 **Long-Term
        Notes Payable and Capitalized Leases**
 
 On
        September 19, 2005, Resilent secured financing for leasehold improvements
        and
        working capital in the amount of $255,000. The loan is backed by the United
        States Small Business Administration, bears interest at prime plus 1.5% and
        has
        a maturity date of August 31, 2010. The loan is secured by the assets of
        Resilent and Dataflo Corporation. Additionally, personal guarantees were
        executed by Steven E. Campisi, DataFlo Corporation, and Campisi, L.L.C. See
        Note
        14.
 
 F-25
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        8 - OTHER LIABILITIES**
 
 The
        following summarizes the Company’s other liabilities at June 30, 2006 and
        2005:
  June
                  30,2006
              
              
              2005License
                  fees liability
              
              $
              50,000
              
              $
              50,000Location
                  service fees liability
              
              
              100,000
              
              
              150,00Financing
                  fees liability
              
              
              99,450
              
              
              187,000$
              249,450
              
              $
              387,000
 
 Trace
        assumed a $50,000 note payable representing license fees paid in advance
        to
        Locate Networks, Inc by CSI Wireless, Inc. The purchase of substantially
        all of
        the assets of Locate included a technology and manufacturing agreement with
        CSI
        Wireless, Inc. executed in February 2004 which requires CSI Wireless to pay
        a
        royalty to Trace for each device manufactured and sold according to a predefined
        schedule. CSI Wireless will make reduced royalty payments amounting to $15
        per
        device to Trace until $50,000 plus accrued interest at 1% per month from
        November 3, 2003 has been repaid. The remaining amount with accrued interest
        is
        due within five days if either Trace or CSI Wireless terminate the agreement.
        At
        June 30, 2005, the $50,000 under this agreement is classified as an “other
        liability” in the accompanying financial statements.
 
 Trace
        assumed $150,000 of location service fees paid in advance to Locate Networks
        by
        USA Mobility as part of the purchase of substantially all of the assets of
        Locate Networks, which included an airtime agreement with USA Mobility. Trace
        entered into a Value Added Reseller (“VAR”) agreement with USA Mobility. The
        agreement required a $50,000 payment upon execution of the agreement and
        the
        balance of $100,000 applied to amounts due under the VAR agreement. At June
        30,
        2005, the $150,000 under this agreement is classified as an “Other Liability” in
        the accompanying financial statements. Trace paid USA Mobility $50,000 in
        July
        2005.
 
 The
        Company entered into an agreement with Pali Capital for financing services.
        Under the agreement, the Company issued 70,000 shares of the common stock
        and
        executed a note for $187,000 due October 31, 2005 with interest at 11%. The
        note
        was paid in full in April 2006. As of June 30, 2006, the Company has incurred
        additional fees of $133,450 under the agreement.
 
 **NOTE
        9 - ACQUISITIONS**
 
 **Trace
        Technologies, LLC**
 
 On
        August
        31, 2004, the Company issued 1,250,000 shares of common stock valued at
        $3,500,000 for a 50% interest in Trace Technologies, LLC. Trace is developing
        location based services to enable customers to track assets worldwide. The
        investment was treated as an equity investment. The Company’s partner in the
        joint venture was Locate Networks, Inc.
 
 In
        September 2004, the Company and Trace filed suit in the U.S. District Court,
        Omaha, against Locate and its principals, alleging among other things,
        misrepresentations in the purchase agreement between Trace and Locate for
        the
        purchase by Trace of certain Locate assets. This suit was subsequently settled
        and dismissed without prejudice in November 2004. As part of that settlement,
        the Company purchased the remaining shares of Trace that were owned by Locate,
        giving the Company ownership of 100% of the outstanding shares of Trace.
        The
        Company also acquired a fully-paid license from Locate for use in the
        transportation sector, and Locate agreed to the cancellation of all agreements
        with Trace, including a royalty agreement. In consideration for the entire
        settlement transaction, the Company agreed to issue an additional 1,750,000
        restricted common shares and to pay Locate $500,000 upon execution of the
        settlement agreement, along with three notes totaling $307,500 due and payable
        in full in January 2005. The Company paid these notes in full in February
        2005.
 
 Following
        is a summary of the net assets acquired in the acquisition of Trace
        Technologies, LLC:
 
 F-26
 **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        9 - ACQUISITIONS (CONTINUED)**
 
 **Trace
        Technologies, LLC** **(Continued)**
 
 License
                  agreements - SnapTrack
              
              $
              9,393,358Location
                  services software
              
              
              807,500Airtime
                  agreements
              
              
              150,000Manufacturing
                  engineering agreement
              
              
              50,000Furniture
                  and equipment
              
              
              42,500Net
                  assets
              
              $
              10,443,358
 
 The
        related party note payable assumed in the acquisition represents funds
        previously advanced to Trace by the Company. Accordingly, this debt was
        eliminated during financial statement consolidation.
 
 **Resilent
        LLC d/b/a Digital Defense Group**
 
 On
        January 19, 2006, the Company entered into a plan of exchange and a securities
        exchange agreement with Resilent pursuant to which the Company acquired a
        59.8%
        controlling interest in Resilent (the “Exchange Agreement”). Under the terms of
        the Exchange Agreement, the Company acquired 11,868 Class “A” Membership
        Interest Units of Resilent (the “Resilent Units”) in exchange for (i) cash, (ii)
        a $2,000,000 promissory note, and (iii) 4,593,750 shares of the Company’s common
        stock. The note bears no interest and has a maturity date of June 15, 2006.
        See
        Note 9. As a result of the Exchange Agreement, the Company now owns a majority
        interest in Resilent. See Note 14.
 
 The
        Company has pledged the Resilent Units as collateral to secure additional
        financing. See Note 7.
 
 The
        Exchange Agreement provided that amounts payable under the $2,000,000 promissory
        note were to be disbursed from December 2005 through June 2006. As of June
        30,
        2006, $1,548,833.54 has been advanced. The shares of common stock issued
        to
        Resilent as part of the Exchange Agreement were granted with registration
        rights
        under a registration rights agreement. The Company executed an Irrevocable
        Voting Proxy, under which Mr. Steven Campisi, Chief Executive Officer of
        Resilent, has voting rights for the 11,868 Resilent Units owned by the
        Company.
 
