10-K 1 zk96498.htm 10-K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008, OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 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 registrant as specified in charter)

               DELAWARE                                     84-1417774
     (State or other jurisdiction of                     (I.R.S. employer
     incorporation or organization)                     identification no.)

1770 N.W. 64TH STREET, SUITE 350, FORT LAUDERDALE, FL          33309
     (Address of principal executive offices)                (Zip code)

                                   ----------

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 772-8507

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, par
value $0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.

                               Yes [_]     No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.

                               Yes [_]     No [X]

Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer   [_]   Accelerated filer [_]  Non-accelerated filer [_]
Smaller Reporting Company [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                               Yes [_]     No [X]

The aggregate market value of the Common Stock held by non-affiliates of the
Registrant computed by reference to the average bid and asked price of such
Common Stock on June 30, 2008 (the last business day of the Registrant's most
recently completed second fiscal quarter) was $4,941,891.

As of March 19, 2009, the Registrant had outstanding 16,472,968 shares of Common
Stock, par value $0.001 per share.

Documents incorporated by reference: Portions of the Registrant's proxy
statement in connection with its annual meeting of shareholders to be held in
2009 are incorporated by reference in Items 10, 11, 12, 13, and 14 of Part III
of this Form 10-K




                                TABLE OF CONTENTS

                                                                             PAGE

PART I

ITEM 1.   DESCRIPTION OF BUSINESS                                              2
ITEM 1A.  RISK FACTORS                                                        10
ITEM 2.   DESCRIPTION OF PROPERTY                                             18
ITEM 3.   LEGAL PROCEEDINGS                                                   18
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                 19

PART II

ITEM 5.   MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS               20
ITEM 6.   SELECTED FINANCIAL DATA                                             21
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS                                21
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK          25
ITEM 8.   FINANCIAL STATEMENTS                                                25
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE                                            25
ITEM 9A.  CONTROLS AND PROCEDURES                                             25
ITEM 9B.  OTHER INFORMATION                                                   26

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
          CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE
          EXCHANGE ACT                                                        28
ITEM 11.  EXECUTIVE COMPENSATION                                              28
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          AND RELATED STOCKHOLDERS MATTERS.                                   28
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
          INDEPENDENCE                                                        28
ITEM 14   PRINCPLE ACCOUNTING FEES AND SERVICES                               28
ITEM 15.  EXHIBITS                                                            29


                                       ii

                                     PART I

Certain statements in this Form 10-K constitute forward-looking statements
within the meaning of the securities laws. Forward-looking statements include
all statements that do not relate solely to the historical or current facts, and
can be identified by the use of forward looking words such as "may", "believe",
"will", "expect", "expected", "project", "anticipate", "anticipated estimates",
"plans", "strategy", "target", "prospects" or "continue". These forward looking
statements are based on the current plans and expectations of our management and
are subject to `a number of uncertainties and risks that could significantly
affect our current plans and expectations, as well as future results of
operations and financial condition and may cause our actual results,
performances or achievements to be materially different from any future results,
performances or achievements expressed or implied by such forward-looking
statements. This Form 10-K contains important information as to risk factors
under Item 1A. In making these forward-looking statements, we claim the
protection of the safe-harbor for forward-looking statements contained in the
Private Securities Reform Act of 1995. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. We do not
assume any obligation to update these forward-looking statements to reflect
actual results, changes in assumptions, or changes in other factors affecting
such forward-looking statements.

InkSure Technologies, Inc. makes available free of charge on its website at
WWW.INKSURE.COM its annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably
practical after electronically filing or furnishing such material to the
Securities and Exchange Commission ("SEC").

This report may be read or copied at the SEC's Public Reference Room at 100 F
Street, NE, Room 1580, Washington, DC 20549 or at www.sec.gov. Information on
the operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.

ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL

     InkSure Technologies Inc. (together with its subsidiaries, referred to as
"we", "us" and "our") develops, markets and sells customized authentication
solutions designed to enhance the security of documents and branded products, to
meet the growing demand for protection from counterfeiting. In this context,
"counterfeit items" are imitation items that are offered as genuine with the
intent to deceive or defraud. We operate within the "authentication industry,"
an industry that includes a variety of firms providing technologies and services
designed to prevent the counterfeiting and diversion of documents and products.
The World Customs Organization estimates that the trade in fakes was in 2006
worth about $512 billion. In the United States, the Bureau of Customs and Border
Protection estimates that counterfeiting costs the United States $200 billion
annually. Additionally, we are developing a unique advanced chipless RFID
solution that we expect to introduce in 2010.

Our products are based on three principal technologies:

     o    Unique signatures of a highly secure code incorporated in one of the
          security hologram layers applied during production,

     o    Customizable security inks that are suitable for almost every type of
          digital and impact printing on a wide variety of surfaces or
          substrates (e.g., paper documents, plastic identification cards,
          packaging materials and labels),

     o    Sophisticated "full-spectrum" readers that use proprietary software to
          quickly analyze marks inserted into the hologram or printed with our
          specialty inks. Our security solutions are considered to be covert
          because our specialty inks are indistinguishable from standard
          non-security inks and are easily incorporated into variable and fully
          individualized data on holograms, documents, products, product labels,
          packaging, and designs.

     Our uniquely formulated machine-readable taggant-based products provide a
customized solution by creating a unique chemical code for each product line or
document batch that can only be authenticated by our readers. We have been
awarded three patents and applied for another two patents related to the radio
frequency identification, or RFID, technology being developed by us. We are also
seeking protection under the Patent Cooperation Treaty. See "Description of
Business - Emerging Technology" and "Description of Business - Patents and
Proprietary Technology."

     We are currently working on the development of next-generation RFID
technology that is being designed to enable low-cost tagging of items. This RFID
technology is being designed to permit "no line of sight" identification and to
be suitable for a variety of applications, including authentication, supply
chain management, proof of ownership, and life cycle information.

     We believe that our future success will depend upon our ability to enhance
our existing products and solutions and introduce new commercially viable
products and systems addressing the demands of the evolving markets for brand,
product and document protection. As part of the product development process, we
intend to work with current and potential customers and leaders in certain
industry segments to identify market needs and define appropriate product
specifications.


                                       2


CORPORATE HISTORY

     We were incorporated as a development stage enterprise under the laws of
the state of Nevada on April 22, 1997 under the name "Lil Marc, Inc." On July 5,
2002, a wholly owned subsidiary of Lil Marc, Inc., LILM Acquisition Corp., a
Delaware corporation, merged with and into InkSure Technologies Inc., a Delaware
corporation, or InkSure Delaware. InkSure Delaware was the surviving corporation
in the merger and became a wholly owned subsidiary of Lil Marc, Inc.

     On October 28, 2002, we changed our name from "Lil Marc, Inc." to "InkSure
Technologies Inc." We conduct our operations with and through our direct and
indirect subsidiaries, InkSure Inc., a Delaware corporation formed in March
2000, IST Operating Inc., a Delaware corporation formed in May 2000 (formerly
known as InkSure Technologies Inc. and referred to throughout this Report as
InkSure Delaware), and InkSure Ltd., which was formed in December 1995 under the
laws of Israel. We also have a subsidiary, InkSure RF Inc., a Delaware
corporation formed in March 2000, which does not currently conduct any
operations.

     On July 8, 2003, we reincorporated as a Delaware corporation by merging
with and into a newly-formed, wholly-owned subsidiary.

MARKET OPPORTUNITY

     There are a growing number of governments, companies, banks, organizations
and other entities that recognize, acknowledge and are able to quantify or
estimate the scope of their counterfeiting problem, and are willing to invest in
security solutions to combat them, and are potential customers for our products
and services. We believe that the number of entities willing to invest in
security solutions will grow as the magnitude of the problem continues to grow.
In addition, there has been an increase in regulatory and legislative efforts to
countermand counterfeiting, such as U.S. legislation and Federal Food and Drug
Administration guidelines concerning the incorporation of counterfeit-resistant
tools into the packaging of U.S. prescription drugs.

     Once the end user has decided to implement a security plan and introduce
new security features or technology, there are various criteria by which the
selected technology will be measured. We believe that our products provide a
high level of security and flexibility, while remaining cost-effective.

TRADITIONAL AUTHENTICATION TECHNOLOGIES

     Technologies used to authenticate and protect products and documents can be
divided into two general categories: overt and covert. Overt technologies are
visible to the naked eye and are typically used by the consumer to identify the
product or document as genuine. Holograms, intricate graphic design and color
changing inks, are among the most common overt security features used in both
products and documents.

     Covert technologies are invisible and, historically, designed to be used by
investigators, customs officials and other law enforcement agents to verify
authenticity. There are numerous covert technologies currently in use in the
market, including specialty substrates (e.g., papers with security fibers or
magnetic threads) and in-product marking (e.g., tracers placed in fuels).
However, one of the most frequently used features for product and document
security is specialty ink for the obvious reason that ink is the main consumable
for printing on documents, packaging and labels.

     The rapid rise in counterfeiting and diversion, however, has led to the
need for increasingly sophisticated security techniques for companies and
organizations to mark and protect high-value products and documents.
Accordingly, the market for countermeasures to counterfeiting and diversion is
characterized by a constant inflow and introduction of new authentication
techniques as a result of rapid technological progress. Complex new technologies
that are difficult for counterfeiters to circumvent are in demand.

     Typically, currency and high value documents incorporate more than one
security feature (high denominations of United States currency have up to 20
security features). Brand owners are increasingly adopting this same strategy
and are using several security features simultaneously to make reproducing the
document or packaging increasingly difficult and costly for the counterfeiter.
In addition, layered security features provide continued protection for products
in the market even if one of the features is compromised.

INKSURE SOLUTIONS

     We believe that our authentication technology can be distinguished from
other authentication solutions, such as visible and invisible ultra-violet
marks, fluorescent taggants, watermarks and fibers, optically variable inks, and
holograms, currently offered by our competitors because our solutions offer a
high level of security and flexibility while remaining cost-effective. Our
technology is based upon multi-disciplinary technologies, including chemistry,
printing, electro-optics and software, customized for each customer. The
following are key features of our solutions:

          HIGH LEVEL OF SECURITY. Each security material manufactured by us has
     a unique "signature" that is comprised of a variety of factors, including
     the amounts and the unique properties of the chemicals included in the
     material, its type, color, the printing method and the substrate. Since the
     reader utilized by our solution reads a "full-spectrum" rather than
     sampling a specific point or points in a signature, a counterfeit item
     would have to replicate an entire unique signature - i.e., every variable
     upon which the signature depends - rather than merely replicating certain
     portions of the signature. In addition, because a coded taggant's unique
     signature is comprised of various factors, with numerous possible
     permutations thereof, our taggants are extremely difficult to reverse
     engineer. We believe that holograms, color changing inks and other more
     common overt security features are more easily replicated than our
     products. In addition, to thwart any counterfeiting attempts that
     successfully replicated a unique signature, we could alter any of the
     variables of which a signature is comprised and create an entirely new
     unique signature without significant expense.


                                       3


          FLEXIBILITY. Our solution is highly flexible, applicable to almost
     every standard hologram, coating, ink or toner. In addition, we believe
     that our specialty inks are suitable for printing on any type of surface or
     substrate for which digital and impact printing is suitable. Our readers
     are available either as hand-held devices designed for quick and accurate
     field inspection, or as a technology that can be integrated in existing
     terminals and readers (e.g., ATMs, magnetic ink character recognition
     (MICR) readers and access control systems) to allow automated
     identification and verification in mass quantities. According to the
     client's security needs, several different coded inks can be incorporated
     in a single product or document and the corresponding reader can be
     programmed to authenticate and verify each of the different codes - and
     indicate which code was verified.

          COST EFFECTIVE. Our technology provides a cost-effective solution to
     prevent counterfeiting and diversion because of our positive
     cost-performance ratio. In addition, because our readers are designed to
     detect even trace amounts of the specific chemical markers, our solutions
     provide a relatively high level of security, including through the use of
     chemicals, such as tagging agents, at reasonable incremental costs to our
     customers.

MARKETING AND BUSINESS STRATEGY

     Our business strategy utilizes a "razor / razor blade" approach with
respect to the sale of our readers and inks. We regard the selling of our
proprietary readers as infrastructure similar to a hand held razor, while our
specialty inks may be considered analogous to the blades of a razor that
represent continuing sales. The potential anti-counterfeit market segments for
our products can generally be divided into two major groups: documents (e.g.,
bank notes, checks, transportation and event tickets, pre-paid telephone cards,
identification cards, and passports) and brand products (e.g., pharmaceuticals,
software, automotive, multi-media, and apparel). We believe that the most
receptive market segment for our authentication applications - which comprise
the middle and high-end of the security market - includes customers who have
experienced significant problems with counterfeiting and have been unable to
reduce or eliminate the effects of counterfeiting through the authentication
solutions that are more easily circumvented than our solutions. In addition, we
have targeted customers that need a covert security feature that is extremely
difficult to reverse engineer.

     More specifically, we have identified and targeted the following market
segments:

     o    PACKAGING. We believe our product may facilitate brand protection
          through use in 1st level (on the product), 2nd level (on the
          packaging) and 3rd level packaging (through the use of labels,
          stickers, etc.). We believe our products are suitable for a number of
          industries, including consumer goods (e.g., apparel, cosmetics,
          fragrances, software, tobacco and multi-media, including CDs and
          DVDs), pharmaceuticals, and industries that rely upon component parts
          (e.g., automotive, computer hardware).

     o    TRANSPORTATION. Both national and local transportation authorities
          issue travel passes, season tickets and single-use tickets, all of
          which are subject to counterfeiting.

     o    TAX STAMPS. Government issued tax stamps for a variety of taxed items
          such as tobacco, wine, alcohol and export tax stamps offer
          opportunities for our authentication technology.

     o    GAMES AND ENTERTAINMENT. Tickets and wrist bands for major sporting
          events and entertainment venues can be printed using our coded inks
          and authenticated at the entrance using either hand-held or stationary
          readers. Similarly, lottery tickets and gaming chips are subject to
          counterfeiting. Lottery tickets and gaming chips may be authenticated
          at the time of submission for payment.

     o    FINANCIAL DOCUMENTS. Historically, checks and other financial
          documents have incorporated security features in the substrate or the
          pre-printed form, all in an effort to protect the fixed and variable
          data imprinted on the document. With our technology, both fixed and
          variable data can now be protected directly.

     o    GOVERNMENT IDENTITY DOCUMENTS. We believe that our ability to mark
          inkjet ink and thermal transfer ribbons and therefore provide
          authentication capabilities to the variable data on government
          identity documents such as passports, visas, drivers licenses, ID
          cards, birth certificates, and motor vehicle registrations is unique.
          We view these market segments as requiring a long-term marketing and
          selling process given the typical government bid process and cycles
          for initiating new features, as well as government cost constraints.


                                       4


     o    RETAIL VOUCHERS AND GIFT CERTIFICATES. Retail establishments currently
          use printed vouchers, gift cards and gift certificates for increased
          sales. Certificates of authenticity, which are printed documents that
          accompany a wide variety of retail goods ranging from software
          products to luxury goods, are also an area of opportunity.

