10QSB 1 b321389_10qsb.txt QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) |X| Quarterly report pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2002 |_| Transition report pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to _______________ Commission File Number: 0-24431 InkSure Technologies Inc. ------------------ -------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Nevada 84-1417774 ------------------------------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 9 West Railroad Avenue, Tenafly, NJ 07670 ------------------------------------------------------------ (Address of Principal Executive Offices, Including Zip Code) (201) 894-9961 (Issuer's Telephone Number, Including Area Code) -------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) The number of shares outstanding of the Registrant's Common Stock, $.01 par value per share, as of September 30, 2002, was 2,668,666 shares. Transitional Small Business Disclosure Format (check one): Yes |_| No |X| InkSure Technologies Inc. INDEX TO FORM 10-QSB PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements 1 Balance Sheets as of September 30, 2002 (Unaudited) 1 and December 31, 2001 (Restated) Statements of Operations (Unaudited) for the 2 Nine Months Ended September 30, 2002 and 2001; the Three Months Ended September 30, 2002 and 2001; and from Inception through September 30, 2002 Statements of Stockholders' Equity from Inception through 3 September 30, 2002 (Unaudited after December 31, 2001) Statements of Cash Flows (Unaudited) for the 4 Nine Months Ended September 30, 2002 and 2001 and from inception through September 30, 2002 Notes to Financial Statements 5 Item 2. Management's Discussion and Analysis or Plan of Operation 6 Item 3. Controls and Procedures. 7 PART II. OTHER INFORMATION 7 Item 2. Changes in Securities and Use of Proceeds. 7 Item 4. Submission of Matters to a Vote of Security Holders. 9 Item 6. Exhibits and Reports on Form 8-K 9 SIGNATURES 11 Page 1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements InkSure Technologies Inc. (A Development Stage Company) BALANCE SHEETS
September 30, December 31, 31, 2002 2001 ------------ ------------ A S S E T S (Unaudited) (Restated) Current assets: Cash and cash equivalents $ 171,280 $ 223,681 ------------ ------------ Total current assets $ 171,280 $ 223,681 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,600 $ -0- ------------ ------------ Total current liabilities 3,600 -0- ------------ ------------ Stockholders' equity: Common stock, $0.01 par value; 5,000,000 shares authorized; 2,668,666 shares issued and outstanding 26,686 26,686 Additional paid-in capital 288,803 288,803 Accumulated deficit during the development stage (147,809) (91,808) ------------ ------------ 167,680 223,681 ------------ ------------ $ 171,280 $ 223,681 ============ ============
See accompanying notes to financial statements. Page 2 InkSure Technologies Inc. (A Development Stage Company) STATEMENTS OF OPERATIONS (UNAUDITED)
Period Nine months ended Three months ended April 22, 1997 September 30, September 30, (inception) to -------------------------- -------------------------- September 30, 2002 2001 2002 2001 2002 ----------- ----------- ----------- ----------- ------------- Sales $ -- $ -- $ -- $ -- $ 346 Cost of sales -- -- -- -- -- ----------- ----------- ----------- ----------- ------------- Gross margin -- -- -- -- 346 ----------- ----------- ----------- ----------- ------------- Operating expenses: General and administrative 58,647 27,639 36,322 4,221 149,393 Amortization -- -- -- -- 17,191 ----------- ----------- ----------- ----------- ------------- 58,647 27,639 36,322 4,221 166,584 ----------- ----------- ----------- ----------- ------------- Loss from operations (58,647) (27,639) (36,322) (4,221) (166,238) ----------- ----------- ----------- ----------- ------------- Other income (expense) Interest expense -- (3) -- -- (900) Interest income 2,646 8,015 725 2,005 19,329 ----------- ----------- ----------- ----------- ------------- 2,646 8,012 725 2,005 18,429 ----------- ----------- ----------- ----------- ------------- Net loss $ (56,001) $ (19,627) $ (35,597) $ (2,216) $ (147,809) =========== =========== =========== =========== ============= Net loss per common share $ (.02) $ (.01) $ (.01) $ -- =========== =========== =========== =========== Weighted average number of shares outstanding 2,668,666 2,668,666 2,668,666 2,668,666 =========== =========== =========== ===========
See accompanying notes to financial statements. Page 3 InkSure Technologies Inc. (A Development Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPT. 30, 2002 AND PERIOD APRIL 22, 1997 (INCEPTION) TO SEPTEMBER 30, 2002 (UNAUDITED)