 The
        Company has clawback rights to up to 1,500,000 of the shares it issued to
        Resilent, such clawback rights to vest in the Company if the pre-tax earnings
        of
        Resilent for the 12-months following initial production do not meet certain
        minimum amounts, as set forth in the exchange agreement. Paragraph 27 of
        Statement 123(R) requires that the effect of certain contingent features
        such as
        clawback provisions be accounted for if and when the contingent event occurs.
        Paragraph A190 of Statement 123(R) states that contingent features such as
        clawback provisions should be accounted for by recognizing the consideration
        received in the corresponding balance sheet account and a credit in the income
        statement equal to the lesser of the recognized compensation cost of the
        share-based payment arrangement that contains the contingent feature and
        the
        fair value of the consideration received.
 
 F-27
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        9 - ACQUISITIONS (CONTINUED)**
 
 **Resilent
        LLC d/b/a Digital Defense Group** **(Continued)**
 
 Following
        is a summary of the net assets acquired in the acquisition of
        Resilent:
 
 Accounts
                  receivable
              
              $
              6,150Inventory
              
              
              61,679Prepaids
                  and deposits
              
              
              9,007Property
                  and equipment (net)
              
              
              559,267Proprietary
                  technology and intangible assets
              
              
              883,263Goodwill(1)
              
              
              6,546,575Accounts
                  payable
              
              
              (439,096
              )Accrued
                  expenses
              
              
              (56,051
              )Accrued
                  interest
              
              
              (102,658
              )Note
                  payable to related party
              
              
              (376,593
              )Note
                  payable to bank
              
              
              (255,539
              )Lease
                  payable
              
              
              (210,541
              )Minority
                  interest
              
              
              (31,713
              )Net
                  assets
              
              $
              6,593,750
 
 ____________________
 (1)
        Upon
        consolidation and elimination of intercompany investments, $343,750 is
        recognized as goodwill on a consolidated basis. See Note 6.
 
 **NOTE
        10 - COMMON STOCK AND WARRANTS**
 
 **Common
        Stock**
 
 In
        July
        2005, the Company issued 600,000 shares of common stock when 600,000 warrants
        were exercised at $1.00 per share. Participants to the warrant exercise received
        an additional 600,000 warrants. These warrants expire December 30, 2009 and
        were
        exercisable at $1.28 per share but have been subsequently repriced to an
        exercise price of $1.00 per share.
 
 On
        November 23, 2005, the Company issued 1,500,000 shares of common stock valued
        at
        $.80 per share for a Consulting Services Agreement with Nicholas A. Fegen
        dated
        October 8, 2005. The shares have piggyback rights attached upon filing a
        registration. EITF Issue No. 96-18 “Accounting for Equity Instruments that are
        Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
        Goods or Services” requires the Company to measure the fair value of the equity
        instruments using the stock price and other management assumptions as of
        the
        earlier of (1) the date at which a commitment for performance of the
        counterparty to earn the equity instrument is reached (a performance
        requirement) (2) the date at which the counterparty’s performance is complete.
        Since the consulting agreement was dated October 8, 2005 and stock issued
        on
        November 23, 2005, Fegen was fully vested, and there was no measurable
        performance criteria, the expense of the services is recognized in the period
        in
        the same manner as if the Company had paid cash for the services. Based on
        these
        considerations, the Company charged $1,200,000 to operations for the year
        ended
        June 30, 2006.
 
 Pursuant
        to the consulting agreement, Fegen agreed to perform for the Company all
        necessary services required in working to bring about the effectiveness of
        the
        Company’s business plan of operations. As such, Fegen will provide bona fide
        services to the Company. Services to the Company throughout the term shall
        include, but not be limited to, identifying and securing business opportunities,
        acquisitions and combinations for the Company, investment banking advice,
        marketing advice and interfacing with marketers, all at the direction of
        the
        Company. Fegen shall dedicate all of the necessary time and facilities required
        to perform under the agreement. However, Fegen is only obligated to perform
        such
        services on a non-exclusive basis and may provide similar services to others
        provided they are not directly competitive with the Company’s businesses. The
        services to be provided by Fegen will not be in connection with the offer
        or
        sale of securities in a capital-raising transaction and will not directly
        or
        indirectly promote or maintain a market for the Company’s
        securities.
  F-28
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        10 - COMMON STOCK AND WARRANTS (CONTINUED)**
 
 **Common
        Stock** **(Continued)**
 
 On
        January 19, 2006, the Company acquired a 59.8% controlling interest in Resilent.
        4,593,750 shares of the Company’s common stock and a $2,000,000 note payable
        were issued for the controlling interest. The note bears no interest and
        has a
        maturity date of June 15, 2006. See Note 9.
 
 During
        the three months ended March 31, 2006, the Company issued 1,205,000 shares
        as
        part of a private placement. The shares were issued at $1.00 per share and
        included 602,500 warrants that can be exercised for shares of the Company’s
        common stock at $1.00 per share and expire on December 30, 2009. Total proceeds
        amounted to $1,205,000.
 
 During
        the three months ended June 30, 2006, the Company issued 2,050,000 shares
        as
        part of a private placement. The shares were issued at $1.00 per share and
        included 1,775,000 warrants that can be exercised for shares of the Company’s
        common stock at $1.00 per share and expire on December 30, 2009. Total
        proceeds amounted to $2,050,000.
 
 **Warrants**
 
 The
        following is a summary of stock warrant activity for the year ended June
        30,
        2006:
 
 Common
                  Shares
                Under
                  Warrants
              
              Exercise
                  Price
                Per
                  Share
              
              Weighted
                  Average
                Fair
                  Value Per
                Share
                  At Grant Date
              
              Expiration
                DateOutstanding
                  at June 30, 2005
              
              
              2,018,500
              
              $
              1,00
                  - $1.28(1
              )
              $
              0.78
              
              
              7/05
                  - 7/08Warrants
                  issued for equity financing
              
              
              2,977,500
              
              $
              1.00
                  - $1.28(1
              )
              $
              0.33
              
              
              7/08
                  - 12/09Warrants
                  issued for fees and services
              
              
              2,839,769
              
              $
              1.00
                  - $2.09
              
              $
              0.64
              
              
              12/09
                  - 1/11Warrants
                  issued for notes payable
              
              
              1,825,000
              
              $
              1.00
              
              $
              0.63
              
              
              12/09Warrants
                  exercised
              
              
              (600,000
              )
              $
              1.00
              
              $
              1.00
              
              
              7/05Outstanding
                  at June 30, 2006
              
              
              9,060,769
              
              $
              1.00
                  - $2.09
              
              $
              0.54
              
              
              7/08
                  - 12/09
 ____________________
 (1) During
        the year ended June 30, 2006, the Company repriced all warrants with an exercise
        price of $1.28 down to $1.00.
 