     We have focused the bulk of our efforts to date on market segments where we
have already achieved market penetration in actual sales and where we believe
sales potential is highest - packaging, tax stamps, financial documents,
entertainment (i.e., ticketing) and transportation. As a result of this focused
strategy, we have increased awareness of our products in these segments,
established a presence in targeted markets throughout the world, and formed
strategic alliances with companies that provide access to specific markets. See
"Description of Business - Sales and Marketing."

SALES AND MARKETING

     Initially, we relied solely on intermediaries to market and distribute our
products and services. However, we currently sell our products and services
through a combination of our own sales personnel, strategic alliances and
licenses with intermediaries.

     Although we intend to continue marketing our products and services through
licensees and strategic alliances, we believe that expanding our customer base
through our direct sales personnel and maintaining a direct relationship with
the end user are necessary elements to achieve deep market penetration.

CURRENT PRODUCTS

     We have created solution packages designed to meet various market needs.
     These packages rely primarily on our core technology, best described as
     "line of sight authentication" (i.e., electro-optical detection and
     analysis of organic and inorganic materials). The micro-processing unit
     within the readers uses proprietary algorithms to authenticate genuine
     codes, as well as differentiate between various codes.

     We have designed several generic readers that provide different levels of
     security for the various target applications. For specific projects, due to
     the flexibility upon which the technology is built, we customize the
     generic readers to fit customer needs according to size and speed. Our
     current line of products, which support our customizable solutions, include
     the following:

o    SMARTINK(TM) - MACHINE READABLE AUTHENTICATION CODES FOR ADVANCED SECURITY

     Our SmartInk(TM) codes are secure encoded inks and coatings that provide
     authentication solutions ranging from a definitive "yes/no" verification to
     multi functional systems that allow item identification, track & trace
     functionality, real-time encoding and debiting applications. SmartInk(TM)
     codes are created by mixing special chemical markers (taggants) into
     commercial inks, coatings and other media, and applying them, using any
     standard printing process, onto documents, tickets, product packaging and
     labels. All SmartInk(TM) marker/carrier mixtures are allocated with covert
     signatures that, while being completely invisible and protected from
     reverse-engineering attempts, are easily detected by our line of readers,
     including the handheld field verification SignaSure(TM) readers and the high
     speed SortSure(TM) validator.

o    SIGNASURE(TM) - ADVANCED AUTHENTICATION READERS

     Our new SignaSure(TM) series features advanced readers for fast,
     on-the-spot authentication of sensitive documents and branded products. The
     SignaSure(TM) readers are equipped with technology to provide users with
     high security, exceptional functionality and cost effective solutions. The
     readers utilize proprietary algorithms and unique electro-optical
     techniques to authenticate covert SmartInk(TM) codes, which are created by
     mixing special chemical markers (taggants) into commercial inks, coatings
     and other media, and applying them, using standard printing processes, onto
     documents, tickets, product packaging and labels.

o    SORTSURE(TM) - IN-LINE VERIFICATION FOR HIGH-SPEED PROCESSING, QUALITY
     CONTROL AND AUDIT FUNCTIONS

     Our SortSure(TM) readers provide high-speed authentication and quality
     control of large quantities. The embedded OEM kits enable seamless
     integration with existing equipment, whether backroom processing units,
     printing presses or inspection systems in distribution/return centers. One
     model incorporates a mechanized traversing arm for real-time quality
     control readings over web-based printing presses. All models utilize
     proprietary technology and unique electro-optical techniques to measure
     and/or authenticate covert SmartInk(TM) codes.


                                       5


o    HOLOSURE(TM) - COMBINING COVERT & OVERT SECURITY: A MULTI-TIER
     PROTECTION

     The HoloSure(TM), machine-readable hologram system consists of: a holographic
     image and a machine-readable code. The HoloSure(TM) system combines the
     benefits of both systems into one feature that contains multiple levels of
     security.

     The machine-readable element is a unique fingerprint signature of a highly
     secure code incorporated in the hologram during standard production. This,
     combined with an advanced decoding system with the ability to process
     multiple changeable parameters, provides a high level of protection.

o    POCKETSURE(TM) - MOBILE AUTHENTICATION READERS FOR SMART PROTECTION

     Our new PocketSure(TM) reader represents an important addition to our
     highly regarded SignaSure(TM) reader line. PocketSure(TM) combines
     handheld, machine-readable detection with forensic-level analysis. We
     believe that our new PocketSure(TM) reader is a next-generation reader that
     offers customers enhanced mobility and economy. At 5.5 inches in length and
     weighing a mere 2.5 ounces, the PocketSure(TM) includes single-code memory,
     audio and visual indicators, and the ability to operate on standard AAA
     batteries. PocketSure(TM) offers a significant benefit for warehouses,
     return centers, law enforcement agencies and retail organizations seeking
     to optimize their anti-counterfeiting and "reverse logistics" measures. Its
     simple-to-read LED, one-button operation, with replaceable batteries also
     makes it easier to train a larger number of personnel. Our PocketSure(TM)
     and SignaSure(TM) can be combined to create multi-level security programs
     wherein a primary level of inspectors employ PocketSure(TM) for detection
     of a base covert code while a secondary level of security specialists
     employ SignaSure(TM) in the field to detect a more complex forensic-level
     code.

o    TRANSURE(TM) - AUTOMATIC ANTI-COUNTERFEITING PUBLIC & MASS TRANSIT
     TICKETS

     We believe that our high-speed and automated TranSure(TM) security tickets
     system improves travelers' satisfaction, enhances security, curbs revenue
     loss and provides new earning streams. This tickets system has numerous
     applications such as mass transit (bus, rail and tram) system entry, travel
     and flight tickets, Automatic Fare Collection (AFC) systems and Access
     Control Gate (ACG) systems.

     We have developed an advanced automatic secure admission tickets and passes
     system for public transportation and mass transit systems to prevent the
     loss of income caused by counterfeit tickets. This system contains features
     such as invisible coded ink that our electro-optic detector can decode. Our
     unique security tickets system is highly flexible and customizable and
     therefore, can protect all types of tickets such as: paper cards, PVC, PET,
     Teslin, magnetic cards, smart cards, contactless smart cards, etc. Our
     machine-readable encoded tickets ensure maximum security and are processed
     in fractions of a second, allowing mass-quantity processing and on the spot
     processing (such as at the point-of-entrance to a terminal).

EMERGING TECHNOLOGY - RADIO FREQUENCY INDENTIFICATION - RFID

     We are developing products that permit high volume tagging and
authentication without requiring a line of sight. We are currently working on
the development of next-generation chipless label technology for low cost RFID
applications. This RFID technology is being designed to permit "no line of
sight" identification of our unique tags. We believe that our chipless tags will
be suitable for a variety of applications, including:

     1-high speed work flow,
     2-item identification,
     3-production floor controls,
     4-authentication,
     5-supply chain management,
     6-ownership, and
     7-life cycle information.

     The underlying concept of our new RFID technology, which we call
SARcode(TM), is to utilize the rules of diffraction phenomena and image/pattern
recognitin tools as the basis for ultra-low-cost passive chipless RFID tags. The
existence of diffraction has limited the extent to which symbols or images (such
as barcodes) can be compressed. When one symbol is placed too near another, its
waves interfere with those of its neighbor ("diffraction") and vice versa,
making it impossible to accurately read either bar. This limitation has
restricted the density with which symbol-based code can be printed and,
therefore, the minimum size required for machine-readable codes. This has also
limited the number of digits which can be used in barcodes. We believe our
Sarcode(TM) RFID solution is a unique, lower cost solution addressing those
problems.

     Current technologies do not take into account that it is possible to place
two-dimensional objects within extremely high density, yet still use deductive
methods to identify them. Our approach devises a code of simple objects,
together with algorithms for interpreting the phenomena produced when they are
printed close to each other. Although the labels produced using this method are
two-dimensional, the phenomena itself produces a three-dimensional effect. In
that way, it is possible to derive the exact position of the original layout,
even if behind an obstacle. This capability minimizes the challenge of correctly
identifying objects that are located directly behind other objects, which is
known in the trade as "collision."


                                       6


     Our unique Sarcode(TM) RFID technology is in advanced development phase,
and although during 2008, we had to overcome certaIn development challenges, our
goal is to complete development with a view to launching our chipless label
system during 2010. We aim to include, without limitation, the following RFID
deliverables:

          o    Fixed and hand-held readers;

          o    Specialized conductive inks;

          o    Unique symbology; and

          o    Printer quality control systems.

     If successfully completed, we believe that our technology could eventually
compete successfully with the familiar barcode technology and other electronic
article surveillance solutions that are currently available. We believe that our
chipless RFID Technology is unique in that it is faster, more accurate and
less expensive than other chipless RFID tags currently available while providing
more information than Barcode Technology. We expect to complete a closed loop
system for delivery in 2010.

COMPETITION

     We are aware of other technologies, both covert and overt surface marking
techniques, requiring decoding implements or analytical methods to reveal
relevant information. These technologies are offered by other companies for the
same anti-counterfeiting and anti-diversion purposes that we market our
products. Our competitors, many of whom have greater financial resources than
we have, include:

     o    Technology providers that typically offer a specific range of security
          solutions;

     o    Security printers, which are generally well-established companies
          whose core business is printing. Security printing tends to be
          segregated from the bulk of the printing industry, implementing
          fundamentally the same technologies as those generally used by the
          printing industry but with specific `twists' that are more complex,
          difficult to access or expensive to use;

     o    Systems integrators, which have often evolved from other sectors in
          the printing industry, mainly security print manufacturers, technology
          providers or packaging and label manufacturers. These companies offer
          a wide range of security solutions, enabling them to offer a complete
          suite tailored to the customer's specific needs; and

     o    Security consultancy groups, which offer a range of technologies from
          several technology providers and tailor a specific solution to
          end-customers, based on an evaluation process involving risk analysis
          and characterization of a comprehensive organizational security
          program.

     o    Implementers of traditional barcode technologies. Barcodes are well
          established in the industry and serve as the de facto standard for
          tagging items. Barcodes, however, are limited when item level tagging
          is involved and cannot be implemented in every scenario intended for
          our product.

     Competition in our markets is based upon price, service, quality,
reliability and the ability to offer secure transaction products and services
with the flexibility to meet a customer's particular needs. We believe our
technology provides a unique and cost-effective solution that has certain common
competitive advantages over other technologies. However, even technologies that
are not as secure or reliable as our products are competitive if they are
marketed effectively and may also compete on the basis of other criteria, such
as price. We believe that prospective customers typically consider the following
criteria when choosing a security technology:

     o    Level of security (e.g., multi-layer or single-layer solution, covert,
          overt);

     o    Ability to support or be integrated with existing production,
          logistical processes and equipment;

     o    Ease of utilization/verification;

     o    Ability to extend the use for various organizational uses (e.g.,
          alteration, simulation, counterfeiting, diversion, supply chain
          management);

     o    Safety and durability (i.e., ability to withstand environmental
          factors such as temperature, humidity, sunlight);

     o    Consistency and integrity of solution;

     o    Need for protection of variable vs. fixed data;

     o    Flexibility of code location (e.g., location on package, on product,
          on different substrates);

     o    In the case of overt features, attractiveness to consumer (i.e., added
          marketing value); and

     o    Conclusiveness (i.e., can the technology provide conclusive evidence
          of counterfeiting).

     Strong competitive pricing pressures exist, particularly with respect to
products whose customers seek to obtain volume discounts and economies of scale.
In addition, alternative goods or services, such as those involving electronic
commerce, could replace printed documents and thereby also adversely affect
demand for our products. We believe that completion of our Sarcode(TM) RFID
product currently in development could give us a competitive advantage in
several markets.


                                       7


RESEARCH AND DEVELOPMENT

     The technology and know-how upon which our products are based are subject
to continued development of materials and processes to meet the demands of new
applications and increased competition. We conduct most of our research and
development activities at our facility in Rehovot, Israel. We believe our future
success depends upon our ability to identify the requirements for future
products and product enhancements, and to define, implement and successfully
develop and introduce the technologies, including, without limitation, our next
generation RFID technology, needed to deploy those products and product
enhancements. Our research and development expenses for the year ended December
31, 2008 were $1,747,000.

     We pursue a process-oriented strategy which includes efforts aimed at
developing new or enhanced classes of products and services. As a part of this
strategy, we work with potential customers and other members of the industry to
identify market needs and define appropriate product specifications.

MANUFACTURING AND PRODUCTION

     The principal raw materials used by us for the manufacturing of our
specialty inks include trace amounts of various chemicals and inks suitable for
various printing methods. We believe that there are many sources for both these
chemicals and the printing inks, which we currently purchase from major
suppliers in Europe. Some of these chemicals, however, are considered rare, with
prices in excess of $20,000 per pound for certain chemicals. We do not believe
that we will have difficulty in continuing to procure these chemicals and
printing inks given the number of suppliers, including, without limitation,
suppliers located in the United States, Europe and Japan, from whom they can be
procured. We currently subcontract the manufacturing of our specialty inks to
various ink suppliers, who incorporate chemicals provided by us into the inks.
To maintain the integrity and security of our specialty inks, we do not disclose
the precise chemical ingredients to these ink suppliers.

     The principal raw materials used by us for the manufacturing of our readers
include electronic components, optic components, plastics and other raw
materials. We believe that these materials are in good supply and are available
from multiple sources. We currently utilize subcontractors for the manufacturing
of our readers.

MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

     For the fiscal year ended December 31, 2008, revenues from customers in
Europe and in Asia amounted to approximately 76% of our 2008 revenues. Included
in such revenues are sales to one customer which represented 61% of our total
revenues. Customers in North and South America accounted for approximately 23%
of our revenues.

     The loss of these customers, or any other customer that accounts for a
significant portion of our revenues from time to time, could adversely affect
our business, operating results and financial condition due to the substantial
decrease in revenue such loss would represent.

     For the fiscal years ended December 31, 2008 and 2007 respectively,
revenues attributed to geographic areas based on the location of our customers
were (in thousands):

                        REVENUES FOR THE YEAR ENDED  REVENUES FOR THE YEAR ENDED
                            DECEMBER 31, 2008            DECEMBER 31, 2007
----------------------- ---------------------------- ---------------------------
Europe                                       $ 1,481                     $   866
----------------------- ---------------------------- ---------------------------
North and South America                          504                       1,243
----------------------- ---------------------------- ---------------------------
Asia                                             173                         781
----------------------- ---------------------------- ---------------------------
TOTAL                                        $ 2,158                     $ 2,890
----------------------- ---------------------------- ---------------------------

PATENTS AND PROPRIETARY TECHNOLOGY

     Although our policy is to file patent applications to protect technology,
inventions and improvements that are important to the development of our
business, and although we will continue to seek the supplemental protection
afforded by patents, we generally consider protection of our products, processes
and materials to be more dependent upon proprietary knowledge, know-how and
rapid assimilation of innovations than patent protection.