Accumulated deficit Additional during the Total Common stock Treasury Stock paid-in development stockholders' Shares Amount Shares Amount capital stage equity ---------- -------- -------- -------- ---------- ----------- ------------- Balance, April 22, 1997 -- $ -- -- $ -- $ -- $ -- $ -- Common stock issued for cash at $0.00 per share 666,666 6,666 -- -- (1,666) -- 5,000 Issuance of shares to acquire patent rights recorded at predecessor cost of $0.00 per share 400,000 4,000 -- -- (1,000) -- 3,000 Issuance of 540,000 shares of common stock at $0.10 per share 540,000 5,400 -- -- 48,600 -- 54,000 Stock offering costs -- -- -- -- (8,843) -- (8,843) Net loss, December 31, 1997 -- -- -- -- -- (9,251) (9,251) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, December 31, 1997 1,606,666 16,066 -- -- 37,091 (9,251) 43,906 Issuance of 75,000 shares of common stock at $0.10 per share 75,000 750 -- -- 6,750 -- 7,500 Net loss, December 31, 1998 -- -- -- -- -- (21,560) (21,560) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, December 31, 1998 1,681,666 16,816 -- -- 43,841 (30,811) 29,846 Issuance of 87,000 shares of common stock at $0.10 per share 87,000 870 -- -- 7,830 -- 8,700 Net loss, December 31, 1999 -- -- -- -- -- (21,166) (21,166) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, December 31, 1999 1,768,666 17,686 -- -- 51,671 (51,977) 17,380 Repurchase of 100,000 shares of -- -- 100,000 (25,000) 21,132 -- (3,868) Common stock at $0.25 per share Cancellation of treasury stock (100,000) (1,000) (100,000) 25,000 (24,000) -- -- Common stock issued for cash at $0.25 per share 1,000,000 10,000 -- -- 240,000 -- 250,000 Net loss, December 31, 2000, as restated -- -- -- -- -- (19,087) (19,087) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, December 31, 2000, as restated 2,668,666 26,686 -- -- 288,803 (71,064) 244,425 Net loss, December 31, 2001 -- -- -- -- -- (20,744) (20,744) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, December 31, 2001 2,668,666 26,686 -- -- 288,803 (91,808) 223,681 Net loss, Nine Months Ended September 30, 2002 -- -- -- -- -- (56,001) (56,001) ---------- -------- -------- -------- ---------- ----------- ------------- Balance, Sept. 30, 2002 2,668,666 $ 26,686 -- $ -- $ 288,803 $ (147,809) $ 167,680 ========== ======== ======== ======== ========== =========== =============
See accompanying notes to financial statements. Page 4 InkSure Technologies Inc. (A Development Stage Company) STATEMENTS OF CASH FLOWS (UNAUDITED)
Period April 22, 1997 Nine Months Ended (inception) to September 30, September 30, 2 0 0 2 2 0 0 1 2 0 0 2 --------- --------- ------------- Cash flows from operating activities: Net loss $ (56,001) $ (19,627) $ (147,809) Adjustments to reconcile net loss to net cash used by operating activities: Amortization -- -- 17,191 Common stock issued for services -- -- 8,700 Changes in assets and liabilities: Increase (decrease) in accounts payable and accrued expenses 3,600 (792) 12,300 --------- --------- ------------- Net cash used by operating activities (52,401) (20,419) (109,618) --------- --------- ------------- Cash flows used by investing activities: Cash included pursuant to sale of subsidiary -- -- (1,109) Purchase of patent rights -- -- (28,650) --------- --------- ------------- Net cash used by investing activities -- -- (29,759) --------- --------- ------------- Cash flows from financing activities: Stock offering costs -- -- (5,843) Common stock issued for cash -- -- 316,500 --------- --------- ------------- Net cash provided by financing activities -- -- 310,657 --------- --------- ------------- Net increase (decrease) in cash and cash equivalents (52,401) (20,419) 171,280 Cash and cash equivalents, beginning of period 223,681 245,542 -- --------- --------- ------------- Cash and cash equivalents, end of period $ 171,280 $ 225,123 $ 171,280 ========= ========= ============= Supplemental cash flow information: Cash paid during the period for: Interest $ -- $ 3 $ 900 Income taxes 939 701 1,743 Noncash financing activities: Patent rights and deferred interest acquired for common stock and assumption of note payable $ -- $ -- $ 30,000 Sale of noncash net assets of subsidiary Book value of patent $ -- $ -- $ 11,459 Accounts payable assumed $ -- $ -- $ 8,700 Common stock acquired for treasury $ -- $ -- $ 25,000 Treasury stock cancelled $ -- $ -- $ 25,000 Increase in additional paid-in capital $ -- $ -- $ 21,132