 **Stock
        Options**
 
 On
        January 18, 2006, the Company adopted the Gabriel Technologies Corporation
        2006
        Equity Incentive Plan (the “Gabriel Plan”). The Plan constitutes an “employee
        benefit plan” as defined in Rule 405 promulgated under the Securities Act of
        1933.  The maximum number of shares of the Company’s common stock reserved
        and available for issuance under the Gabriel Plan is 7,500,000. Subject to
        the
        specific provisions set forth in the Gabriel Plan, certain employees, directors
        and consultants of Company or its affiliates could receive equity incentive
        awards of various types, including restricted stock awards, unrestricted
        stock
        awards, stock options awards, performance stock awards, dividend equivalent
        rights and/or stock appreciation rights.
 
 F-29
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        10 - COMMON STOCK AND WARRANTS (CONTINUED)**
 
 **Stock
        Options** **(Continued)**
 
 On
        January 18, 2006, the Company granted non-qualified stock options exercisable
        for 3,647,000 shares of the Company’s common stock, pursuant to the Gabriel
        Plan, to eleven employees of the Company. Each stock option has an exercise
        price of $1.00 per share, and vested based on certain percentages over the
        six
        months, and are exercisable for a term of five years from the date such stock
        option was granted. Of the 3,647,000 stock options granted, 1,500,000 of
        such
        stock options were granted to the Company’s chief executive officer, Keith
        Feilmeier, and 950,000 of such stock options were granted to the Company’s chief
        financial officer, Maurice Shanley. The exercise price of the options is
        equal
        to the market value of our common stock on the effective date of grant.
        Compensation expense of $2,151,730 was recognized based on the estimated
        fair
        value of the options at their grant date. Fair value was determined using
        the
        Black-Scholes option price model. Inputs into the Black-Scholes model were
        as
        follows: Volatility - 65%, Risk-free interest rate - 4%, Exercise price -
        $1.00,
        Share price $1.01.
 
 On
        March
        21, 2006, the Company granted non-qualified stock options exercisable for
        750,000 shares of common stock to 5 members of the Board of Directors. The
        options were fully vested on the date of issuance. The Company accounts for
        the
        options as deferred compensation over the appointed terms of the directors,
        currently 2-3 years. Compensation expense of $73,125 was recorded for the
        year
        ended June 30, 2006.
 
 The
        following tables provide information relating to the status of, and changes
        in
        stock options granted as of June 30, 2006.
 
 **Employee
                  Stock Options**
              **Shares**
              
              
              **Weighted
                  Average Exercise Price**Options
                  outstanding at June 30, 2005
              —
              
              
              —Granted
              4,397,000
              
              
              1.00Canceled
              —
              
              
              —Options
                  outstanding at June 30, 2006
              4,397,000
              
              
              1.00
 
 Options
        outstanding and exercisable at June 30, 2006 were as follows:
 
 **Options
                  Outstanding**
              
              **Options
                  Outstanding**Exercise
                Price
              Number
                Outstanding
              Weighted
                  Average
                Remaining
                Contractual
                  Life
                (Years)
              Weighted
                Average
                  Exercise
                Price
              
              Number
                Exercisable
              Weighted
                Average
                Exercise
                  Price$1.00
              4,397,000
              4.59
              $1.00
              
              4,397,000
              $1.00
 
 **Subscriptions
        Receivable**
 
 On
        November 1, 2004, the Company issued 750,000 shares of its common stock to
        Nicholas A. Fegen upon the exercise of outstanding warrants at an exercise
        price
        of $2.50 per share. The Company executed a note receivable with Nicholas
        A.
        Fegen for $1,875,000. The note was treated as a common stock subscription
        receivable, wherein equity is reduced until the note is paid. The Company
        received $380,000 in December 2004 and $650,000 in August 2005 as payment
        on the
        note receivable.
 
 In
        December 2004, the Company issued 250,000 shares of its common stock to Nicholas
        A. Fegen upon the exercise of outstanding warrants at an exercise price of
        $2.50
        per share. The Company executed a note receivable with Nicholas A. Fegen
        for
        $625,000. This note is treated as a common stock subscriptions receivable,
        wherein equity is reduced until the note is paid. The Company issued a new
        note
        receivable in the amount of $2,500,000 to reflect the principal amount of
        the
        two previous notes receivable ($1,875,000 and $625,000). The maturity date
        of
        the note receivable was extended to August 31, 2006. The aggregate amount
        outstanding and due on the note receivable as of June 30, 2006, is $1,470,000
        See Note 13.
 
 F-30
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        11 - INCOME TAXES**
 
 The
        significant components of the deferred tax asset at June 30, 2006 and 2005
        were
        as follows:
  June
                  30,2006
              
              
              2005Deferred
                  tax asset
              
              $
              5,839,600
              
              $
              2,145,238Less:
                  deferred tax liability
              
              
              (16,378
              )
              
              (127,800
              )Less:
                  valuation allowance
              
              
              (5,823,222
              )Net
                  deferred tax asset
              
              $
              —
              
              $
              2,017,438
 
 Deferred
        income taxes reflect the net tax effect of temporary differences between
        carrying amounts of assets and liabilities for financial reporting purposes
        and
        the amount used for income tax purposes. As Management of the Company cannot
        determine that it is more likely than not that the Company will realize the
        entire benefit of the net deferred tax asset, a valuation allowance for the
        entire net deferred tax asset has been established.
 
 As
        of
        June 30, 2006, the Company has net operating loss carryforwards of approximately
        $15,200,000 which will begin to expire in the year 2023. Pursuant to Section
        382
        of the Internal Revenue Code, use of the Company's net operating loss and
        credit
        carryforwards for federal and state income tax purposes may be limited if
        the
        Company experiences a cumulative change in ownership of greater than 50%
        in a
        moving three-year period. Ownership changes could impact the Company's ability
        to utilize net operating losses and credit carryforwards remaining at the
        ownership change date. The limitation will be determined by the fair market
        value of common stock outstanding prior to the ownership change, multiplied
        by
        the applicable federal rate. As such, management of the Company has deemed
        it
        necessary to provide a valuation allowance against the entire net deferred
        tax
        asset.
 