     With respect to the RFID technology we are developing, we have filed five
patent families related to various aspects of the RFID technology. Two of our
patent families have already matured into patents granted in the following
jurisdictions: United States (US6,819,244 and US6,997,388), France, Germany,
Switzerland and United Kingdom (EP1374156 and EP1599831). Our third patent
family has matured into a patent granted in the United States (US6,922,146),
while it is still being examined in Europe. Regarding our fourth patent family,
we have filed an International Patent Application (PCT). In addition, during the
second quarter of 2008, we filed an International Patent Application (PCT)
relating to our fifth patent family.

     With respect to the product-authentication we are developing, we entered
into an assignment agreement by which InkSure has acquired a license for certain
of AuthentiForm Technology LLC's intellectual property portfolio regarding
authentication methods and enhanced product-authentication technology. The
company is currently evaluating this intellectual property portfolio to
determine whether or not to pursue its use.


                                       8


     Our patent position is uncertain and may involve complex legal and factual
issues. Consequently, we do not know whether our pending patent applications
will result in the issuance of any patents, or whether the patents, if issued,
will provide significant proprietary protection or will not be circumvented or
invalidated. Since patent applications are maintained in secrecy until patents
issue, and since publications of discoveries in scientific or patent literature
tend to lag behind actual discoveries by several months, we cannot be certain
that we were the first creator of inventions covered by pending patent
applications or that we were the first to file patent applications for such
inventions. Moreover, we may have to participate in interference proceedings
declared by the United States Patent and Trademark Office or other patent
offices to determine the priority of inventions, which could result in
substantial cost to us. For further information regarding our proprietary
technology, please refer to item 3 (legal proceedings).

     We require our employees, consultants and advisors to execute
confidentiality agreements upon the commencement of any employment or consulting
relationship with us. Each agreement provides that all confidential information
developed or made known to the individual during the course of the relationship
will be kept confidential and not disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all
inventions conceived by an individual will be our exclusive property, other than
inventions unrelated to our business and developed entirely on the employee's
own time. There can be no assurance, however, that these agreements will provide
adequate protection or remedies for misappropriation of our trade secrets in the
event of unauthorized use or disclosure of such information or that an
independent third party will not develop functionally equivalent technology.

GOVERNMENT REGULATION

     Our scanning devices and next-generation radio frequency technology
scanning equipment may be required by customers or any other third parties to
comply with the regulations of the United States Federal Communications
Commission ("FCC"), which may require certification, verification or
registration of the equipment with the FCC. Certification and verification of
new equipment may require testing to ensure the equipment's compliance with the
FCC's rules. In addition, the equipment must be labeled according to the FCC's
rules to show compliance with these rules. Electronic equipment permitted or
authorized to be used by the FCC through our certification or verification
procedures must not cause harmful interference to licensed FCC users, and it is
subject to radio frequency interference from licensed FCC users. Our common
pocket readers are FCC certified.

EMPLOYEES

     As of December 31, 2008, we had 12 employees (one of which is on a part
time basis) located in Israel, including eight R&D engineers. The other four
employees work in management, administration, operations and sales. In addition,
as of December 31, 2008, we had two employees located in the United States,
substantially involved in marketing and pre-sale and post-sale activities. We
consider our relations with our employees to be satisfactory. We believe our
future will depend in large part on our ability to attract and retain
highly-skilled employees.

     The employees of our wholly owned subsidiary InkSure Ltd. are entitled to
"Dmey Havra'a" as provided in a Collective Bargaining Agreement to which the
General Labor Union of the Workers in Israel is a party. Dmey Havra'a is an
employee benefit program whereby employees receive payments from their employer
for vacation. In addition, InkSure Ltd. pays a monthly amount equal to 14.53% of
the salary of each employee to an insurance policy, pension fund or combination
of both, according to the request of such employee. Each employee pays a monthly
amount to such insurance policy equal to 5% of such employee's salary. InkSure
Ltd. pays a monthly amount up to 7.5% of each employee's salary to an
educational fund in the name of such employee. Each employee pays a monthly
amount to such fund equal to 2.5% of such employee's salary. InkSure Ltd. makes
cars available to some employees for their exclusive use. InkSure Ltd. pays all
costs associated with these cars, whether fixed or variable, including without
limitation, fuel, repairs and insurance.


                                       9




ITEM 1A. RISK FACTORS

WE WILL NEED TO RAISE ADDITIONAL CASH TO SUSTAIN OUR OPERATIONS BEYOND TWELVE
MONTHS, EXPAND OUR OPERATIONS AND REPAY OUR OUTSTANDING DEBT.

     Although we believe that our existing cash, together with cash generated
from operations will be sufficient to support our operations for at least 12
months, continuing product development and enhancement, expected new product
launches, corporate operations and marketing expenses will continue to require
additional capital. However, we do not have the funds necessary to repay the
approximately $9 million principal amount outstanding under our senior secured
convertible notes (the "Convertible Notes") if the holders elect to redeem them
on September 30, 2009. Our current revenues from operations are insufficient to
cover any expansion plans.

     The consolidated financial statements have been presented on the basis that
we will continue as a going concern. However, our ability to continue as a going
concern is dependent upon a number of factors, including our ability to obtain
additional capital. Therefore, we plan to engage investment bankers to help
effect a sale of certain of our assets or to otherwise assist us overcome these
issues, though an investment banker engaged for such purposes was unable to do
so in the recent past. Management's plans also include cost cuts and increasing
the marketing of its current and new products. In addition, we will need to
raise additional capital if we are required to repay the Convertible Notes in
September 2009. However, no assurance can be given that we will be able to
obtain additional capital on terms favorable to us, or that additional capital
will be available to us at all. Our ability to raise capital is impeded by the
full ratchet anti-dilution provisions of our Convertible Notes and certain
warrants. Such provisions, unless waived or modified, would make equity
financing at less than $0.60 per share extremely dilutive to our existing
shareholders. There can be no assurance that we will be successful in completing
a transaction or financing.

     Our need for additional capital to finance our operations and growth will
be greater should, among other things, our revenue or expense estimates prove to
be incorrect. We may not be able to obtain additional financing in sufficient
amounts or on acceptable terms when needed, which would adversely affect our
prospects, business, operating results and financial condition by forcing us to
curtail our operations or not pursue opportunities which present themselves.

     Historically, we have received financing from Israel's Office of the Chief
Scientist, which may not be available to us in the future.

WE HAVE SUBSTANTIAL OUTSTANDING INDEBTEDNESS WHICH IMPOSES SIGNIFICANT
RESTRICTIONS ON OUR BUSINESS.

     We currently have approximately $9 million of principal debt outstanding
under the Convertible Notes. The Convertible Notes prohibit us, from among other
things, the incurring debt or liens (subject to limited exceptions) or pay cash
dividends or redeem any capital stock. These restrictions may limit our ability
to obtain additional financing and restrict our ability to operate our business.
Moreover, the holders of these notes may require us to redeem these notes in
September 2009.

OUR EXISTING AND FUTURE DEBT OBLIGATIONS COULD IMPAIR OUR LIQUIDITY AND
FINANCIAL CONDITION, AND IN THE EVENT WE ARE UNABLE TO MEET OUR DEBT
OBLIGATIONS, WE COULD LOSE TITLE TO OUR ASSETS.

     In addition to our Convertible Notes, we may also assume or incur
additional debt, including secured debt, in the future in connection with, or to
fund, our continuing operations. Our debt obligations:

     o    could impair our liquidity;

     o    could make it more difficult for us to satisfy our other obligations;

     o    require us to dedicate a substantial portion of our cash flow to
          payments on our debt obligations, which reduces the availability of
          our cash flow to fund research and development, working capital,
          capital expenditures and other corporate requirements;

     o    could impede us from obtaining additional financing in the future for
          working capital, capital expenditures, acquisitions and general
          corporate purposes; and

     o    place us at a competitive disadvantage when compared to our
          competitors who have less debt.

Our operations may not generate sufficient cash to enable us to service our
debt. If we were to fail to make any required payment under the agreements
governing our indebtedness or fail to comply with the financial and operating
covenants contained in these agreements, we would be in default. Our lenders
would have the ability to require that we immediately pay all outstanding
indebtedness. If the lenders were to require immediate payment, we would not
have sufficient assets to satisfy our obligations. In such event, our lenders
could foreclose on all of our assets, including our patents. In addition, we
could be forced to seek protection under bankruptcy laws, which could have a
material adverse effect on our existing business and our ability to procure new
business as well as our ability to recruit and/or retain employees. A default
could have a significant adverse effect on the market value and marketability of
our common stock.


                                       10


SINCE INCEPTION, WE HAVE HAD OPERATING LOSSES AND MAY NOT BE PROFITABLE IN THE
FUTURE.

     We have incurred substantial losses. We had an accumulated deficit of
approximately $21,705,000 at December 31, 2008 and had a negative working
capital (current assets less current liabilities) of approximately $5,003,000 at
December 31, 2008. We incurred losses of approximately $3,528,000 for the year
ended December 31, 2008, and losses are continuing. We expect to spend
significant amounts to enhance our products and services, and fund research and
development. As a result, we will need to generate significant revenue to break
even or achieve profitability. Even if we do achieve profitability, we may not
be able to sustain or increase profitability on a quarterly or annual basis.

     Our operating expense levels are based on internal forecasts for future
demand and not on firm customer orders for products or services. Our results may
be affected by fluctuating demand for our products and services from one quarter
to the next and by increases in the costs of components acquired from suppliers
among other issues.

SINCE INCEPTION, WE HAVE HAD NEGATIVE CASH FLOWS.

     We have incurred substantial negative cash flows since our inception. We
generated negative cash flow from operating activities of approximately
$1,755,000 in 2008 and $1,738,000 in 2007. To the extent that we continue to
have negative cash flows, we will continue to require additional capital to fund
our operations. There can be no assurance that we will ever achieve positive
cash flow from our operations or that we can secure additional capital.

WE CONTINUE TO RELY ON A LIMITED NUMBER OF MAJOR CUSTOMERS FOR MOST OF OUR
REVENUES. THE LOSS OF SUCH CUSTOMERS COULD ADVERSELY AFFECT OUR BUSINESS.

     For the fiscal year ended December 31, 2008, sales to three of our
customers in Europe and in Asia accounted for approximately 78% of our revenues.
Sales to one of our customers in Europe accounted for approximately 61% of our
revenues. The loss of any customer that accounts for a significant portion of
our revenues from time to time, could adversely affect our business, operating
results and financial condition due to the substantial decrease in revenue such
loss would represent.

MOST OF OUR SALES ARE TO INTERNATIONAL CUSTOMERS. COMPLICATIONS IN INTERNATIONAL
MARKETS COULD ADVERSELY AFFECT OUR BUSINESS.

     Sales to customers outside of the United States accounted for 77% of our
revenues during 2008. We are seeking to continue to expand our sales in foreign
markets, but there can be no assurance that we will be able to do so or that
such markets will be viable. Moreover, a large percentage of our sales is
derived from countries in which the political situation is unstable. To the
extent that a large percentage of our sales continues to come from customers
outside of the U.S., we will continue to be subject to the risks associated with
international sales, including economic and political instability, shipping
delays, customs duties, export quotas and other trade restrictions, any of which
could have a significant impact on our ability to deliver products on a
competitive and timely basis. While we have not encountered significant
difficulties in connection with sales in international markets to date, future
imposition of, or significant increases in, the level of custom duties, export
quotas or other trade restrictions could have an adverse effect on our business.

WE HAVE GRANTED EXCLUSIVITY RIGHTS TO ONE OF OUR CUSTOMERS, WHICH COULD
ADVERSELY AFFECT OUR FUTURE DISTRIBUTION OPTIONS.

     We have granted to one of our customers the exclusive right to use our
products within such customer's country of origin in Eastern Europe for so long
as such customer's orders from the Company reach a certain level. Although this
grant of exclusivity is limited to one country, it is of indefinite term and may
have an adverse effect on our ability to enter into agreements with other
potential customers that may have broad regional operations.

WE ARE FOCUSING ON NEW RFID TECHNOLOGY PRODUCT DEVELOPMENT. IF WE ARE UNABLE TO
COMMERCIALIZE THIS PRODUCT OR ANY OTHER PRODUCT THAT WE MAY PURSUE IN THE
FUTURE, OR EXPERIENCE SIGNIFICANT DELAYS OR UNANTICIPATED COSTS IN DOING SO, OUR
BUSINESS WILL BE MATERIALLY HARMED.

     We are focusing on development of a new RFID product utilizing unproven
technology. We may spend significant amounts on attempting to develop the
product and there is no assurance that such product will be successfully
developed or, if developed, that we will be able to commercialize this product.
As with any effort at new product development, we are experiencing significant
delays and incurring significant unanticipated expenses. Accordingly, we may
spend significant time, management resources and money on the RFID product with
nothing to show for it. Even if we successfully develop our RFID technology, we
may be unable to successfully market RFID products.


                                       11


IF OUR PRODUCT OFFERINGS ARE NOT ACCEPTED BY THE MARKET, OUR BUSINESS MAY BE
ADVERSELY AFFECTED.

     We generate all of our revenue from sales of products relating to the
"authentication industry." The market for providing these products and services
is highly competitive and is affected by the introduction of new products and
services that compete with the products and services offered by us. Demand for
these products and services could be affected by numerous factors outside our
control, including, among others, market acceptance by prospective customers,
the introduction of new or superior competing technologies or products and
services that are available on more favorable pricing terms than those being
offered by us, and the general condition of the economy. Our products have not
yet achieved any significant market penetration. Market acceptance for our
products and services may not develop in a timely manner or may not be
sustainable. New or increased competition may result in market saturation, more
competitive pricing, and lower margins. Our business, operating results and
financial condition would be materially and adversely affected if the market for
our products and services fails to grow, grows more slowly than anticipated, or
becomes more competitive or if targeted customers do not accept our products and
services and we experience a corresponding reduction in revenues, a higher loss
and a failure to generate substantial revenues in the future. In addition, we
may enter into several agreements pursuant to which we may grant third parties
broad, exclusive rights to distribute and sell certain of our technology,
subject to customary provisions governing confidentiality and nondisclosure.
Failure of these third parties to effectively market products and services based
upon our technology could have a material adverse effect on our business,
operating results, and financial condition due to the lack of revenues expected
to be generated from such agreements.

WE HAVE A LONG AND VARIABLE SALES CYCLE WHICH CAN RESULT IN SIGNIFICANT
FLUCTUATIONS IN OUR REVENUE FROM QUARTER TO QUARTER.

     The sales cycle of our products, which is the period of time between the
identification of a potential customer and completion of the sale, is typically
long and subject to a number of significant risks over which we have little
control. As our operating expenses are based on anticipated revenue levels, a
small fluctuation in the timing of sales can cause our quarterly operating
results to vary significantly from period to period. If revenue falls
significantly below anticipated levels, our business would be seriously harmed.
Investors can also anticipate uneven revenue and operating results, which may be
reflected in a volatile market price for our stock.

WE FACE POTENTIAL LIABILITY DUE TO PRODUCT DEFECTS AND MAY INCUR SIGNIFICANT
LIABILITIES IN DEFENDING LAWSUITS OVER ANY SUCH DEFECTS.