See accompanying notes to financial statements. Page 5 InkSure Technologies Inc. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 AND 2001 1. The Company and basis of presentation: The financial statements presented herein as of September 30, 2002 and for the nine months ended September 30, 2002 and 2001 and the period April 22, 1997 (inception) to Sept. 30, 2002 are unaudited and, in the opinion of management, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of financial position and results of operations. Such financial statements do not include all of the information and footnote disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles of the United States of America. The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB. The results of operations for the nine months and three months ended September 30, 2002 are not necessarily indicative of the results that may be expected for any other interim period or the full year ending December 31, 2002. 2. Net loss per common share: Net loss per common share for the nine months and three months ended September 30, 2002 and 2001 is based on 2,668,666 of weighted average common shares outstanding. 3. Restatement The Company's financial statements had been restated as of December 31, 2000 to reflect the correction of an error in accounting for the sale of its wholly-owned subsidiary LILM, Inc. to one of its stockholders for 100,000 shares of that stockholder's common stock. These 100,000 shares of the Company's treasury stock were cancelled. The Company had previously recorded a gain on the sale of the wholly-owned subsidiary. In accordance with APB 9, the sale should have been reflected as a capital transaction. The effect of this restatement for 2001 is as follows: For the year ended December 31, 2001: As previously As reported restated ------------------------------------------------------------------------- Balance Sheet: Additional paid-in capital $ 267,671 $ 288,803 Accumulated deficit (70,676) (91,808) Accumulated deficit as of January 1, 2001 and 2002 has been increased by $21,132 for the effects of this restatement. Item 4. Subsequent Event. On October 28, 2002, the Company, LILM Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company ("LILM Acquisition"), and InkSure Technologies Inc. (now renamed IST Operating, Inc.) ("Inksure Delaware"), a Delaware corporation, consummated a merger (the "Merger") pursuant to the Agreement and Plan of Merger, dated as of July 5, 2002 (the "Merger Agreement"), among the Company, LILM Acquisition and InkSure Delaware. Pursuant to the Merger Agreement, LILM Acquisition merged with and into InkSure Delaware. InkSure Delaware was the surviving corporation in the Merger and became a wholly-owned subsidiary of the Company. In connection with the Merger, the Company has changed its name to "InkSure Technologies Inc." and, as of October 30, 2002, the OTC Bulletin Board stock symbol for the Company's common stock has changed to "INKS.OB". As stipulated in the Merger Agreement, InkSure Delaware's stockholders, together with those who hold options and warrants to acquire stock of InkSure, acquired or have the right to acquire approximately 90.3% of the Company's stock (as determined on a fully-diluted basis assuming the exercise of options and warrants). Upon consummation of the Merger, the Company's board of directors and management resigned and were replaced by InkSure Delaware's board of directors and management, and the Company will carry on InkSure Delaware's business activities. Item 2. Management's Discussion and Analysis or Plan of Operation. This Quarterly Report on Form 10-QSB contains statements that may constitute "forward-looking statements" within the meaning, and made pursuant to the Safe Harbor provisions, of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and are subject to a number of risks and uncertainties, including, but not limited to, the difficulty inherent in operating an early-stage company in a new and rapidly evolving market, market and economic conditions, the impact of competitive products, product demand and market acceptance risks, changes in product mix, costs and availability of raw materials, fluctuations in operating results, delays in development of highly complex products, risk of customer contract or sales order cancellations and other risks detailed from time to time in the Registrant's filings with the Securities and Exchange Commission. These risks and uncertainties could cause the Registrant's actual results to differ materially from those described in the forward-looking statements. Any forward-looking statement represents the Registrant's expectations or forecasts only as of the date it was made and should not be relied upon as representing its expectations or forecasts as of any subsequent date. Except as required by law, the Registrant undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, even if its expectations or forecasts change. The