 **NOTE
        12 - COMMITMENTS**
 
 **Lease
        Agreements**
 
 *Operating
        Leases*
 
 The
        Company is leasing office and warehouse space in Omaha, Nebraska, under a
        lease
        term of 62 months that began February 2004 and will end in 2009. In April
        2004,
        the lease agreement was amended to add additional warehouse space. The average
        monthly rental expense over the life of the amended lease is approximately
        $9,100.
 
 The
        Company also rents space in Texas for $475 per month. The initial term of
        the
        lease was for one year beginning in April 2005. The lease agreement was extended
        in March 2006 for another year.
 
 Trace
        Technologies, LLC leases 829 square feet of office space in Bellevue,
        Washington, under a lease term of one year commencing on August 1, 2006,
        and expiring on November 1, 2006, but thereafter may be renewed on a
        month-to-month basis. The monthly rate is $1,036.
 
 Resilent
        leases approximately 4,000 square feet of office space in Omaha, Nebraska,
        under
        a lease which commenced on August 1, 2005 and expires on July 31, 2015. The
        current monthly rental under this lease is $5,983.33.
 
 *Capital
        Leases*
 
 The
        Company has entered into various lease agreements for furniture and equipment.
        These leases are considered capital leases and are amortized over the estimated
        life of the assets. The terms of the leases are from 24 to 60 months with
        monthly payments of $709 to $5,847 including sales tax. The total payments
        including any bargain buyout is $450,579.
 
 The
        Company also leases a vehicle with an estimated useful life of 48 months
        and a
        monthly payment of $983. This lease also has a bargain buyout at the end
        of the
        lease. Total payments including the bargain buyout is $65,660.
  F-31
 **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        12 - COMMITMENTS (CONTINUED)**
 
 **Lease
        Agreements** **(Continued)**
 
 *Capital
        Leases (Continued)*
 
 The
        following summarizes the Company’s lease commitments for the next five fiscal
        years:
 
 Year
        Ending June 30:
 
 Property
              
              Equipment
                  and Vehicle
              
              Total2007
              
              $
              237,141
              
              $
              109,530
              
              $
              346,6712008
              
              $
              247,707
              
              $
              109,529
              
              $
              357,2362009
              
              $
              214,023
              
              $
              102,652
              
              $
              316,6752010
              
              $
              126,340
              
              $
              81,656
              
              $
              207,9962011
              
              $
              115,825
              
              $
              46,778
              
              $
              162,603
 
 Total
        rent expense for the years ended June 30, 2006 and 2005 was $239,698 and
        $134,591, respectively.
 
 **License
        Agreements**
 
 The
        Company entered into a license agreement with Locate Networks ****** for
        which
        Locate was to develop a tracking system for security devices in the
        transportation business sector. The license agreement required the Company
        to
        pay a fee to Locate for each device sold and pay for the development of more
        technologies according to a predetermined schedule. The Company was required
        to
        make two separate $100,000 payments when certain milestones were reached.
        The
        Company made payments totaling $200,000 to Locate. The agreement between
        the
        Company and Locate was acquired by Trace in the “Asset Purchase Agreement”
between Trace and Locate.
 
 Trace
        Technologies assumed a $150,000 liability for fees paid in advance to Locate
        Networks by USA Mobility as part of the purchase of substantially all of
        the
        assets of Locate, and an airtime agreement with USA mobility. The repayment
        of
        the advance service revenues has been deferred until Trace Technologies becomes
        operational. At June 30, 2006, the $100,000 owed under this agreement is
        classified as an “other liability” in the accompanying financial statements. See
        Note 8.
 
 Trace
        Technologies also assumed $50,000 of prepaid license fees paid in advance
        to
        Locate Networks by CSI Wireless, Inc. Part of the purchase of substantially
        all
        of the assets of Locate included a technology and manufacturing agreement
        with
        CSI Wireless, Inc. executed in February 2004. Trace entered into an asset
        purchase agreement with CSI Wireless on July 21, 2006 to purchase the
        Location-Tag technology and exclusive manufacturing agreement. See Note
        14.
 
 **Consulting
        Agreement**
 
 On
        December 6, 2005, the Company executed a 24 month consulting agreement with
        Dan
        Leonard to provide general business consulting services to the president
        of the
        Company. In consideration for the services rendered to the Company, Leonard
        is
        entitled to an aggregate consulting fee of $150,000 per year, payable in
        monthly
        installments of $12,500. In addition, Leonard is entitled to warrants to
        purchase shares of the Company’s common stock equal to an amount of $100,000 in
        current value. As such, Leonard was issued a warrant to purchase 182,315
        shares
        of the Company’s common stock at an exercise price of $1.00 per share. The
        warrants have a five-year term. If the stock purchase between the Company
        and
        Resilent LLC did not take place, the consulting agreement would have become
        null
        and void. On January 19, 2006, the acquisition of 59.8% of Resilent LLC occurred
        and as a result the consulting agreement remains in effect.
 
 F-32
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        12 - COMMITMENTS (CONTINUED)**
 
 **Consulting
        Agreements** **(Continued)**
 
 On
        January 31, 2006, the Company executed a 12 month consulting agreement with
        Barry Nussbaum to provide general business consulting services to the president
        of the Company. In consideration for the services rendered to the Company,
        Nussbaum will be issued warrants to purchase up to 250,000 shares of Gabriel’s
        common restricted shares at a strike price of $1.00. The warrants have a
        five-year term and vest at 20,833 warrants per month over the term of the
        agreement. In addition, the consultant will be reimbursed for previously
        approved out of pocket expenses.
 
 On
        March
        15, 2006, the Company executed a 12 month consulting agreement with the
        Jefferson Consulting Group (“Jefferson”) to provide marketing and business
        development services. In consideration for the services rendered to the Company,
        Jefferson is entitled to a fixed monthly retainer of $7,500 for the first
        three
        months, $10,000 for the next 3 months and $15,000 for the last six months
        of the
        consulting agreement. Jefferson is also entitled to a success fee for each
        government contract awarded to the Company upon the satisfaction of certain
        conditions. Such success fees range from 3% to 4% of the gross revenue received
        by the Company from each such government contract. After the initial 90 days
        of
        the consulting agreement, each of the Company and Jefferson has the ability
        to
        terminate the consulting agreement upon 30-days written notice of such
        termination. As of June 30, 2006, the Company has not paid any of the fixed
        monthly retainers to Jefferson and Jefferson has not earned any success
        fees.
 