     Authentication products as complex as those offered by us may contain
undetected errors or defects when first introduced or as new versions are
released. Despite testing by us and by current and potential customers, errors
may be found in new authentication products after commencement of commercial
shipments resulting in product recalls and market rejection of our
authentication products and resulting in damage to our reputation, as well as
lost revenue, diverted development resources and increased support costs. In
addition, our product liability insurance, if any, may be insufficient to cover
claims related to errors or defects in our authentication products.

WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ADVERSELY
AFFECT OUR ABILITY TO COMPETE IN THE AUTHENTICATION MARKET.

     Our performance and ability to compete are dependent to a significant
degree on our proprietary technology. We regard protection of our proprietary
rights as critical to our success, and rely on patent, trademark and copyright
law, trade secret protection and confidentiality and/or license agreements with
our employees, customers, partners and others to protect our proprietary rights.
We currently hold one pending patent in the United States and we have been
issued two patents in Israel relating to our technology of marking documents for
the purpose of authentication.

     With respect to the RFID technology being developed by us, we have filed
five patent families related to various aspects of the RFID technology. Two of
our patent families have been already matured into patents granted in United
States, France, Germany, Switzerland and United Kingdom. Our third patent family
has matured into a patent granted in the United States, while it is still being
examined in Europe. Regarding our fourth patent family, we have recently filed
an International Patent Application(PCT). In addition, regarding our fifth patent
family, we have only recently filed a PCT.

     We are also seeking protection under the Patent Cooperation Treaty. We may
file for additional patents as we determine appropriate. A patent may not be
issued with respect to any patent application filed by us or the scope of any
claims granted in any patent may not provide meaningful proprietary protection
or a competitive advantage to us. The validity or enforceability of patents
which may be issued or licensed to us may be challenged by others and, if
challenged, may not be upheld by a court. In addition, competitors may be able
to circumvent any patents that may be issued or licensed to us. Due to our
reliance on our proprietary technology, our inability to protect our proprietary
rights adequately would have a material adverse effect on us.


                                       12


     We generally have entered into agreements containing confidentiality and
nondisclosure provisions with our employees and consultants and limit access to
and distribution of our documentation and other proprietary information.
However, the steps taken by us may not prevent misappropriation of our
technology and agreements entered into for that purpose may not be enforceable.

     Notwithstanding the precautions taken by us, a third party may be able to
copy or otherwise obtain and use our proprietary information without
authorization or to develop similar technology independently. Policing
unauthorized use of our technology is difficult. The laws of other countries may
afford us little or no effective protection of our intellectual property.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our products and services are made
available. In the future, we may also need to file lawsuits to enforce our
intellectual property rights, protect our trade secrets, and determine the
validity and scope of the proprietary rights of others. Such litigation, whether
successful or unsuccessful, could have a material adverse effect on our
business, operating results, and financial condition due to the substantial
costs and diversion of resources.

WE WILL HAVE TO KEEP PACE WITH NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE IN
ORDER TO REMAIN COMPETITIVE IN THE MARKETPLACE.

     If we are able to sufficiently penetrate the market with our products and
services, our future success will depend upon our ability to keep pace with
technological developments and respond to evolving customer demands. Failure to
anticipate or respond adequately to technological developments or significant
delays in product development could damage our potential position in the
marketplace and could have a material adverse effect on our business, operating
results, and financial condition. With our current limited financial and
technical resources, we may not be able to develop or market new products,
services or enhancements to our existing product and service offerings. It is
possible that we could experience significant delays in these endeavors. Any
failure to successfully develop and market products and services and product and
service enhancements could have a material adverse effect on our business,
operating results and financial condition. See "Risk Factors - If our product
offerings are not accepted by the market, our business may be adversely
affected."

WE FACE COMPETITION AND PRICING PRESSURES FROM LARGER, WELL FINANCED AND MORE
RECOGNIZED COMPANIES AND WE MAY NOT BE ABLE TO EFFECTIVELY COMPETE WITH SUCH
COMPANIES.

     The market for our products and services is highly competitive. Many of our
competitors have far greater financial, human, and other resources. Barriers to
entry in our business are relatively insubstantial and companies with
substantially greater financial, technical, marketing, manufacturing and human
resources, as well as those with far greater name recognition than us, may also
attempt to enter the market. We believe that our ability to compete depends on
our technology and price, as well as on our distribution channels and the
quality of products and services. If we do not successfully compete, we will not
generate significant revenues or profits. Visible barcodes in particular are
considered an authentication technology, and are essentially free. In the
pharmaceutical industry, there is a new movement to visible 2D barcodes to be
used both for authentication and for electronic pedigree, in anticipation of
state and federal electronic pedigree requirements for pharmaceuticals. These
will require the ability to trace products through the supply chain. As a
result, a larger amount of data has to be encoded into the product. Regarding
covert machine-readable authentication, we believe there are competitors who are
lower priced, but whose technology is not as robust as ours. In the area of
brand protection, we believe that none of these competitors has achieved a
significant market position. However, in the area of public/financial documents
(including tax stamps and bank notes), SICPA, a private Swiss based security
solutions provider, has achieved a leading market position due to its long
history of sales of security inks for government applications, which has
produced a major network of governmental contacts. SICPA also has the advantage
of prior success in winning publicly bid tax stamp projects, which it uses for
referential value in new projects.

     Lack of financial, personnel and other resources has adversely affected our
ability to compete. In 2008, we only had three dedicated sales people in the
company (two in the US and one in Israel). Western Europe, Latin America, Africa
and much of Asia are effectively lacking any sales coverage. The audience that
can be reached through print ads, direct mail and e-mail, trade shows,
conferences and trade group memberships is limited by our limited marketing
resources.

WE DEPEND ON THIRD PARTIES FOR INFRASTRUCTURE AND SUPPLIES, THE LOSS OF WHICH
COULD ADVERSELY AFFECT OUR OPERATIONS.

     With regard to our products, we are dependent in part on the availability
of equipment, supplies and services provided by independent third parties.
Currently we use a limited number of suppliers in order to take advantage of
volume discounts. If one of our suppliers were unable to meet our supply demands
and we could not quickly replace the source of supply, it could have a material
adverse effect on our business, operating results and financial condition, for
reasons including a delay of receipt of revenues and damage to our business
reputation. Certain taggants we use in the production of our inks are rare. If
these are not available, production may be delayed, which could result in lost
sales or additional costs.


                                       13


WE DEPEND ON OUR SENIOR MANAGEMENT AND KEY EMPLOYEES, THE LOSS OF WHICH COULD
ADVERSELY AFFECT OUR OPERATIONS.

     Our success depends to a large degree upon the skills of our senior
management team and current key employees and upon our ability to identify,
hire, and retain additional sales, marketing, technical and financial personnel.
We may be unable to retain our existing key personnel or attract and retain
additional key personnel. We do not maintain key person life insurance for any
of our officers or key employees. We require our executives and key employees to
enter non-competition agreements with us. Due to our reliance on our senior
management and key employees, the loss of any of our key executives, the use of
proprietary or trade secret data by former employees who compete with us, or the
failure to attract, integrate, motivate, and retain additional key employees
could have a material adverse effect on our business, operating results and
financial condition.

WE MAY NOT BE ABLE TO MANAGE OUR GROWTH TO SUCCESSFULLY IMPLEMENT OUR BUSINESS
PLAN AND SUCH MISMANAGEMENT COULD ADVERSELY AFFECT OUR BUSINESS AND OUR ABILITY
TO GROW.

     In the event we obtain the necessary financing, we would seek to accelerate
the development and commercialization plans for our RFID technology. The
resulting strain on our managerial, operational, financial, and other resources
would be significant and could render such increased marketing efforts useless.
Our ability to manage our growth effectively will require us to continue to
improve our operations, financial and managerial controls, reporting systems and
procedures. If we are successful in achieving our growth plans, such growth is
likely to result in increased responsibility for our management; and our
management may not be able to successfully manage such growth due to their lack
of experience in managing companies of our size. However, if we are unsuccessful
in raising such funds we will not be able to achieve the above mentioned goals.

OUR RESEARCH AND DEVELOPMENT EFFORTS FOR NEW PRODUCTS MAY BE UNSUCCESSFUL.

     We incur significant research and development expenses to develop new
products and technologies in an effort to maintain our competitive position in a
market characterized by rapid rates of technological advancement. Our research
and development efforts are subject to unanticipated delays, expenses and
technical problems. There can be no assurance that any of these products or
technologies will be successfully developed or that, if developed, will be
commercially successful. In the event that we are unable to develop
commercialized products from our research and development efforts or we are
unable or unwilling to allocate amounts beyond our currently anticipated
research and development investment, we could lose our entire investment in
these new products and technologies. Any failure to translate research and
development expenditures into successful new product introductions could have an
adverse effect on our business.

OUR RFID PRODUCTS MUST MEET EXACTING TECHNICAL AND QUALITY SPECIFICATIONS.
DEFECTS, ERRORS IN OR INTEROPERABILITY ISSUES WITH OUR PRODUCTS OR THE FAILURE
OF OUR PRODUCTS TO OPERATE AS EXPECTED COULD AFFECT OUR REPUTATION, RESULT IN
SIGNIFICANT COSTS TO US AND IMPAIR OUR ABILITY TO SELL OUR PRODUCTS.

     Our RFID products may not operate as expected or may contain defects or
errors, which could materially and adversely affect our reputation, result in
significant costs to us and impair our ability to sell our products in the
future. Our customers have demanding specifications for quality, performance and
reliability that our RFID tag and reader products must meet. Our products are
highly technical and designed to be deployed in large and complex supply chain
networks and other settings under a wide variety of conditions. Customers may
discover errors, defects, or incompatibilities in our products only after they
have been fully deployed and are operating under peak stress conditions. For
example, harsh environments and radio frequency interference from other sources
may negatively affect the performance of our RFID readers. In addition, users of
our RFID products may experience compatibility or interoperability issues
between our products and their enterprise software systems or networks, or
between our products and other RFID products they use.

     The costs incurred in correcting any product defects or errors may be
substantial and could adversely affect our operating results. While we test our
products for defects or errors prior to product release, defects or errors may
be identified from time to time by our internal team and by our customers. To
the extent product failures are material, they could adversely affect our
business, operating results, customer relationships, reputation and prospects.

WE ARE CURRENTLY IN A GROWTH STAGE AND MAY NOT BE ABLE TO FULFILL LARGE ORDERS.

     We have no history of fulfilling large orders. As we begin to receive
significant orders for our products, we will be required to fulfill such orders
and implement substantial projects. We have little experience doing so and doing
so will strain our resources and require us to develop new capabilities and
expand existing ones. These include managerial and administrative structure,
sales and marketing activities, financial systems and personnel recruitment.

     As a result, there can be no assurance that we will be able to timely
fulfill large orders. Failure to do so could materially and adversely affect our
business reputation, impede future sales and place a significant strain on
senior management.


                                       14


OUR SPECIALTY INKS INCLUDE VARIOUS CHEMICALS AND ARE SUBJECT TO CERTAIN
ENVIRONMENTAL REGULATIONS, FOR WHICH WE COULD INCUR SIGNIFICANT LIABILITIES FOR
PROBLEMS RELATING TO THEIR SHIPPING AND STORAGE.

     Our operations are subject to federal, state, local, and foreign
environmental laws and regulations. Our specialty inks include various
chemicals, some of which may be hazardous substances and subject to various
government regulations relating to our transfer, handling, packaging, use, and
disposal. From time to time, we may store these chemicals or inks at our
facilities in the United States and Israel or at our subcontracted
manufacturer's facilities, and a shipping company ships them at our direction.
We could face liability for problems that may arise when we store or ship these
inks or chemical components. To the extent future laws and regulations are
adopted or interpretations of existing laws and regulations change, new
requirements may be imposed on our future activities or may create liability
retroactively. Failure to comply with applicable rules and regulations could
subject us to monetary damages and injunctive action, which could have a
material adverse effect on our business, financial condition or results of
operations.

SOME OF OUR PRODUCTS IN DEVELOPMENT WILL BE SUBJECT TO GOVERNMENT REGULATION OF
RADIO FREQUENCY TECHNOLOGY WHICH COULD CAUSE A DELAY OR INABILITY TO INTRODUCE
SUCH PRODUCTS IN THE UNITED STATES AND OTHER MARKETS.

     The rules and regulations of the FCC limit the radio frequency used by and
level of power emitting from electronic equipment. Our scanning device and the
next-generation radio frequency technology scanning equipment may be required to
comply with these FCC rules which may require certification, verification or
registration of the equipment with the FCC. Certification and verification of
new equipment may require testing to ensure the equipment's compliance with the
FCC's rules. The equipment must be labeled according to the FCC's rules to show
compliance with these rules. Testing, processing of the FCC's equipment
certificate or FCC registration, and labeling may increase development and
production costs and could delay introduction of our verification scanning
device and next-generation radio frequency technology scanning equipment into
the United States' market. Electronic equipment permitted or authorized to be
used by the FCC through our certification or verification procedures must not
cause harmful interference to licensed FCC users, and it is subject to radio
frequency interference from licensed FCC users. Selling, leasing or importing
non-compliant equipment is considered a violation of FCC rules and federal law
and violators may be subject to an enforcement action by the FCC. Any failure to
comply with the applicable rules and regulations of the FCC could subject us to
monetary action or an injunction and could have a material adverse effect on our
business, operating results and financial condition. In addition, certain other
countries may impose similar or more burdensome regulations.

CONDITIONS IN ISRAEL AFFECT THE OPERATIONS OF OUR SUBSIDIARY IN ISRAEL AND MAY
LIMIT OUR ABILITY TO SELL OUR PRODUCTS AND SERVICES.

     InkSure Ltd., our principal operating subsidiary, is incorporated under
Israeli law and its principal office, manufacturing facility and research and
development facility are located in Israel. Political, economic and military
conditions in Israel directly affect InkSure Ltd.'s operations. Since the
establishment of the State of Israel in 1948, a number of armed conflicts have
taken place between Israel and its Arab neighbors and a state of hostility,
varying in degree and intensity, has led to security and economic problems for
Israel. Despite negotiations to effect peace between Israel and its Arab
neighbors, the future of these peace efforts is uncertain. Since October 2000,
there has been a significant increase in violence primarily in the West Bank and
Gaza Strip. Recently there was an escalation in violence among Israel, Hamas,
the Palestinian Authority and other groups, as well as extensive hostilities
along Israel's northern border with Lebanon in the summer of 2006, and extensive
hostilities along Israel's border with the Gaza Strip since June 2007 when the
Hamas effectively took control of the Gaza Strip, which intensified in December
2008. Furthermore, several countries still restrict trade with Israeli
companies, which limits our ability to make sales to, or purchase components
from, those countries. Any future armed conflict, political instability,
continued violence in the region or restrictions could limit our ability to
operate our business and could have a material adverse effect on our business,
operating results and financial condition.

OUR OPERATIONS COULD BE DISRUPTED AS A RESULT OF THE OBLIGATION OF MANAGEMENT OR
KEY PERSONNEL OF INKSURE LTD. TO PERFORM MILITARY SERVICE.