following discussion and analysis should be read in conjunction with the financial statements, related notes and other information included in this Quarterly Report on Form 10-QSB. Overview Pursuant to a Stock Purchase Agreement dated as of May 19, 2000 (the "Purchase Agreement") by and among ComVest Capital Partners, LLC ("ComVest") and the Company, George I. Norman III, Laurie J. Norman, Alewine Limited Liability Company ("Alewine"), and Linda Bryson (the latter four parties, collectively the "Sellers"), on May 25, 2000 (the "Closing Date"), ComVest purchased 1,194,166 shares of the common stock of the Company (the "Common Stock") from the Sellers for an aggregate purchase price of $315,000. Also pursuant to the Purchase Agreement, ComVest purchased from the Company, for an aggregate purchase price of $250,000, (i) 1,000,000 newly issued shares of Common Stock and (ii) a warrant (the "Warrant") to purchase an additional 3,000,000 shares of Common Stock. In November 2001, the Warrant terminated without having been exercised. Subsequent to the Closing Date, pursuant to a stock sale agreement between the Company and Alewine, the Company sold all of the issued and outstanding capital stock of its wholly-owned subsidiary, LILM, Inc., to Alewine in exchange for 100,000 shares of Common Stock. The 100,000 shares became treasury stock and subsequently were cancelled. As a result of such transactions, the Company has no further interest in the business of its former subsidiary (the development, manufacture, and marketing of the Lil Marc training urinal). Subsequent to the above-referenced transactions, the Company's plan of operation had been to merge or effect a business combination with a domestic or foreign private operating entity. On October 28, 2002, the Company (now renamed InkSure Technologies Inc.), LILM Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Company ("LILM Acquisition"), and InkSure Technologies Inc. (now renamed IST Operating, Inc.)("InkSure Delaware"), a Delaware corporation, consummated a merger (the "Merger") pursuant to the Agreement and Plan of Merger, dated as of July 5, 2002 (the "Merger Agreement"), among the Company, LILM Acquisition and InkSure Delaware. Pursuant to the Merger Agreement, LILM Acquisition merged with and into InkSure Delaware. InkSure Delaware was the surviving corporation in the Merger and became a wholly-owned subsidiary of the Company. The Company intends to continue the business of InkSure Delaware and its subsidiaries. InkSure Delaware, which develops, markets and sells customized authentication systems designed to enhance the security of documents and branded products, operates within the "authentication industry". This industry includes a variety of firms providing technologies and services designed to prevent the counterfeiting and diversion of valuable documents and products. In this context, "counterfeit items" are imitation items that are offered as genuine with the intent to deceive or defraud. "Diversion" (also termed "parallel trading" or "gray market commerce") is the selling of goods (often genuine goods) in a geographic market where both wholesale and retail prices are high while falsely purchasing them for another market where wholesale prices are lower, thus taking advantage of the price difference between the two markets. Comparative Operations The Company did not generate any revenues from operations during the nine months ended September 30, 2002 or September 30, 2001. General and administrative expenses increased by 112% from 2001 to 2002. A significant portion of this increase was from legal fees and expenses incurred with respect to the Merger. Interest income decreased from 2001 to 2002 by 67% because of lower interest rates and lower cash balances. As a result of the increased general and administrative expenses, the Company's net loss during nine months ended September 30, 2002 increased by 185% as compared to the net loss during the nine months ended September 30, 2001. Attached as Exhibit 99.2 is an unaudited pro forma balance sheet as of September 30, 2002 and consolidated statements of operations for the nine months ended September 30, 2002, which is based on the historical financial statements of the Company and InkSure Delaware and has been prepared on a pro forma basis to give effect to the Merger under the purchase method of accounting, as if the transaction had occurred at the beginning of the period presented. The pro forma information may not be indicative of results that actually would have occurred had the Merger occurred at the beginning of the period presented or of results that may occur in the future. The unaudited pro forma consolidated financial