 On
        March
        22, 2006, the Company entered into a consulting agreement with Voyager
        Consulting LLC (“Voyager”). The Company retained the services of Voyager to
        assist the Company in the marketing and sale of its security products to
        a major
        retail chain. In exchange for these services, the Company agreed to pay a
        fee to
        Voyager in an amount equal to 5% of all the gross revenues received by the
        Company, directly or indirectly, from the sale of its security products to
        the
        retail chain stores. In addition to the fee, Voyager will be entitled to
        warrants to purchase up to 2,000,000 shares of the Company’s common stock at an
        exercise price of $1.00 per share at any time on or before the fourth
        anniversary of the consulting agreement if and when certain conditions are
        met.
 
 **NOTE
        13 - RELATED PARTY TRANSACTIONS**
 
 **Keith
        R. Feilmeier - Shareholder, Chairman and Chief Executive
        Officer**
 
 *Officer
        Loan*
 
 Keith
        R.
        Feilmeier (“Feilmeier”) made loans to the Company totaling $426,145 from
        February 2005 through June 2005. On February 10, 2006, the Company executed
        a
        promissory note to Feilmeier in the amount of $75,000 due April 10, 2006
        with
        simple interest at 9%. The note was not collateralized, but was deemed a
        full
        recourse note. The note was paid in full on March 8, 2006.
 
 *Pit
        Crew Express Transaction*
 
 On
        June
        4, 2004, Gabriel LLC entered into a retail distribution agreement to sell
        various War-Lok TM
        products through convenience stores throughout the United States. As part
        of the
        agreement, Gabriel LLC purchased a $200,000 debenture from Pit Crew Express,
        convertible at Gabriel LLC’s option, into shares of Pit Crew Express’ common
        stock. Additionally, Gabriel LLC loaned Pit Crew Express $200,000 evidenced
        by a
        demand note.
 
 On
        October 30, 2004, Mr. Feilmeier loaned $131,100 to Pit Crew Express on behalf
        of
        the Company. On November 22, 2004, the Company reimbursed Mr. Feilmeier for
        such
        amount. On December 7, 2004, Pit Crew Express executed a promissory note
        in
        favor of the Company in the amount of $131,100. The note bears interest at
        12%
        and is secured by a marketing agreement with CMI and Pit Crew Express. As
        of
        June 30, 2006, Pit Crew Express owes the Company $531,100.
 
 F-33
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        13 - RELATED PARTY TRANSACTIONS (CONTINUED)**
 
 **Keith
        R. Feilmeier - Shareholder, Chairman and Chief Executive
        Officer** **(Continued)**
 
 On
        July
        10, 2006, the District Court of Douglas County, Nebraska ordered a default
        judgment of $531,000 plus interest in favor of the Company against Pit Crew
        Express and others associated with the two outstanding notes receivable in
        the
        principal amounts of $200,000 and 331,000. The defendants reside in Texas.
        The
        Nebraska default judgment has been conformed to be enforceable in Texas as
        against any assets of the defendants. As of June 30, 2006, potential
        collection efforts on the default judgment are being conducted in
        Texas.
 
 As
        of
        June 30, 2006, these Pit Crew Express notes have been fully reserved as
        uncollectible.
 
 *Oxford
        Ventures, Inc. Transactions*
 
 On
        June
        30, 2005, the Company borrowed $100,000 at 7% interest, due on August 29,
        2005,
        from First Community Bank of Nebraska. The note was secured by a security
        agreement dated June 30, 2005 and a commercial pledge agreement dated June
        30,
        2005 from the Company, and personal guarantees from Mr. Feilmeier and Dennis
        D.
        Blackman. The loan was repaid with interest of $1,167 on August 25, 2005.
        Of the
        $98,500 advanced on the loan, $88,500 was paid to Mr. Feilmeier to reduce
        his
        loans to the Company. $10,000 was advanced to Oxford Ventures, Inc. and charged
        to Mr. Feilmeier’s loan account. The advance to Oxford Ventures was a personal
        transaction of Mr. Feilmeier and not a loan or advance by the
        Company.
 
 At
        June
        30, 2005, Oxford Ventures, Inc. (OXFV.OB) listed the same business address
        as
        the Company. Oxford Ventures shared no offices and the Company provides no
        services to Oxford Ventures. The president of Oxford Ventures, Daniel K.
        Leonard, is also a principle officer of Secure-Lok Distribution, LLC. Secure-Lok
        purchased $180,134 of the Company’s products in March 2005. In December 2005,
        Mr. Leonard was retained as a consultant to the Company. His consulting
        agreement has a term of two years with a monthly payment of $12,500. See
        Note
        12.
 
 **Nicholas
        A. Fegen - Shareholder/Consultant**
 
 *Initial
        Consulting Agreement*
 
 On
        July
        27, 2004, the Company entered into a consulting and investment banking services
        agreement with Nicholas A. Fegen. Mr. Fegen agreed to perform for the Company
        all necessary services required in working to bring about the effectiveness
        of
        the Company’s business plan of operations. As such, Mr. Fegen would provide bona
        fide services to the Company. Services to the Company, throughout the term,
        included, but were not limited to, identifying and securing business
        opportunities, acquisitions and combinations for the Company, investment
        banking
        advice, marketing advice and interfacing with marketers, all at the direction
        of
        the Company. Mr. Fegen was to dedicate all of the necessary time and facilities
        required to perform under the consulting and investment banking services
        agreement. However, Mr. Fegen was only obligated to perform such services
        on a
        non-exclusive basis and may provide similar services to others provided they
        were not directly competitive with the Company’s businesses. The services to be
        provided by Mr. Fegen were not to be in connection with the offer or sale
        of
        securities in a capital-raising transaction, and were not to directly or
        indirectly promote or maintain a market for the Company’s
        securities.
 
 The
        consulting and investment banking services agreement was cancelled on May
        31,
        2005. Mr. Fegen was issued 1,000,000 shares of the Company’s common stock as
        compensation for the cancellation of the agreement. There was no charge to
        operations for this transaction.
 
 F-34
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        13 - RELATED PARTY TRANSACTIONS (CONTINUED)**
 
 **Nicholas
        A. Fegen - Shareholder/Consultant** **(Continued)**
 
 *Subscription
        Receivable*
 
 On
        November 1, 2004, the Company issued 750,000 shares of its common stock to
        Mr.
        Fegen upon the exercise of outstanding warrants at an exercise price of $2.50
        per share. The Company executed a note receivable with Mr. Fegen for $1,875,000.
        This note receivable was treated as a common stock subscription receivable
        wherein equity is reduced until the note receivable is paid. The Company
        received $380,000 in December 2004 from Mr. Fegen as partial payment of the
        note
        receivable and $650,000 in August 2005 from Mr. Fegen as partial payment
        of the
        note receivable.
 