     Generally, all male adult citizens and permanent residents of Israel under
the age of 45 are, unless exempt, obligated to perform up to 36 days of military
reserve duty annually. Additionally, all Israeli residents of this age are
subject to being called to active duty at any time under emergency
circumstances. Some of the officers and employees of InkSure Ltd. are currently
obligated to perform annual reserve duty. Our operations could be disrupted by
the absence for a significant period of one or more of InkSure Ltd.'s officers
or key employees due to military service. Any such disruption could limit our
ability to operate our business and could affect our business, results and
financial condition.

UNDER CURRENT ISRAELI LAW, INKSURE LTD. MAY NOT BE ABLE TO ENFORCE COVENANTS NOT
TO COMPETE WHICH COULD HAVE A NEGATIVE EFFECT ON OUR OPERATIONS IN ISRAEL.

     InkSure Ltd. has non-competition agreements with all of its employees.
These agreements prohibit its employees, if they cease working for InkSure Ltd.,
from directly competing with it or working for its competitors, generally, for
up to twelve months. However, we have been advised by our Israeli counsel, Yossi
Avraham, Arad & Co., that Israeli courts are reluctant to enforce non-compete
undertakings of former employees. Our competitive position could be greatly
harmed if we could not enforce these agreements.


                                       15


FLUCTUATIONS IN THE EXCHANGE RATE BETWEEN THE UNITED STATES DOLLAR AND FOREIGN
CURRENCIES MAY ADVERSELY AFFECT OUR OPERATING RESULTS.

     We incur expenses for our operations in Israel in new Israeli shekels (NIS)
and translate these amounts into United States dollars for purposes of reporting
consolidated results. As a result, fluctuations in foreign currency exchange
rates may adversely affect our expenses and results of operations as well as the
value of our assets and liabilities. Fluctuations may adversely affect the
comparability of period-to-period results. In addition, we hold foreign currency
balances, primarily Israeli Shekels, that will create foreign exchange gains or
losses, depending upon the relative values of the foreign currency at the
beginning and end of the reporting period, affecting our net income and earnings
per share. Although we may use hedging techniques in the future (which we
currently do not use), we may not be able to eliminate the effects of currency
fluctuations. Thus, exchange rate fluctuations could have a material adverse
impact on our operating results and stock price.

WE ARE EXPOSED TO SPECIAL RISKS IN FOREIGN MARKETS WHICH MAY RESTRICT OUR
ABILITY TO CONVERT LOCAL CURRENCY INTO UNITED STATES DOLLARS OR ISRAELI SHEKELS
AND THEREBY FORCE US TO CURTAIL OUR BUSINESS OPERATIONS.

     In conducting our business in foreign countries, we are subject to
political, economic, legal, operational and other risks that are inherent in
operating in other countries. These risks range from difficulties in settling
transactions in emerging markets to possible nationalization, expropriation,
price controls and other restrictive governmental actions. We also face the risk
that exchange controls or similar restrictions imposed by foreign governmental
authorities may restrict our ability to convert local currency received or held
by it in their countries into United States dollars or other currencies, or to
take those dollars or other currencies out of those countries.

UNDER ISRAELI LAW, OUR STOCKHOLDERS MAY FACE DIFFICULTIES IN THE ENFORCEMENT OF
CIVIL LIABILITIES AGAINST OUR SUBSIDIARY INKSURE LTD., ITS OFFICERS, DIRECTORS
OR PROFESSIONAL ADVISORS.

     InkSure Ltd. is incorporated under Israeli law and its principal office,
manufacturing facility and research and development facility are located in
Israel. Certain of the directors and InkSure Ltd.'s professional advisors are
residents of Israel or otherwise reside outside of the United States. All or a
substantial portion of the assets of such persons are or may be located outside
of the United States. It may be difficult to effect service of process within
the United States upon InkSure Ltd. or upon any such directors or professional
advisors or to realize in the United States upon judgments of United States'
courts predicated upon civil liability of InkSure Ltd. or such persons under
United States federal securities laws. InkSure Ltd. has been advised by our
Israeli counsel, Yossi Avraham, Arad & Co., that Israeli courts may not (i)
enforce judgments of United States' courts obtained against InkSure Ltd. or such
directors or professional advisors predicated solely upon the civil liabilities
provisions of United States' federal securities laws, or (ii) impose liabilities
in original actions against InkSure Ltd. or such directors and professional
advisors predicated solely upon such United States' laws. However, subject to
certain time limitations, Israeli courts will enforce foreign (including United
States) final executory judgments for liquidated amounts in civil matters,
obtained after due trial before a court of competent jurisdiction which
recognizes similar Israeli judgments, provided that (1) due process has been
observed, (2) such judgments or the execution thereof are not contrary to
Israeli law, public policy, security or sovereignty, (3) such judgments were not
obtained by fraud and do not conflict with any other valid judgment in the same
matter between the same parties and (4) an action between the same parties in
the same matter is not pending in any Israeli court at the time the law suit is
instituted in the foreign court.

WE HAVE A STOCKHOLDER THAT IS ABLE TO EXERCISE SUBSTANTIAL INFLUENCE OVER US AND
ALL MATTERS SUBMITTED TO OUR STOCKHOLDERS WHICH MAY MAKE US DIFFICULT TO BE
ACQUIRED AND LESS ATTRACTIVE TO NEW INVESTORS.

     ICTS International, N.V. and its affiliates beneficially own 5,059,673
shares of our common stock (including through ownership of warrants to purchase
our common stock), representing approximately 29.73% of our outstanding common
stock. Such ownership interest gives ICTS and its affiliates substantial
influence over the outcome of all matters submitted to our stockholders,
including the election of directors and the adoption of a merger agreement, and
such influence could make us a less attractive acquisition or investment target.


                                       16


OUR CERTIFICATE OF INCORPORATION CONTAINS ANTI-TAKEOVER PROVISIONS WHICH COULD
ADVERSELY AFFECT THE VOTING POWER OR OTHER RIGHTS OF THE HOLDERS OF OUR COMMON
STOCK.

     Our certificate of incorporation authorizes the issuance of up to
10,000,000 shares of preferred stock and our board of directors is empowered,
without stockholder approval, to issue a new series of preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of common stock. Such
authority, together with certain provisions of Delaware law and of our
certificate of incorporation and bylaws, may have the effect of delaying,
deterring or preventing a change in control of us, may discourage bids for the
common stock at a premium over the market price and may adversely affect the
market price, and the voting and other rights of the holders of the common
stock. Although we have no present intention to issue any additional shares of
our preferred stock, we may do so in the future. The board of directors of a
Delaware corporation may issue rights, options, warrants or other convertible
securities, (hereinafter the "rights"), entitling the holders of the rights to
purchase, receive or acquire shares or fractions of shares of the corporation or
assets or debts or other obligations of the corporation, upon such terms as are
determined by the board of directors. Our board of directors is free, subject to
their fiduciary duties to stockholders, to structure the issuance or exercise of
the rights in a manner which may exclude "significant stockholders," as defined,
from being entitled to receive such rights or to exercise such rights or in a
way which may effectively prevent a takeover of the corporation by persons
deemed hostile to management. Nothing contained in our certificate of
incorporation will prohibit our board of directors from using these types of
rights in this manner.

WE HAVE NEVER PAID COMMON STOCK DIVIDENDS AND ARE UNLIKELY TO DO SO FOR THE
FORESEEABLE FUTURE.

     We have never paid cash or other dividends on our common stock. It is our
intention to retain any earnings to finance the operation and expansion of our
business, and therefore, we do not expect to pay any cash dividends on our
common stock in the foreseeable future. The terms of our Convertible Notes
prohibit us from paying cash dividends without the consent of the holders of a
majority of the Convertible Notes.

THE TRADING OF OUR COMMON STOCK IS ILLIQUID AND VOLATILE WHICH MAY PREVENT
STOCKHOLDERS FROM SELLING THEIR STOCKS AT THE TIME OR PRICE THEY DESIRE.

     Our common stock is traded on the over-the-counter market with quotations
published on the NASD OTC Bulletin Board under the symbol "INKS". The trading
volume of our common stock historically has been limited and sporadic, and the
stock prices have been volatile. For example, during the twelve months prior to
March 19, 2009, our common stock traded at prices ranging from $0.49 to $0.11.
As a result of the limited and sporadic trading activity, the quoted price for
our common stock on the over-the-counter market is not necessarily a reliable
indicator of its fair market value. The price at which our common stock will
trade in the future may be highly volatile and may fluctuate as a result of a
number of factors, including, without limitation, quarterly variations in our
operating results (which have historically been, and we expect to continue to
be, substantial) and actual or anticipated announcements of new products or
services by us, other business partners, or competitors as well as the number of
shares available for sale in the market.

"PENNY STOCK" RULES MAY RESTRICT THE MARKET FOR OUR COMMON STOCK AND MAY AFFECT
OUR STOCKHOLDERS' ABILITY TO SELL THEIR SHARES IN THE SECONDARY MARKET.

     Our common stock is subject to rules promulgated by the SEC relating to
"penny stocks," which apply to companies whose shares are not traded on a
national stock exchange or on the Nasdaq small-cap or national market systems,
trade at less than $5.00 per share, or who do not meet certain other financial
requirements specified by the SEC. These rules require brokers who sell
"penny stocks" to persons other than established customers and "accredited
investors" to complete certain documentation, make suitability inquiries of
investors, and provide investors with certain information concerning the risks
of trading in such penny stocks. These rules may discourage or restrict the
ability of brokers to sell our common stock and may affect the secondary market
for our common stock. These rules could also hamper our ability to raise funds
in the primary market for our common stock and may affect our stockholders'
ability to sell their shares in the secondary market.

THE NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE REPRESENTS NEARLY ALL OF OUR
OUTSTANDING COMMON STOCK AND THUS MAY ADVERSELY AFFECT THE MARKET FOR OUR COMMON
STOCK.

     Of the 16,472,968 shares of common stock held by our present stockholders
as of December 31, 2008, approximately 6,000,000 shares may be available for
public sale by means of ordinary brokerage transactions in the open market
pursuant to Rule 144, promulgated under the Act, subject to certain limitations.
In general, under Rule 144, a person (or persons whose shares are aggregated)
who has satisfied a six month holding period for stock traded on the Over The
Counter Bulletin Board 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 volume
of trading in such shares. Rule 144 also permits, under certain circumstances,
the sale of securities, without any limitation, by a person who is not our
affiliate and who has satisfied a one-year holding period. In addition,
3,500,000 shares of common stock underlying both current options to purchase our
common stock and future issuances of options to purchase our common stock are
available, once vested, for public sale by means of ordinary brokerage
transactions in the open market. The substantial number of shares eligible for
sale could cause our common stock price to be less than it would be in the
absence of such an offering, whether or not such shares are actually sold, and
sales of a significant number of such shares at any one time could further
decrease our stock price.


                                       17


OUR CONVERTIBLE DEBT AND CERTAIN WARRANTS CONTAIN FULL RATCHET ANTI-DILUTION
PROVISIONS, WHICH, IF TRIGGERED, COULD SIGNIFICANTLY DILUTE THE INTERESTS OF OUR
STOCKHOLDERS AND ADVERSELY AFFECT OUR STOCK PRICE.

     Our nearly $9,000,000 principal amount of Convertible Notes are currently
convertible into shares of our common stock at an initial conversion rate of
$0.60 per share. Based on this initial conversion price we would issue nearly
15,000,000 shares of common stock upon conversion of the total Convertible
Notes. The exercise price of warrants to purchase 3,570,337 shares of common
stock is currently exercisable at $0.60 per share. The Convertible Notes and
warrants contain a full ratchet anti-dilution provision, which provides, unlike
a more traditional weighted average anti-dilution provision, that if we issue
convertible or equity securities in the future (subject to certain exceptions)
at a price per share less than the conversion rate of the notes or exercise
price of the warrants, the conversion rate of the Convertible Notes and exercise
price of the warrants will be automatically adjusted down to that lesser price.
In such case, the number of shares into which the Convertible Notes are
convertible and warrants are exercisable would increase correspondingly. By way
of example only, if the price per share of common stock were $0.50, and we were
to issue securities at such a reduced price, the conversion rate of the
Convertible Notes would be automatically adjusted down to $0.50 per share, the
number of shares into which the Convertible Notes would be convertible would
increase from nearly 15,000,000 shares to nearly 18,000,000 and the number of
shares issuable upon exercise of the warrants would increase from 3,570,337
shares to 4,284,404 shares. Accordingly, if we trigger the full ratchet
anti-dilution provision, our stockholders could suffer substantial dilution. In
addition, because we are required to reserve 130% of the number of shares
issuable upon conversion of the Convertible Notes and exercise of the warrants,
we may not have sufficient authorized shares to issue a significant number of
additional shares, especially if the anti-dilution provisions and/or default
penalties are triggered. Because of the current market price of our common
stock, it is unlikely that we will be able to raise any additional equity
financing without triggering these provisions.

THE NUMBER OF SHARES OF COMMON STOCK WHICH ARE AVAILABLE FOR SALE UPON EXERCISE
OF OUR OUTSTANDING WARRANTS OR CONVERSION OF OUR OUTSTANDING CONVERTIBLE NOTES
IS SIGNIFICANT IN RELATION TO OUR CURRENTLY OUTSTANDING COMMON STOCK AND COULD
CAUSE DOWNWARD PRESSURE ON THE MARKET PRICE FOR OUR COMMON STOCK.

     The number of shares of common stock registered for resale upon exercise of
our outstanding warrants or conversion of our outstanding Convertible Notes is
significant in relation to the number of shares of common stock currently
outstanding. If those security holders determine to sell a substantial number of
shares into the market at any given time, there may not be sufficient demand in
the market to purchase the shares without a decline in the market price for our
common stock. Moreover, continuous sales into the market of a number of shares
in excess of the typical trading volume for our common stock, or even the
availability of such a large number of shares, could depress the trading market
for our common stock over an extended period of time.

IF PERSONS ENGAGE IN SHORT SALES OF OUR COMMON STOCK, INCLUDING SALES OF SHARES
TO BE ISSUED UPON EXERCISE OF OUR OUTSTANDING WARRANTS OR CONVERSION OF OUR
OUTSTANDING CONVERTIBLE NOTES, THE PRICE OF OUR COMMON STOCK MAY DECLINE.

     Selling short is a technique used by a stockholder to take advantage of an
anticipated decline in the price of a security. In addition, holders of options
and warrants will sometimes sell short knowing they can, in effect, cover
through the exercise of an option or warrant, thus locking in a profit. A
significant number of short sales or a large volume of other sales within a
relatively short period of time can create downward pressure on the market price
of a security. Further sales of common stock issued upon exercise of our
outstanding warrants or conversion of our outstanding Convertible Notes could
cause even greater declines in the price of our common stock due to the number
of additional shares available in the market upon such exercise or conversion,
which could encourage short sales that could further undermine the value of our
common stock.

ITEM 2. DESCRIPTION OF PROPERTY.

     We maintain our operational offices in approximately 2,000 square feet of
space that is located in Fort Lauderdale, Florida, pursuant to a lease which
expires in October 2010. Our monthly lease payments are approximately $3,200 per
month. We maintain our research and development facilities in Rehovot, Israel.
The facilities we lease in Israel are approximately 3,800 square feet pursuant
to a lease expiring in September 2011. Monthly lease payments for such facility
are approximately $4,500 per month.