statements data should be read in conjunction with the annual financial statements and notes thereto of the Company and InkSure Delaware. Liquidity and Capital Resources At September 30, 2002, the Company had cash and cash equivalents of $171,280. As a consequence of the Merger, the Company's operations will be financed by the combined capital resources of the Company and InkSure Delaware. As September 30, 2002, InkSure Delaware had cash and cash equivalents and short time deposits of approximately $4,717,000. Since its inception, InkSure Delaware has incurred significant losses and negative cash flow (assuming the positive cash flow from capital transactions are excluded). As of September 30, 2002, InkSure Delaware had an accumulated deficit of approximately $4,000,000. InkSure Delaware had positive cash flow of approximately $700,000 for the nine months then ended September 30, 2002. The Company believes that the combined cash and cash equivalents of the Company and InkSure Delaware now available as a consequence of the Merger and cash, if any, generated from the continuation of InkSure Delaware's operations by the Company will provide sufficient cash resources to finance its operations for the next 24 months. However, if InkSure Delaware's operations, as continued by the Company, do not generate cash to the extent currently anticipated, or the Company grows more rapidly than currently anticipated, it is possible that the Company's current funds would be insufficient to finance the Company's operations for the next 24 months. However, the Company may require additional financing, and as a result the Company may need to raise additional capital during this time period. Item 3. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures. The Company's principal executive officer and principal financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) within 90 days of the date of this report on Form 10QSB, have concluded that, based on such evaluation, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-QSB was being prepared. (b) Changes in Internal Controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Since there were no significant deficiencies or material weaknesses in the Company's internal controls, no corrective actions were required or undertaken. PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds. Recent Sales of Unregistered Securities. The securities issued by the Company upon the consummation of the Merger were not registered under the Securities Act of 1933, as amended. At the effective time of the Merger, each outstanding share of InkSure Delaware common stock was converted into the right to receive one share of the Company's common stock. Pursuant to the Merger Agreement, all outstanding options and warrants (referred to in this paragraph as "exchanged options and warrants") to purchase shares of InkSure Delaware common stock are being exchanged or converted into options and warrants to purchase shares of the Company's common stock on the same terms and conditions as were in effect prior to the effective time of the Merger. The options and warrants issued with respect to such exchanged options and warrants are exercisable for such number of shares of the Company's common stock equal to the number of whole shares of InkSure Delaware common stock subject to each such exchanged option or warrant immediately prior to the effective time of the Merger. The per share exercise price of option and warrants issued by the Company with respect to the exchanged options and warrants remains unchanged from the per share exercise price of the exchanged options and warrants. At the effective time of the Merger, 10,541,086 shares of InkSure Delaware common stock were outstanding and options and warrants to purchase an additional 3,182,064 shares of InkSure Delaware common stock were outstanding. Item 4. Submission of Matters to a Vote of Security Holders. On July 3, 2002, ComVest, which, at such time, owned approximately 82.2% of the outstanding common stock of the Company, adopted, by written consent, resolutions approving: (i) the Merger Agreement and the transactions contemplated thereby; (ii) an amendment to the Company's Articles of Incorporation to change the Company's name to "InkSure Technologies Inc." and to amend the description of the Company's corporate purpose; (iii) an amendment to the Company's Articles of Incorporation to increase the authorized number of shares of capital stock from five million (5,000,000) shares to forty-five million (45,000,000) shares consisting of thirty-five million (35,000,000) shares of Common Stock and ten million (10,000,000) shares of preferred stock, par value $.01 per share (the "Preferred Stock"); (iv) an amendment to the Company's Articles of Incorporation and By-laws to increase the maximum size of our Board of Directors to eight from seven; (v) to appoint Kost, Forer & Gabbay, a member of Ernst and Young International, as the independent auditors of the Company for the fiscal year ending December 31, 2002; (vi) approving the adoption of the Company's 2002 Employee, Director and Consultant Stock Option Plan; and (vii) electing eight persons to the Company's Board of Directors to serve until the next annual general meeting of stockholders and until their respective successors are elected and qualify. The Company's Information Statement on Schedule 14C, filed with the Commission on October 8, 2002, contains additional information regarding the foregoing matters. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits The following exhibits are being filed with this Report: Exhibit Number Description -------------- ----------- 2.1 Agreement and Plan of Merger, dated July 5, among the Company, LILM Acquisition, and InkSure Delaware (Incorporated by reference to the Company's Information Statement on Schedule 14C, filed with the Commission on October 8, 2002). 3.1 Certificate of Change in Number of Authorized Shares of Class and Series of the Company (Incorporated by reference to the Company's report filed on Form 8-K, filed with the Commission on November 8, 2002). 3.2 Certificate of Amendment of Articles of Incorporation of the Company (Incorporated by reference to the Company's report filed on Form 8-K, filed with the Commission on November 8, 2002). 3.3 Articles of Incorporation of the Company (Incorporated by reference to the Company's Form 10-SB, filed with the Commission on June 10, 1998). 3.4 Amendment to Bylaws of the Company. 3.5 By-Laws of the Company (Incorporated by reference to the Company's Form 10-SB, filed with the Commission on June 10, 1998). 10.1 2002 Employee, Director and Consultant Stock Option Plan. 10.2 Employment Agreement, dated as of February 6, 2002, by and between the Company and Elie Housman. 99.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Unaudited pro forma balance sheet dated September 30, 2002 and consolidated statements of operations giving effect to the Merger for the nine month period ended September 30, 2002. (b) Reports on Form 8-K During the quarter ended September 30, 2002, the Company filed a report on Form 8-K on July 10, 2002. A subsequent Form 8-K was filed on November 8, 2002. The Form 8-K filed on July 10, 2002 disclosed, under Item 5, the execution by the Company of the Merger Agreement. The Form 8-K filed on November 8, 2002 disclosed, under Items 1, 2 and 5, the change of control and acquisition of assets that occurred upon the consummation of the Merger contemplated by the Merger Agreement and included the following financial statements: (i) audited financial statements of InkSure Delaware for the fiscal years ended December 31, 2001 and 2000, and unaudited consolidated financial statements for InkSure Delaware for the six-month period ended June 30, 2002 (incorporated by reference to the Company's Information Statement on Schedule 14C, filed with the Commission on October 8, 2002); and (ii) an unaudited pro forma balance sheet giving effect to the Merger as of June 30, 2002 and unaudited pro forma statements of income for the fiscal year ended December 31, 2001 and for the six-month period ended June 30, 2002. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. InkSure Technologies Inc. Dated: As of November 14, 2002 By: /s/ Eyal Bigon -------------------------------- Chief Financial Officer, Secretary, and Treasurer (Principal Financial and Accounting Officer) Dated: As of November 14, 2002 By: /s/ Yaron Meerfeld -------------------------------- Chief Executive Officer (Principal Executive Officer) I, Eyal Bigon, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of InkSure Technologies Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report. 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: November 14, 2002 By: /s/ EYAL BIGON -------------------------------- Chief Financial Officer, Secretary, and Treasurer (Principal Financial and Accounting Officer) I, Yaron Meerfeld, certify that: 5. I have reviewed this quarterly report on Form 10-QSB of InkSure Technologies Inc.; 6. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 7. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report. 8. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and 6. The Registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: November 14, 2002 By: /s/ YARON MEERFELD ---------------------------------- Chief Executive Officer (Principal Executive Officer)