 In
        December 2004, the Company issued 250,000 shares of its common stock to Mr.
        Fegen upon the exercise of outstanding warrants at an exercise price of $2.50
        per share. The Company executed a note receivable with Mr. Fegen for $625,000.
        This note receivable was also treated as a common stock subscription receivable
        wherein equity is reduced until the note receivable is paid. The Company
        issued
        a new note receivable in the amount of $2,500,000 to reflect the principal
        amounts of the two previous notes receivable ($1,875,000 and $625,000). The
        maturity date of the note receivable was extended to August 31, 2006. The
        aggregate amount outstanding and due on this note receivable as of June 30,
        2006, is $1,470,000. See Note 10.
 
 *Second
        Consulting Agreement*
 
 On
        November 23, 2005, the Company issued 1,500,000 shares of common stock valued
        at
        $.80 per share for a Consulting Services Agreement with Mr. Fegen, dated
        October
        8, 2005. The shares have piggyback rights attached upon filing a registration
        statement. EITF Issue No. 96-18 “Accounting for Equity Instruments that are
        Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
        Goods or Services” requires the Company to measure the fair value of the equity
        instruments using the stock price and other management assumptions as of
        the
        earlier of (1) the date at which a commitment for performance of the
        counterparty to earn the equity instrument is reached (a performance
        requirement) (2) the date at which the counterparty’s performance is complete.
        Since the consulting agreement was dated October 8, 2005 and stock issued
        on
        November 23, 2005, Mr. Fegen was fully vested, and there was no measurable
        performance criteria, the expense of the services is recognized in the period
        in
        the same manner as if the Company had paid cash for the services. Based on
        these
        considerations, the Company charged $1,200,000 to operations for the year
        ended
        June 30, 2006.
 
 Pursuant
        to the consulting agreement, Mr. Fegen agreed to perform for the Company
        all
        necessary services required in working to bring about the effectiveness of
        the
        Company’s business plan of operations. As such, Mr. Fegen will provide bona fide
        services to the Company. Services to the Company throughout the term shall
        include, but not be limited to, identifying and securing business opportunities,
        acquisitions and combinations for the Company, investment banking advice,
        marketing advice and interfacing with marketers, all at the direction of
        the
        Company. Mr. Fegen shall dedicate all of the necessary time and facilities
        required to perform under the consulting agreement. However, Mr. Fegen is
        only
        obligated to perform such services on a non-exclusive basis and may provide
        similar services to others provided they are not directly competitive with
        the
        Company’s businesses. The services to be provided by Mr. Fegen will not be in
        connection with the offer or sale of securities in a capital-raising transaction
        and will not directly or indirectly promote or maintain a market for the
        Company’s securities.
 
 *CTSL
        Note*
 
 The
        Company executed a $400,000 convertible promissory demand note (the “CTSL Note”)
        with CTSL Investment LLC, an Iowa limited liability company (“CTSL”), on
        December 23, 2005. CTSL is affiliated with Nicholas A. Fegen. The loan closed
        on
        January 9, 2006 and the Company netted $360,000 after a $40,000 discount
        for
        fees and expenses which were charged to operations. The CTSL Note provided
        for
        repayment of $400,000 plus 150% of the principal amount ($600,000 interest)
        by
        December 31, 2006 or upon demand by CTSL. The terms of the CTSL Note provided
        for repayment either in cash or 1,000,000 shares of the Company’s common
        stock.
 
 F-35
  **GABRIEL
          TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
          TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **NOTE
        13 - RELATED PARTY TRANSACTIONS (CONTINUED)**
 
 **Nicholas
        A. Fegen - Shareholder/Consultant** **(Continued)**
 
 *CTSL
        Note (Continued)*
 
 In
        connection with the CTSL Note, the Company issued a warrant certificate to
        purchase at any time or from time to time up to the fifth anniversary of
        the
        date of the warrant (December 23, 2010) 500,000 shares of the Company’s common
        stock at an exercise price of $1.00 per share. See Note 10.
 
 Under
        EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to and
        Potentially Settled In, a Company’s Own Stock”, the fair value of the warrants
        issued under the CTSL Note have been reported as an equity derivative. On
        the
        effective date, the warrants had a value of $268,800, which value was determined
        using the Black-Scholes valuation method. The assumptions utilized in computing
        the fair value of the warrants were a five year life, estimated volatility
        of
        65% and a risk free interest rate of 4%. The CTSL Note was valued at $91,200
        after expensing the $40,000 discount. The warrants are required to be
        registered, but contain no penalties. The Company has considered the provisions
        of EITF 00-19 such as stock purchase warrants that may be issued at the same
        time and in contemplation of a registration rights agreement that includes
        a
        liquidated damages clause. The Company considers the warrant derivative adequate
        for the registration rights.
 
 CTSL
        demanded repayment of the CTSL Note on March 10, 2006, and the Company issued
        1,000,000 shares of its common stock upon conversion of the CTSL Note to
        Nicholas A. Fegen, individually. The Company recorded charges to operations
        with
        the CTSL Note of $908,800 as illustrated in the following table:
 
 June
                  30, 2006Financing
                  expense
              
              $
              268,800Interest
                  expense
              
              
              640,000$
              908,800
 
 *Note
        Payable*
 
 On
        February 14, 2006, the Company executed a promissory note with Mr. Fegen
        in the
        amount of $250,000. The note bore interest at 9% and matured on April 14,
        2006.
        The note was not collateralized, but was deemed a full recourse note. In
        July
        2006, the Company entered into a Debt Settlement Agreement and Release with
        Mr.
        Fegen whereby Mr. Fegen received 286,000 shares of common stock and a warrant
        certificate for 286,000 shares of common stock at an exercise price of $1.00
        per
        share in exchange for canceling the note. See Notes 7 and 14.
 
 **Jerry
        Suess - Shareholder/Director**
 
 Jerry
        Suess has provided and personally guarantees credit cards used by the Company.
        Total charges on the credit card accounts for the year ended June 30, 2006
        were
        $669,876, with the highest monthly charges being $97,260. For the quarter
        ended
        June 30, 2006, $169,494 was charged and the highest monthly charges amounted
        to
        $71,937. Mr. Suess receives no compensation for the use of his credit
        cards.
 