ITEM 3. LEGAL PROCEEDINGS.

     On December 12, 1999, Secu-Systems filed a lawsuit with the District Court
in Tel Aviv-Jaffa against Supercom Ltd. (InkSure Delaware's former parent
company) and InkSure Ltd. seeking a permanent injunction and damages. The
plaintiff asserted in its suit that the printing method applied to certain
products that have been developed by InkSure Ltd. constitutes, inter alia: (a)
breach of a confidentiality agreement between the plaintiff and Supercom; (b)
unjust enrichment of Supercom (by virtue of the sale of our shares) and InkSure
Ltd.; (c) a breach of fiduciary duties owed to the plaintiff by Supercom and
InkSure Ltd.; and (d) a tort of misappropriation of trade secret and damage to
plaintiff's property. As part of its complaint, Secu-Systems sought, among other
things, an injunction and a 50% share of profits from the printing method at
issue.

     On March 15, 2006, the court rendered a decision (i) denying the claim for
breach of contract; (ii) finding that there was a misappropriation of trade
secret, but not assessing any damages with respect thereto; (iii) requiring the
defendants to cease all activities involving the use of any confidential
information; and (iv) awarding the plaintiff reimbursement of the costs of the
litigation in the amount of NIS 130,000 (about $34,000 at the exchange rate as
of December 31, 2008), plus interest and VAT, which the defendants intend to
split equally. InkSure recorded in its 2006 financial statements a provision of
NIS 65,000 (about $17,000 at the exchange rate as of December 31, 2008).


                                       18


Both the plaintiff and the defendants appealed the court's decision.

     On November 1, 2007, the Supreme Court ruled in favor of Secu-Systems'
appeal. This ruling accepts that InkSure and Supercom have breached the
confidentiality agreement. Consequently, the appeal that had been filed by
InkSure and Supercom was dismissed. The Supreme Court instructed that the case
will be returned to the District Court for determining the remedies to which
Secu-Systems is entitled.

     On February 18, 2008, Secu-Systems filed a petition with the district court
to amend the amount for which it has sued to NIS 25,000,000 (Approximately
$6,545,000 at the exchange rate as of December 31, 2008).

     On March 24, 2008, SuperCom (which changed its name to Vuance Ltd.)
provided us with an opinion of an external accounting expert according to which,
the following conclusions can be drawn:

     a.   In light of the costs analysis, SuperCom had no economic profit from
          the sale of Inksure's shares.

     b.   The consideration received from the sale of Inksure's shares in 2002,
          incorporates the value of the cash flow of InkSure following the sale.
          Therefore, a calculation based upon both the sale price and the future
          cash flow of InkSure is not accurate and does not agree with customary
          accountant standards, since it calculates the factor of the future
          cash flow twice.

     c.   The examination of the outcome of InkSure's business activity from
          2002-2007, as reflected in its financial reports, show that InkSure
          had not made any profit, and incurred losses during such period. The
          financial statements also reflect that InkSure had negative cash flow
          during these years, which was financed by bank loans and fund raising.

In light of the above, provided that the opinion is adopted by the court, we
believe that no material amounts will be awarded to Secu-System in these
proceedings.

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

     No matters were submitted to a vote of our security holders during the
fourth quarter of the year ended December 31, 2008.


                                       19


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS.

PRICE RANGE OF COMMON STOCK

     The following table sets forth, for the fiscal periods indicated, the high
and low bid prices of a share of our common stock as reported by the Over the
Counter Bulletin Board under the symbol "INKS.OB" for the periods indicated.
Such quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.

                                                               HIGH     LOW
FISCAL YEAR 2007
         1st Quarter                                          $ 3.00   $ 1.82
         2nd Quarter                                          $ 2.25   $ 1.75
         3rd Quarter                                          $ 1.95   $ 1.16
         4th Quarter                                          $ 1.33   $ 0.42

FISCAL YEAR 2008
         1st Quarter                                          $ 0.74   $ 0.34
         2nd Quarter                                          $ 0.44   $ 0.16
         3rd Quarter                                          $ 0.39   $ 0.11
         4th Quarter                                          $ 0.49   $ 0.11

FISCAL YEAR 2009
         1st Quarter (through March 25, 2009)                 $ 0.30   $ 0.10

     As of March 19, 2009 there were approximately 50 holders of record of the
common stock.

     We have not paid dividends on the common stock since inception and do not
intend to pay any dividends to our stockholders in the foreseeable future. We
currently intend to retain earnings, if any, for the development of our
business. The declaration of dividends in the future will be at the election of
our board of directors and will depend upon our earnings, capital requirements,
financial position, general economic conditions, and other factors the board of
directors deem relevant. The terms of our Convertible Notes currently restrict
us from issuing dividends without the consent of the holders of the majority of
principal of notes outstanding.

EQUITY COMPENSATION PLAN INFORMATION

     The following table provides information about shares of our common stock
that may be issued upon the exercise of options and warrants under all of our
existing compensation plans as of December 31, 2008. Our stockholder approved
equity compensation plans consist of the 2002 Employee, Director and Consultant
Stock Option Plan. Under this plan, we grant options in order to attract and
retain employees, directors, officers and certain consultants. Such options
become exercisable under vesting schemes as approved by the board or by the
compensation committee, if delegated by the board. Normally, the options are
vested ratably as long as the optionee still serves with the company and expire
after five years from the grant date. We have a number of options and warrants
which were granted pursuant to equity compensation plans not approved by
security holders and such securities are aggregated in the table below.

                                                                                                  NUMBER OF SECURITIES
                                                                                                  REMAINING AVAILABLE
                                      NUMBER OF SECURITIES                                        FOR FUTURE ISSUANCE
                                       TO BE ISSUED UPON             WEIGHTED-AVERAGE        UNDER EQUITY COMPENSATION PLANS
                                    EXERCISE OF OUTSTANDING         EXERCISE PRICE OF                  (EXCLUDING
                                       OPTIONS, WARRANTS           OUTSTANDING OPTIONS,         SECURITIES REFLECTED IN
PLAN CATEGORY                              AND RIGHTS              WARRANTS AND RIGHTS                  COLUMN (A))
                                              (A)                          (B)                              (C)
----------------------------------  ----------------------        ---------------------      --------------------------------
Equity compensation plans
   approved by security holders             2,014,480                   $  1.17                           960,017
Equity compensation plans not
   approved by security holders               658,469                   $  1.13                                 0
                                          -----------                                                  ----------
   TOTAL                                    3,252,836                                                     960,017


                                       20




ITEM 6. SELECTED FINANCIAL DATA

     We are a smaller reporting company, as defined by Rule 12b-2 of the
Exchange Act of 1934, as amended and are not required to provide information
under this item.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS.

OVERVIEW

     We specialize in comprehensive security solutions, designed to protect
branded products and documents from counterfeiting, fraud, and diversion. By
creating smart protection solutions using proprietary machine-readable
authentication technologies, we help companies, governments and organizations
worldwide control their most valuable assets, products, reputation and revenues.
We employ experts in various fields, including material science, electro-optics
and software. We utilize cross-disciplinary technological innovations to
implement customized and cost efficient security solutions for data and asset
integrity within the customers' existing infrastructure and environment.

     Our SmartInkTM solutions enable authentication and tracking of documents
and products by adding special chemical markers to standard inks and coatings.
The combination of markers, inks and materials produce electro-optic
"signatures" - unique codes that are seamlessly incorporated into the printed
media used by the customer. Proprietary computerized readers, available in
hand-held, stationary and modular kit configurations, quickly verify these codes
by manual or automatic operation. By focusing on customer-driven solutions, we
are able to offer added value through enhanced reader functionality, including
high-speed automatic sorting, one-to-many code matching, first and second level
track and trace, code activation at the point of distribution and detrimental
authentication for debit applications. The inherent flexibility of our
technology also enables overlaying the machine-readable codes onto holograms and
other overt features, resulting in multi-layered security that is both effective
and economical.

REVENUES

     We are currently concentrating on entering into and implementing
large-scale projects. These potential contracts are subject to a long sales
cycle and the timetable is lengthy for entering and implementing such projects.
These projects involve high volume sales through multiple-year sales contracts.
In the 2008 fiscal year, approximately 77% of our revenues were earned from
customers located outside the United States.

COSTS AND OPERATING EXPENSES

     Costs and operating expenses consist of cost of revenues, research and
development expenses, selling and marketing expenses, general and administrative
expenses.

     Our cost of revenues consists primarily of materials, including taggants
and electronic and optical parts, sub-contractors and compensation costs for our
operations staff.

     Our research and development expenses consist primarily of costs associated
with development of new products. These expenses may fluctuate as a percentage
of revenue depending on the projects undertaken during the reporting period.
Since our inception, we have expensed all research and development costs in each
of the periods in which they were incurred.

     Our selling and marketing expenses consist primarily of costs associated
with our direct sales force that have been incurred to attract potential
business customers, professional advisors and commissions. We anticipate that,
as we add new customers, we will be able to spread these costs over a larger
revenue base and accordingly improve our operating margins.

     Our general and administrative expenses consist primarily of costs related
to compensation and employees benefits of our management (including the costs of
directors' and officers' insurance), legal and accounting fees, as well as the
expenses associated with being a publicly traded company.

     We have not recorded any income tax benefit for net losses incurred for any
period from inception to December 31, 2008. The utilization of these losses and
credits depends on our ability to generate taxable income in the future. Because
of the uncertainty of our generating taxable income, we have recorded a full
valuation allowance with respect to these deferred assets.

CRITICAL ACCOUNTING POLICIES

     Our financial statements are prepared in accordance with US GAAP. The
significant accounting policies followed in the preparation of the financial
statements, applied on a consistent basis and which have been prepared in
accordance with the historical cost convention, are set forth in Note 2 to the
consolidated financial statements.

     Of these significant accounting policies, certain policies may be
considered critical because they are most important to the portrayal of our
financial condition and results, and they require management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. We believe the
following critical accounting policies affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements.


                                       21


     REVENUE RECOGNITION. Revenues from product sales are recognized in
accordance with Staff Accounting Bulletin No. 104, "Revenue Recognition in
Financial Statements," or SAB No. 104, when delivery has occurred, persuasive
evidence of an agreement exists, the vendor's fee is fixed or determinable, no
further obligation exists and collectability is probable. Delivery is considered
to have occurred upon shipment of products. When a right of return exists, we
defer revenues until the right of return expires. We do not grant a right of
return to our customers.

     Revenues from certain arrangements may include multiple elements within a
single contract. Our accounting policy complies with the provisions of Emerging
Issues Task Force Issue 00-21, "Revenue Arrangements with Multiple Deliverables"
("EITF 00-21"), relating to the separation of multiple deliverables into
individual accounting units with determinable fair value.

     In cases where we have partial delivery at the cut off dates and no fair
value exists for the undelivered elements, revenues are being deferred and
recognized only at the point where the entire arrangement has been delivered.

     INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
determined on a "first in, first out" basis. We regularly review inventory
values and quantities on hand and write down our inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost
of inventory and the estimated market value based upon assumptions about future
demand and market conditions. In making the determination, we consider future
sales of related products and the quantity of inventory at the balance sheet
date, assessed against each inventory item's past usage rates and future
expected usage rates. Changes in factors such as technology, customer demand,
competing products and other matters could affect the level of our obsolete and
excess inventory in the future.

     OTHER ACCRUED EXPENSES. We also maintain other accrued expenses. These
accruals are based on a variety of factors including past experience and various
actuarial assumptions and, in many cases, require estimates of events not yet
reported to us. If future experience differs from these estimates, operating
results in future periods would be impacted.

     DEFERRED INCOME TAXES. Significant management judgment is required in
determining the provision for income taxes, deferred tax assets and any
valuation allowance recorded against net deferred tax assets. Due to the fact
that the company has a history of losses, it is likely that the deferred tax
will not be realized.

RESULTS OF OPERATIONS

     The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the related notes located elsewhere in this Report. The financial
statements have been prepared in accordance with US Generally Accepted
Accounting Principles, or GAAP.

     This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors.

     The following table sets forth, for the periods indicated, certain
financial data expressed as a percentage of total revenue:

                                     YEAR ENDED DECEMBER 31,

                                        2008         2007
                                        ----         ----

Revenues                                 100%         100%
Cost of Revenues                          23           38
                                        ----         ----
Gross profit                              77           62

Operating expenses:
Research and development                  81           45
Selling and marketing                     42           58
General and administrative                42           45
One-time amortization of Goodwill         13            0
                                        ----         ----
Total operating expenses                 178          148

Operating loss                          (101)         (86)
Financial income (expense), net          (62)         (19)
Taxes on income                                        (2)
                                        ----         ----
Net loss                                (163)        (107)
                                        ====         ====


                                       22


YEAR ENDED DECEMBER 31, 2008 COMPARED WITH YEAR ENDED DECEMBER 31, 2007

     REVENUES. Revenues consist of gross sales of products. We are concentrating
on entering and implementing large-scale projects. These potential contracts are
subject to a long sales cycle and the timetable for entering and implementing
such projects fluctuates. This continued to affect our results in 2008. Our
revenues, mostly derived by the sales of taggants, decreased by $732,000, or by
25%, to $2,158,000 in 2008 from $2,890,000 in 2007. This decrease in revenues is
mainly due to lack of new orders and reduced business from five of our customers
representing 73% of our 2007 sales revenues, mainly from the US, while this
decrease was offset by the delivery of a new project order in Europe in amount
exceeding $1,000,000.

     COST OF REVENUES. Cost of revenues consists of materials, sub-contractors
and compensation costs. Cost of revenues decreased by $604,000, or 55%, to
$504,000 in 2008, from $1,108,000 in 2007. The decrease in cost of revenues is
mainly due to the decrease in sales revenues and more profitable sales mix in
2008 as a result of lower raw material costs for certain of our 2008 projects.
Cost of revenues as a percentage of sales was 23% in 2008, compared with 38% in
2007. The decrease in cost of revenues as a percentage of sales is mainly due to
more profitable sales mix in 2008.

     RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses,
net, consist primarily of compensation costs attributable to employees engaged
in ongoing research and development activities, development-related raw
materials and fees of sub-contractors and other related costs such as rental of
research and development tools. Research and development expenses increased by
$439,000, or 34%, to $1,747,000 in 2008 from $1,308,000 in 2007. This increase
in research and development expenses is primarily related to the development and
implementation of our RFID technology. Research and development expenses for
2007 were reduced by $402,000 of grants from the Office of the Chief Scientist
of the Israeli Ministry of Industry, Trade and Labor and from the European
Commission related to our RFID project.

     SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist
primarily of costs relating to compensation attributable to employees engaged in
sales and marketing activities, promotion, advertising, trade shows and
exhibitions, sales support, travel, commissions and related expenses. Selling
and marketing expenses decreased by $766,000, or 46%, to $912,000 in 2008, from
$1,678,000 in 2007. This decrease in selling and marketing expenses was
primarily due to reduced selling and marketing activities and personnel (two
employees in sales as of December 31, 2008 versus five employees in sales as of
December 31, 2007).

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of compensation costs for administrative, finance and general
management personnel, insurance, legal, accounting and administrative costs.
General and administrative expenses decreased by $386,000, or 30%, to $908,000
in 2008, from $1,294,000 in 2007. This decrease was primarily due to reduced
non-cash expense under SFAS No. 123(R), of $155,000 in 2008, compared to
$437,000 in 2007 and decrease of $100,000 in legal expenses.

     IMPAIRMENT OF GOODWILL, impairment of goodwill expense amounted to $271,000
in 2008, versus zero in 2007. The impairment of goodwill expense for 2008 was
due to a one-time write off of goodwill due to lack of certainty for any future
surplus cash receipts it represents.

     FINANCIAL EXPENSE, NET. Financial expense, net, amounted to $1,344,000 in
2008, versus financial expenses of $525,000 in 2007. The financial expense for
2008 was primarily due to non-cash financial expense as a result of changes in
the fair market value of the Convertible Notes calculated under SFAS No. 133, of
$882,000, compared to non-cash financial expenses of $316,000 in 2007; and
interest expenses, net of $462,000 in 2008 compared to only $209,000 in 2007 due
to higher debt principal and higher interest rate.

     NET LOSS. We had a net loss of $3,528,000 in 2008, compared with a net loss
of $3,078,000 in 2007, which is an increase of $450,000, or 15%. The increase in
net loss in 2008 in comparison with 2007 is due to an increase of $819,000 in
our financial expenses, net, offset by decrease of $314,000 in our operating
loss and $55,000 in other taxes on income.

     LIQUIDITY AND CAPITAL RESOURCES

     We have incurred substantial losses since our inception in April 1997. We
had an accumulated deficit of approximately $21,705,000 as of December 31, 2008,
and had negative working capital (current assets less current liabilities) of
approximately $5,003,000 as of December 31, 2008. Losses are continuing and will
continue in the foreseeable future.

     Capital expenditures were approximately $22,000 in 2008 and $102,000 in
2007. These expenditures were principally for computers and research and
development equipment purchases. We do not have any material commitments for
capital expenditures as of December 31, 2008.

     As of December 31, 2008, we had cash, cash equivalents and short-term
deposits of approximately $1,826,000, compared to $820,000 in 2007. This
increase is primarily due to the issuance of new Convertible Notes in April 2008
and decrease in our operating losses.


                                       23


     We generated negative cash flow from operating activities of approximately
$1,755,000 in 2008 compared to $1,738,000 in 2007. The negative cash flow from
operating activities in 2008 was attributable to 2008 net loss of approximately
$3,528,000, primarily offset by $670,000 of non-cash expenses related to the
convertible notes, a decrease of $350,000 in trade receivables, an increase of
$286,000 in accrued expenses and other payables, a one time non-cash
amortization of $271,000 of goodwill and depreciation and amortization expenses
of $305,000.

     We generated negative cash flow from investing activities of approximately
$14,000 in 2008 compared to positive cash flow of $1,895,000 in 2007. The
negative cash flow from investing activities in 2008 was primarily due to a
$22,000 purchase of fixed assets for our facility in Israel.

     We generated positive cash flow from financing activities of approximately
$2,775,000 in 2008 compared to $260,000 in 2007. The positive cash flow from
financing activities in 2008 was attributable to proceeds received from the
issuance of new Convertible Notes.

     We believe that our existing cash together with the receipt of further
customer orders will be sufficient to support our operations for the next twelve
months if the holders of the Convertible Notes do not exercise their voluntary
redemption rights on September 30, 2009. However there is no guarantee that such
new further customer orders would be timely received by the Company. We do not
currently have sufficient cash on hand to repay these notes if the holders
demand redemption. Continuing product development and enhancement, expected new
product launches, corporate operations and marketing expenses will continue to
require additional capital. Our current revenues from operations are
insufficient to cover our projected business plans.

     On September 30, 2005, we completed a private placement of convertible
notes, in the aggregate principal amount of $6,000,000. The notes were
interest-only, with interest payments due quarterly at the rate of 4% per year.
The convertible notes were unsecured and will become due on September 30, 2010;
the investors had the ability to cause us to redeem the notes on September 30,
2009. These notes were exchanged for new notes with the same terms as the new
$3,000,000 notes issued on April 9, 2008.

     On April 9, 2008, we completed a private placement of senior secured
convertible notes in an aggregate principal amount of $3,000,000 pursuant to
Amendment, Exchange and Purchase Agreements. The private placement resulted in
gross proceeds of $3,000,000, of which $750,000 was placed in a cash collateral
account to secure our obligations under the notes.

     Pursuant to the agreements, the investors were issued $3,000,000 principal
amount of new notes and exchanged their $6,000,000 principal amount of existing
notes for the same principal amount of amended and restated senior secured
convertible notes (together with the $3,000,000 principal amount of new notes,
referred to as the "new notes") each of which is convertible into shares of
common stock at a conversion price of $0.60, subject to adjustment. The new
notes are secured by our assets and the assets of our subsidiaries and are
guaranteed by each of our subsidiaries. In addition, all of the shares of each
of our subsidiaries are pledged as collateral to secure our obligations under
the new notes, the security agreements and related documents. The investors may
require us to redeem all or any portion of the outstanding principal amount of
the new notes in cash plus accrued but unpaid interest on or after September 30,
2009. We may require the investors to convert all or any portion of the new
notes into shares of common stock upon the occurrence of certain conditions
relating to the trading of our common stock. Upon any such conversion, the
investors will be entitled to receive a pro rata amount of the cash remaining on
deposit in the collateral account which we have established to secure interest
payments under the new notes based on the principal amount of the new notes that
we require to be converted. We may also redeem the new notes at any time by
paying the buyers a premium of 5%-25% of the outstanding principal amount of the
notes (based upon the time of redemption) plus interest and the amounts in the
collateral account; at the time of such redemption we will also issue to the
buyers warrants to purchase common stock, expiring September 30, 2010, at an
exercise price of $0.60. If we sell or license all or substantially all of the
assets in our ink business, we may be required to redeem the new notes at 100%
of their outstanding principal amount up to the net proceeds of such sale or
licensing transaction. If we consummate a transaction that results in a change
of control or other merger or reorganization or recapitalization, we may be
required to redeem the new notes at 125% of their outstanding principal amount.
The new notes are due on September 31, 2010, unless they are redeemed or
converted earlier.

     In addition, we issued to the buyers warrants to acquire 3,570,337 shares
at an exercise price of $0.60. These warrants have a term of ten years.

     We have reserved for issuance 130% of the common stock issuable upon
conversion of the notes and exercise of the warrants. If such percentage of
common stock cannot be reserved due to the lack of a number of authorized
shares, our board of directors is required to take any actions necessary to
increase the number of authorized shares, including holding a stockholders'
meeting with the purpose of authorizing such an increase.

     The consolidated financial statements have been presented on the basis that
we will continue as a going concern. Our auditors have stated in their audit
opinion that we have suffered recurring losses from operations and have a
shareholders' deficiency that raises doubt about our ability to continue as a
going concern. Our ability to continue as a going concern is dependent upon
number of factors, including our ability to obtain additional capital and
further new business. However, no assurance can be given that we will be able to
obtain additional capital on terms favorable to us, or that additional capital
will be available to us at all. Our ability to raise capital is impeded by the
full ratchet anti-dilution provisions of our convertible notes. Such provisions,
unless waived or modified, would make equity financing at less than $0.60 per
share extremely dilutive to our existing shareholders.


                                       24


     RESEARCH AND DEVELOPMENT

     Our research and development expenses were approximately $1,747,000 in 2008
and $1,308,000 in 2007. To date, all research and development expenses have been
charged to operating expense as incurred.

     CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     Our contractual obligations and commitments as of December 31, 2008
principally include obligations associated with our offices lease obligations
and the lease of several automobiles. As of December 31, 2008, our total future
obligations totaled $222,000. See Note 8 to the Consolidated Financial
Statements. We expect to finance these contractual commitments from cash on hand
and cash generated from operations.

OFF BALANCE SHEET ARRANGEMENTS

     None.

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS NO. 162

In May 2008, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162
identifies the sources of accounting principles and provides entities with a
framework for selecting the principles used in preparation of financial
statements that are presented in conformity with GAAP. The current GAAP
hierarchy has been criticized because it is directed to the auditor rather than
the entity, it is complex, and it ranks FASB Statements of Financial Accounting
Concepts, which are subject to the same level of due process as FASB Statements
of Financial Accounting Standards, below industry practices that are widely
recognized as generally accepted but that are not subject to due process. The
FASB believes the GAAP hierarchy should be directed to entities because it is
the entity (not its auditors) that are responsible for selecting accounting
principles for financial statements that are presented in conformity with GAAP.
The adoption of FASB 162 is not expected to have a material impact on the
Company's financial position.

FSP APB 14-1

In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, "Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)" ("APB 14-1"). APB 14-1 requires the issuer
to separately account for the liability and equity components of convertible
debt instruments in a manner that reflects the issuer's nonconvertible debt
borrowing rate. The guidance will result in companies recognizing higher
interest expense in the statement of operations due to amortization of the
discount that results from separating the liability and equity components. APB
14-1 will be effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. The Company is currently assessing the impact of APB 14-1 on its
consolidated financial statements.

FSP EITF 03-6-1

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, "Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities" ("FSP EITF 03-6-1"). FSP EITF 03-6-1 establishes that
unvested share-based payment awards that contain non-forfeitable rights to
dividends or dividend equivalents (whether paid or unpaid) are participating
securities as defined in Emerging Issues Task Force ("EITF") Issue No. 03-6,
"Participating Securities and the Two-Class Method under FASB Statement No.
128", and should be included in the computation of earnings per share pursuant
to the two-class method as described in Statement of Financial Accounting
Standards No. 128, "Earnings per Share". FSP EITF 03-6-1 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those years. All prior-period earnings per share data
presented shall be adjusted retrospectively to conform to the provisions of FSP
EITF 03-6-1. Early application is not permitted. The Company is currently
evaluating the impact that the adoption of FSP EITF 03-6-1 will have on its
consolidated financial statements but believes that its effect will be
immaterial due to immaterial use of instruments within the scope of the FSP.

EITF ISSUE NO. 07-5

In June 2008, the FASB Emerging Items Task Force reached a consensus on EITF
Issue No. 07-5, "Determining Whether an Instrument (or an Embedded Feature) Is
Indexed to an Entity's Own Stock". The Consensus was reached on the following
three issues:

1.   The way an entity should evaluate whether an instrument (or embedded
     feature) is indexed to its own stock.

2.   The way the currency in which the strike price of an equity-linked
     financial instrument (or embedded equity-linked feature) is denominated
     affects the determination of whether the instrument is indexed to an
     entity's own stock.

3.   The way an issuer should account for market-based employee stock option
     valuation instruments.


                                       25


This consensus will affect entities with (1) options or warrants on their own
shares (not within the scope of Statement 150), including market-based employee
stock option valuation instruments; (2) forward contracts on their own shares,
including forward contracts entered into as part of an accelerated share
repurchase program; and (3) convertible debt instruments and convertible
preferred stock. Also affected are entities that issue equity-linked financial
instruments (or financial instruments that contain embedded equity-linked
features) with a strike price that is denominated in a foreign currency. The
consensus is effective for fiscal years (and interim periods) beginning after
December 15, 2008. The consensus must be applied to outstanding instruments as
of the beginning of the fiscal year in which the issue is adopted as a
cumulative-effect adjustment to the opening balance of retained earnings for
that fiscal year. Early application is not permitted.

The Company is currently evaluating the effect of EITF 07-5 and has not yet
determined the impact of the consensus on its financial position or results of
operations.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are a smaller reporting company, as defined by Rule 12b-2 of the
Exchange Act of 1934, as amended and are not required to provide information
under this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The Financial Statements and Notes thereto can be found beginning on page
F-1, "Index to Consolidated Financial Statements," following Part III of this
Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     None.

ITEM 9A(T). CONTROLS AND PROCEDURES.

     (a) Evaluation of Disclosure Controls and Procedures. Our principal
executive officer and principal financial officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
Annual Report on Form 10-K, have concluded that, based on such evaluation, our
disclosure controls and procedures were adequate and effective to ensure that
material information relating to us, including our consolidated subsidiaries,
was made known to them by others within those entities, particularly during the
period in which this Annual Report on Form 10-K was being prepared.

     (b) Changes in Internal Controls. We have evaluated our internal control
over financial reporting as of the end of our fourth fiscal quarter. There were
no changes in our internal control over financial reporting, identified in
connection with the evaluation of such internal control, that occurred during
the fourth quarter of our last fiscal year that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

     (c) Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rules
13a-15(f) or 15d-15(f) under the Exchange Act. Internal control over financial
reporting is a process designed by, or under the supervision of, our principal
executive and principal financial officers and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes those
policies and procedures that:

     o    Pertain to the maintenance of records that in reasonable detail
          accurately and fairly reflect the transactions and dispositions of the
          company's assets;

     o    Provide reasonable assurance that transactions are recorded as
          necessary to permit preparation of financial statements in accordance
          with generally accepted accounting principles, and that receipts and
          expenditures of the company are being made only in accordance with
          authorizations of the management and directors of the company; and

     o    Provide reasonable assurance regarding prevention or timely detection
          of unauthorized acquisition, use or disposition of the company's
          assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

     Our management, including our Chief Executive Officer and Chief Financial
Officer, has conducted an assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2008.

This assessment includes a) evaluation and test of the design of our internal
control over financial reporting ("ICFR"), and b) testing of the operational
effectiveness of these controls.


                                       26


The design of our ICFR includes:

     o    Evaluating how the requirements of USA GAAP apply to InkSure's
          business, operations, transactions and financial statements.

     o    Identifying the risks to reliable financial reporting, and the
          potential sources of those risks.

     o    Assessment and judgment of how material these risks are.

     o    Evaluation of whether the implemented internal controls address the
          risk that a material misstatement of the financial statements would
          not be prevented or detected in a timely manner.

     o    Evaluation whether the implemented internal controls are efficient and
          effective in preventing or detecting the risk (for example - does the
          employee performing the control have the authority to do so, and does
          he possess the competence to perform it effectively).

The testing of the operational effectiveness of those controls includes:

Since InkSure is a small size company, the operation of the internal controls is
centralized and our management's regular interaction with the internal controls
(especially the CFO's interaction) provides sufficient knowledge about their
operation. Nevertheless, we conduct the following tests:

     o    Reconciliation between financial reporting and company' ledgers and
          other IT systems, where applicable.

     o    Comparison with relative past numbers (e.g. past balances).

     o    Confirmation between financial reporting and external data, where
          applicable.

     o    These checks are carried out by managers with high degree of
          objectivity relative to the controls being tested.

     Our assessment was conducted in accordance with the interpretive guidance
issued by the Commission in Release No. 34-55929. Based on our assessment,
management has concluded that our internal control over financial reporting was
effective as of December 31, 2008.

     This annual report does not include an attestation report of the company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the company to provide only management's
report in this annual report.