 Mr.
        Suess
        also is a principal in Nebraska Leasing. The Company leases a vehicle and
        office
        equipment from Nebraska Leasing. Lease payments to Nebraska Leasing totaled
        $45,218 and $28,709 for the years ended June 30, 2006 and 2005,
        respectively.
 
 **Matt
        Gohd - Shareholder/Director/Placement Agent Consultant**
 
 On
        September 13, 2006, the Board of Directors of the Company appointed Matt
        Gohd to
        fill a vacancy on the Board. Gohd is the representative of Pali Capital Inc.
        (“Pali”) on the Board. Mr. Gohd is a
        Principal and Senior Managing Director with Pali. Pursuant
        to a letter agreement between the Company and Pali dated March 22, 2005,
        Pali
        has the right to name one director to the Company’s Board of
        Directors.
 
 F-36
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        13 - RELATED PARTY TRANSACTIONS (CONTINUED)**
 
 **Matt
        Gohd - Shareholder/Director/Placement Agent Consultant** **(Continued)**
 
 Pursuant
        to the letter agreement, Pali has been hired as a representative of the Company
        to raise money for the Company by introducing it to investors to purchase
        the
        Company’s securities. Pali is entitled to a fee of 9% of the gross proceeds from
        any equity or debt financing procured by Pali. In addition, Pali is entitled
        to
        warrants to purchase common shares equal to 9% of the total face amount of
        any
        equity financing with an exercise price equal to the price at which the
        investors acquire such shares and with such other terms including registration
        rights and duration as any warrants issued to investors.
 
 On
        March
        22, 2006, the Company entered into a consulting agreement with Voyager
        Consulting LLC (“Voyager”) of which Mr. Gohd is a managing member. The Company
        retained the services of Voyager to assist the Company in the marketing and
        selling of security products to a major retail chain. In exchange for these
        services, the Company agreed to pay a fee to Voyager in an amount equal to
        5% of
        all the gross revenues received by the Company, directly or indirectly, from
        the
        sale of its security products to the retail chain stores. In addition to
        the
        fee, Voyager will be entitled to warrants to purchase up to 2,000,000 shares
        of
        the Company’s common stock at an exercise price of $1.00 per share at any time
        on or before the fourth anniversary of the consulting agreement upon certain
        conditions.
 
 **Steven
        Campisi - Shareholder, Director, President of Resilent
        LLC**
 
 On
        January 19, 2006, the Company entered into an employment agreement with Steven
        Campisi, pursuant to which Mr. Campisi was retained as the President of
        Resilent. Pursuant to the employment agreement, Mr. Campisi cannot be terminated
        for any reason other than for “good cause” until January 18, 2008, after which
        time Mr. Campisi can be terminated at any time for any reason by the Company.
        Mr. Campisi is to receive an annual base salary of $175,000 and an option
        to purchase 500,000 shares of our common stock at an exercise price of $1.00
        per
        share. The option expires on January 18, 2011. The option does not vest until
        2007, and the vesting schedule is based on the performance of Resilent. The
        agreement provides that all work product developed by Mr. Campisi during
        his
        course of employment shall be assigned to the Company, and that Mr. Campisi
        will
        not compete with the Company for a period of six months following his
        termination of employment with the Company.
 
 **NOTE
        14 - SUBSEQUENT EVENTS**
 
 *July
        2006*
 
 In
        July
        2006, the Company issued a warrant certificate to purchase 300,000 shares
        of
        common stock at a purchase price of $1.00 per share in full satisfaction
        of two
        invoices from one of Gabriel LLC’s suppliers totaling $95,019.59.
 
 On
        July
        10, 2006, the District Court of Douglas County, Nebraska ordered a default
        judgment of $531,000 plus interest in favor of the Company against various
        defendants associated with two outstanding notes receivable in the principal
        amounts of $200,000 and 331,000. See Notes 4 and 13. The defendants reside
        in
        Texas. The Nebraska default judgment has been conformed to be enforceable
        in
        Texas as against any assets of the defendants. Potential collection efforts
        on
        the default judgment are being conducted.
 
 In
        July
        2006, the Company entered into a Debt Settlement Agreement and Release with
        Mr.
        Fegen for the $250,000 promissory note issued to Mr. Fegen on February 14,
        2006.
        See Notes 7 and 13. In exchange for canceling the promissory note, the Company
        issued 286,000 shares of common stock and a warrant certificate for 286,000
        shares of common stock at an exercise price of $1.00 per share to Mr.
        Fegen.
 
 F-37
  **GABRIEL
        TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
        14 - SUBSEQUENT EVENTS (CONTINUED)**
 
 On
        July
        25, 2006, the Company and the Company’s wholly-owned subsidiary, Trace
        Technologies, LLC, entered into an asset purchase agreement with CSI Wireless
        LLC (“CSI Wireless”). Pursuant to the asset purchase agreement, Trace agreed to acquire CSI Wireless’ assets and technology related
        to the design, manufacture, enhancement and support of A-GPS tracking device,
        engineered and manufactured by CSI Wireless for Trace, known as “Location-Tag”,
        and agreed to terminate a Technology Development and Manufacturing Agreement
        with CSI Wireless. For CSI Wireless’ assets and technology, Trace agreed to (i)
        pay $125,000 into escrow at the signing of the asset purchase agreement,
        (ii)
        pay $325,000 at the closing of the transaction, (iii) pay $125,000 by way
        of a
        promissory note due 90 days after the closing of the transaction, and (iv)
        pay
        $250,000 by way of a promissory note due 180 days after the closing of the
        transaction (with such two promissory notes referred to as the “Promissory
        Notes”). In addition, the Company agreed to issue to CSI Wireless shares of its
        common stock (with certain registration rights) in an amount equal to the
        value
        of $145,000 at the closing of the transaction, and, further, to issue shares
        its
        common stock in amount equal to the value of $375,000 at the closing of the
        transaction as security for payment of the Promissory Notes (the “Security
        Shares”). The Security Shares would be returned to the Company upon payment of
        the Promissory Notes. No CSI Wireless liabilities would be assumed by Trace
        in
        the transaction. The closing of the transaction, which was expected in August
        2006, is expected to close in the near future assuming the Company can raise
        sufficient capital. As of June 30, 2006, $125,000 was paid into escrow upon
        the
        signing of the asset purchase agreement.
 
 *August
        2006*
 
 In
        August
        2006, the Company secured $250,000 in short term financing from two individuals
        for working capital and general corporate purposes. In exchange for the
        promissory notes, the Company agreed to pay the principal together with an
        amount equal to 10% of the principal ($25,000) within 60 days from the date
        of
        the note. As additional consideration to the lenders for making the loans
        to the
        Company, the lenders received warrants to purchase 100,000 shares of the
        Company’s common stock at an exercise price of $1.00 per share.
 
 As
        outlined in Note 7 above, the maturity date for the Company’s promissory note
        with a commercial bank was August 12, 2006. The maturity date for the note
        has
        been extended under the same terms until November 12, 2006.
 
 On
        August
        31, 2006, James Moran resigned as a director of the Company. On September
        13,
        2006, the Board of Directors of the Company appointed Matt Gohd to fill a
        vacancy on the Board. Mr. Gohd is the representative of Pali Capital, Inc.
        Mr.
        Gohd is a Principal and Senior Managing Director with Pali. Pursuant to a
        letter
        agreement between the Company and Pali dated March 22, 2005, Pali has the
        right
        to name one director to the Company’s Board of Directors.
 
 *September
        2006*
 
 In
        September 2006, the Company issued 207,200 shares of common stock and warrants
        to purchase 100,000 shares of common stock at an exercise price of $1.00
        per
        share in exchange for the cancellation of three promissory notes totaling
        $200,000 which were due on September 4, 2006. One promissory note for $75,000
        due September 4, 2006 remains outstanding.
 
 In
        September 2006, the Company secured equity financing of $342,000 in a private
        placement with 5 individuals. In exchange for the monies, the Company issued
        342,000 shares of common stock and warrants to purchase 342,000 shares at
        an
        exercise price of $1.00 per share. The Company used the monies for working
        capital and general corporate purposes.
 
 *October
        2006*
 
 On
        October 9, 2006, the Company secured $130,000 in short term financing from
        an
        individual for working capital and general corporate purposes. In exchange
        for
        the promissory note, the Company agreed to pay the principal together with
        interest at a rate per annum of 9% on October 19, 2006 (the “Maturity Date”). As
        additional consideration to the lenders for making the loan to the Company,
        the
        lender received warrants to purchase 25,000 shares of the Company’s common stock
        at an exercise price of $1.00 per share. In the event the Company failed
        to pay
        the outstanding principal and interest on the note on or before the Maturity
        Date, the Company agreed to issue an additional warrant to the Lender to
        purchase 105,000 shares of the Company’s common stock at an exercise price of
        $1.00 per share. As of the date of this report, the note is past due and
        the
        Lender is entitled to the additional warrant to purchase 105,000 shares of
        the
        Company’s common stock.
 
 F-38
 
 **GABRIEL
            TECHNOLOGIES CORPORATION AND SUBSIDIARIES**
 **NOTES
            TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 In
        October 2006, the Company secured equity financing of $25,000 in a private
        placement with an individual. In exchange for the monies, the Company issued
        25,000 shares of common stock and warrants to purchase 25,000 shares at an
        exercise price of $1.00 per share. The Company used the monies for working
        capital and general corporate purposes.
  In
          October 2006, the Company received a letter from Steven Campisi, the manager
          of
          Resilent and one of the Company’s directors, asserting that the Company
          defaulted under the Resilent Note in February 2006 and that, as a result,
          Resilent has the right to cancel 3,520.85 of the units owned by the Company
          in
          Resilent pursuant to the Exchange Agreement. If these units were cancelled,
          the
          Company would have an approximate 52% ownership interest in Resilent. The
          Company disagrees with Mr. Campisi’s assertions and intends to defend its
          ownership interest of Resilent.
  *As
          of
          the Report Date*
 
 Since
        May
        2006, the Company has not paid the monthly interest due on the Broidy notes
        (the senior
        convertible promissory note for $1,000,000 dated January 11, 2006 or the
        promissory note for $200,000 dated February 14, 2006). See Note 7. In addition,
        the maturity date for the Broidy promissory note for $200,000 was June 1,
        2006.
        As of the date of this report, the Company has not received any notice of
        default related to the Broidy Transactions. As outlined in Note 7 above,
        the
        stock warrants issued in conjunction with the Broidy Transactions included
        a
        liquidated damages clause if the stock underlying the convertible note and
        related warrants were not registered by the Last Registration Date
        (June 10, 2006). If such stock of the Company was not registered by the
        Last Registration Date, the exercise price set forth in the Warrant Agreement
        would be reduced 10% on that date and on the same date every month therafter
        until all of such stock is registered. As such, as of the date of this report,
        the exercise price of the warrants is effectively reduced by 50% to
        $.50.
 
 In
        June
        2006, the Company secured financing of $1,000,000 in a private placement.
        As
        part of this placement, the Company entered into a Registration Rights Agreement
        which required the Company to file a registration statement prior to July
        21,
        2006 (the “Filing Date”). The investors are entitled to liquidated damages of 1%
        of the original investment if a registration statement is not filed by the
        Filing Date (the “Event Date”) and thereafter, 2% of the original investment on
        each monthly anniversary of the Event Date until a registration statement
        is
        filed. As of the filing of this report, the Company’s potential liability for
        liquidated damages to these investors is $50,000. On October 3, 2006, one
        of the
        investors who invested $250,000 in this financing has given notice to the
        Company regarding the occurrence of the Event Date.
 
 In
        general, the Company entered into a number of financing transactions which
        provided for registration rights including commitments as noted above to
        complete a registration statement by a certain date. As such, the Company
        commenced its registration efforts in July 2006 but due to time and resource
        constraints, the Company decided to postpone moving forward with the
        registration statement process until after it has completed its current Form
        10-KSB filing. The Company anticipates such registration statement to be
        completed in November or December 2006.
 The
          Company had a promissory note outstanding in the principal amount of $75,000
          plus interest become due and payable on September 4, 2006. As of the date
          of
          this report, the Company has not paid any of principal or interest on this
          note.
          The Company had a promissory note outstanding in the principal amount of
          $130,000 plus interest become due and payable on October 19, 2006. As of
          the
          date of this report, the Company has not paid any of the principal or interest
          on this note. The Company had a promissory note outstanding in the amount
          of
          $440,000 become due and payable on October 31, 2006. As of the date of
          this
          report, the Company has not paid any of the outstanding amount on this
          note.
 The
            outstanding balance under the revolving line of credit with the Nebraska
            State
            Bank was due and payable on November 12, 2006. As of the date of this
            report,
            the outstanding balance under the revolving line of credit has not been
            paid.
 F-39