     This management report on internal control over financial reporting shall
not be deemed to be filed for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended or otherwise subject to the liabilities of that Section.

ITEM 9B. OTHER INFORMATION.

     None.


                                       27


                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
         GOVERNANVCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The information required by this item is incorporated by reference to the
Company's Definitive Proxy Statement related to the Company's Annual Meeting of
Shareholders to be held in 2009, which will be filed with the Securities and
Exchange Commission no later than 120 days following the end of the 2008 fiscal
year.


ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item is incorporated by reference to the
Company's Definitive Proxy Statement related to the Company's Annual Meeting of
Shareholders to be held in 2009, which will be filed with the Securities and
Exchange Commission no later than 120 days following the end of the 2008 fiscal
year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDERS MATTERS.

The information required by this item is incorporated by reference to the
Company's Definitive Proxy Statement related to the Company's Annual Meeting of
Shareholders to be held in 2009, which will be filed with the Securities and
Exchange Commission no later than 120 days following the end of the 2008 fiscal
year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
         INDEPENDENCE.

The information required by this item is incorporated by reference to the
Company's Definitive Proxy Statement related to the Company's Annual Meeting of
Shareholders to be held in 2009, which will be filed with the Securities and
Exchange Commission no later than 120 days following the end of the 2008 fiscal
year.

ITEM 14. PRINCIPLE ACCOUNTING FEES AND SERVICE.

The information required by this item is incorporated by reference to the
Company's Definitive Proxy Statement related to the Company's Annual Meeting of
Shareholders to be held in 2009, which will be filed with the Securities and
Exchange Commission no later than 120 days following the end of the 2008 fiscal
year.


                                       28


ITEM 15. EXHIBITS.

EXHIBIT NO.    DESCRIPTION

2.1            Agreement and Plan of Merger, dated July 5, 2002, by and among
               the Company, LILM Acquisition and InkSure Delaware (previously
               filed as exhibit A to the Company's Definitive 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 (previously filed as exhibit 3.1 to the
               Company's Current Report filed on Form 8-K with the Commission on
               November 8, 2002).

3.2            Certificate of Amendment of Articles of Incorporation of the
               Company (previously filed as exhibit 3.2 to the Company's Current
               Report filed on Form 8-K with the Commission on November 8,
               2002).

3.3            Articles of Incorporation of the Company (previously filed as
               exhibit 3.1 to the Company's General Form of Registrants of
               Securities of Small Business Issuers filed on Form 10-SB with the
               Commission on June 10, 1998).

3.4            By-Laws of the Company (previously filed as exhibit 3.2 to the
               Company's General Form of Registrants of Securities of Small
               Business Issuers filed on Form 10-SB with the Commission on June
               10, 1998).

3.5            Amendment to By-Laws of the Company (previously filed as exhibit
               3.4 to the Company's Quarterly Report on Form 10-QSB filed with
               the Commission on November 14, 2002).


                                       29


3.6            Amendment to the By-Laws of the Company (previously filed as
               exhibit 3.1 to the Company's Current Report filed on Form 8-K
               with the Commission on April 4, 2008)

4.1            Form of Convertible Note (previously filed as exhibit 4.1 to the
               Company's Current Report filed on Form 8-K with the Commission on
               October 30, 2005).

4.2            Form of Amended and Restated Senior Secured Convertible Note
               (previously filed as exhibit 4.1 to the Company's Current Report
               filed on Form 8-K with the Commission on April 9, 2008)

4.3            Form of Senior Secured Convertible Note (previously filed as
               exhibit 4.2 to the Company's Current Report filed on Form 8-K
               with the Commission on April 9, 2008)

4.4            Form of Series A, Series B-1 and Series B-2 Warrant (previously
               filed as exhibit 4.3 to the Company's Current Report filed on
               Form 8-K with the Commission on April 9, 2008)

10.1           2002 Employee, Director and Consultant Stock Option Plan
               (previously filed as exhibit 10.1 to the Company's Quarterly
               Report on Form 10-QSB filed with the Commission on November 14,
               2002).

10.2           Employment Agreement, dated April 13, 2008, between the Company
               and Tzlil Peker (previously filed as exhibit 10.1 to the
               Company's Quarterly Report filed on Form 10-Q with the Commission
               on May 15, 2008).

10.3           Securities Purchase Agreement, dated as of September 30, 2005, by
               and among the Company and the buyers listed therein (previously
               filed as exhibit 10.1 to the Company's Current Report filed on
               Form 8-K with the Commission on October 30, 2005).

10.4           Registration Rights Agreement, dated as of September 30, 2005, by
               and among the Company and the investors listed therein
               (previously filed as exhibit 10.2 to the Company's Current Report
               filed on Form 8-K with the Commission on October 30, 2005).

10.5           Irrevocable Transfer Agent Instruction Letter dated September 30,
               2005 from the Company to Pacific Stock Transfer Company
               (previously filed as exhibit 10.3 to the Company's Current Report
               filed on Form 8-K with the Commission on October 30, 2005).

10.6           Settlement and Release Agreement dated as of January 14, 2008, by
               and between L&Co., LLC, The irrevocable Trust of James E.
               Lineberger u/a 12/1/98, James E. Lineberger and InkSure
               Technologies Inc. (previously filed as exhibit 10.1 to the
               Company's Current Report filed on Form 8-K with the Commission on
               January 16, 2008)

10.7           Form of Amendment, Exchange and Purchase Agreement, dated April
               8, 2008 (previously filed as exhibit 10.1 to the Company's
               Current Report filed on Form 8-K with the Commission on April 9,
               2008)

10.8           Security Agreement, dated April 8, 2008 (previously filed as
               exhibit 10.2 to the Company's Current Report filed on Form 8-K
               with the Commission on April 9, 2008)

10.9           Form of Lock-up Agreement, dated April 8, 2008 (previously filed
               as exhibit 10.3 to the Company's Current Report filed on Form 8-K
               with the Commission on April 9, 2008)

10.10          Employment Agreement, effective as of July 1, 2008, between the
               Company and Yaron Meerfeld (previously filed as exhibit 10.1 to
               the Company's Current Report filed on Form 8-K with the
               Commission on August 21, 2008)

21.1           Subsidiaries of the Registrant (previously filed as exhibit 21.1
               to the Company's Annual Report on Form 10-KSB filed with the
               Commission on March 31, 2003).


                                       30


23.1           Consent of Brightman Almagor & Co., Certified Public Accountants,
               a member firm of Deloitte Touche Tohmatsu.*

23.2           Consent of Yossi Avraham, Arad & Co.*

31.1           Certification of Acting Chief Executive Officer Pursuant to
               Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2           Certification of Chief Financial Officer Pursuant to Section 302
               of the Sarbanes-Oxley Act of 2002.*

32.1           Certifications of Acting Chief Executive and Financial Officers
               Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith.


                                       31



                 INKSURE TECHNOLOGIES INC. AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2008

                            U.S. DOLLARS IN THOUSANDS

                                      INDEX

                                                                PAGE
                                                               ------

Report of Independent Registered Public Accounting Firm          F-2

Consolidated Balance Sheet                                       F-3

Consolidated Statements of Operations                            F-4

Statements of Changes in Stockholders' deficiency                F-5

Consolidated Statements of Cash Flows                            F-6

Notes to Consolidated Financial Statements                    F-7 - F-18




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                             TO THE STOCKHOLDERS OF
                            INKSURE TECHNOLOGIES INC.

We have audited the accompanying consolidated balance sheet of InkSure
Technologies Inc. ("the Company") and its subsidiaries as of December 31, 2008,
and the related consolidated statements of operations, stockholders' Deficiency
and cash flows for each of the two years in the period ended December 31, 2008.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries as of December 31, 2008, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2008, in conformity with U.S. generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1B to the
financial statements, the Company has suffered recurring losses from operations
and has a shareholders' deficiency that raises doubt about its ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty

/s/ BRIGHTMAN ALMAGOR & CO.
BRIGHTMAN ALMAGOR & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A MEMBER FIRM OF DELOITTE TOUCHE TOHMATSU

Tel-Aviv, Israel
March 30, 2009

                                      F - 2

                 INKSURE TECHNOLOGIES INC. AND ITS SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
           U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE AND PER SHARE DATA)

                                                                                                 DEC 31,         DEC.31,
                                                                                                  2008            2007
                                                                                                --------        --------
                                                                                                 AUDITED         AUDITED
                                                                                                --------        --------

       ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                                                                  $  1,826        $    820
     Restricted Cash                                                                                 365               -
     Trade receivables                                                                               104             453
     Other accounts receivable and prepaid expenses (note 3)                                          73             225
     Deferred charges                                                                                400             385
     Inventories (note 4)                                                                            322             399
                                                                                                --------        --------

TOTAL CURRENT ASSETS                                                                               3,090           2,282

PROPERTY AND EQUIPMENT, NET (NOTE5)                                                                  279             352
GOODWILL                                                                                               -             271
LONG TERM DEPOSIT                                                                                      9              17
                                                                                                --------        --------

TOTAL ASSETS                                                                                    $  3,378        $  2,922
                                                                                                ========        ========

       LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
     Trade payables                                                                             $    225        $    284
     Employees and payroll accruals                                                                  133             204
     Accrued expenses and other payables                                                             648             362
     Convertible notes, net (note 7)                                                               7,087           5,691
                                                                                                --------        --------

TOTAL CURRENT LIABILITIES                                                                          8,093           6,541

Commitments and other contingent liabilities (note 8)                                                  -               -

TOTAL LIABILITIES                                                                                  8,093           6,541
                                                                                                --------        --------

STOCKHOLDERS' DEFICIENCY:
Capital Stock (note 9):
    Preferred stock  of $ 0.01 par  value - Authorized:10,000,000 shares; Issued and
    outstanding: 0 shares as of December 31, 2008 (0 shares as of December 31, 2007)                   -               -
    Common stock of $ 0.01 par value - Authorized: 50,000,000; Issued and outstanding:
    16,472,968 shares as of December 31, 2008 (15,972,688 shares as of December 31, 2007)            164             161
   Additional paid-in capital                                                                     16,708          14,279
   Accumulated other comprehensive income                                                            118             118
   Accumulated deficit                                                                           (21,705)        (18,177)
                                                                                                --------        --------

TOTAL STOCKHOLDERS' DEFICIENCY                                                                    (4,715)         (3,619)
                                                                                                --------        --------

TOTAL LIABILITIES AND  STOCKHOLDERS' DEFICIENCY                                                 $  3,378        $  2,922
                                                                                                ========        ========

The accompanying notes are an integral part of the consolidated financial
statements.


                                      F - 3


                 INKSURE TECHNOLOGIES INC. AND ITS SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
           U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE AND PER SHARE DATA)

                                                                             YEAR ENDED DECEMBER 31,
                                                                        --------------------------------
                                                                           2 0 0 8            2 0 0 7
                                                                        ------------        ------------

Revenues (Note 12)                                                      $      2,158        $      2,890
Cost of revenues                                                                 504               1,108
                                                                        ------------        ------------

GROSS PROFIT                                                                   1,654               1,782
                                                                        ------------        ------------

Operating expenses:
  Research and development, net                                                1,747               1,308
  Selling and marketing                                                          912               1,678
  General and administrative                                                     908               1,294
  Impairment of Goodwill                                                         271                   -
                                                                        ------------        ------------
Total operating expenses                                                       3,838               4,280
                                                                        ============        ============

Operating loss                                                                (2,184)             (2,498)
                                                                        ------------        ------------

Financial income (expense), net                                                 (462)               (209)
Financial  income (expenses) related to convertible notes                       (882)               (316)
                                                                        ------------        ------------
Total financial income (expenses), net (Note 11)                              (1,344)               (525)
                                                                        ------------        ------------

Net loss before taxes                                                         (3,528)             (3,023)
Taxes on income                                                                    -                 (55)
                                                                        ------------        ------------

Net loss                                                                $     (3,528)       $     (3,078)
                                                                        ------------        ------------

Basic and diluted net loss per share                                    $      (0.21)       $      (0.19)
                                                                        ============        ============

Weighted average number of Common stocks used in
computing basic and diluted net loss per share                            16,383,487          15,912,774
                                                                        ============        ============

The accompanying notes are an integral part of the consolidated financial
statements.


                                      F - 4

                                           INKSURE TECHNOLOGIES INC. AND ITS SUBSIDIARIES
                                               STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                                    U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE AND PER SHARE DATA)

                                                                                                             ACCUMULATED
                                                                             ADDITIONAL       DEFERRED          OTHER                          TOTAL
                                                                 SHARE         PAID-IN       STOCK-BASED     COMPREHENSIVE  ACCUMULATED     STOCKHOLDERS'
                                                                CAPITAL        CAPITAL       COMPENSATION       INCOME         DEFICIT       DEFICIENCY
                                                                --------       --------        --------        --------       --------        --------

BALANCE AS OF JANUARY 1, 2006                                   $    152       $ 12,160             (12)       $    118       $(11,987)       $    431

Stock based compensation                                               -            891               -               -              -             891
Amortization of deferred stock based compensation                      -              -              12               -              -              12
Exercise of 380,723 warrants into 354,442 ordinary shares              4            186               -               -              -             190
Exercise of 249,283 options into 249,283 ordinary shares               2            249               -               -              -             251
Net loss                                                               -              -               -               -         (3,112)         (3,112)
                                                                --------       --------        --------        --------       --------        --------

BALANCE AS OF DECEMBER 31, 2006                                 $    158       $ 13,486               -        $    118       $(15,099)       $ (1,337)

Stock based compensation                                               -            536               -               -              -             536
Exercise of 253,181 warrants into 137,655 ordinary shares              2            131               -               -              -             133
Exercise of 97,833 options into 97,833 ordinary shares                 1            126               -               -              -             127
Net loss                                                               -              -               -               -         (3,078)         (3,078)
                                                                --------       --------        --------        --------       --------        --------

BALANCE AS OF DECEMBER 31, 2007                                 $    161       $ 14,279               -        $    118       $(18,177)       $ (3,619)
                                                                ========       ========        ========        ========       ========        ========

Stock based compensation                                               -            159               -               -              -             159
Issuance of 179,696 ordinary shares in dispute settlement              2             (2)              -               -              -               -
Conversion of senior secured convertible notes                         1            117               -               -              -             118
Beneficial conversion feature of convertible notes                     -          2,155               -               -              -           2,155
Net loss                                                               -              -               -               -         (3,528)         (3,528)
                                                                --------       --------        --------        --------       --------        --------

BALANCE AS OF DECEMBER 31, 2008                                 $    164       $ 16,708               -        $    118       $(21,705)       $ (4,715)
                                                                ========       ========        ========        ========       ========        ========

The accompanying notes are an integral part of the consolidated financial
statements.


                                      F - 5

                 INKSURE TECHNOLOGIES INC. AND ITS SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
           U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE AND PER SHARE DATA)

                                                                                           YEAR ENDED DECEMBER 31,
                                                                                           -----------------------

                                                                                           2 0 0 8        2 0 0 7
                                                                                           -------        -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                                   $(3,528)       $(3,078)
Adjustments required to reconcile net loss to net cash used in operating activities:
Depreciation and amortization                                                                  305            236
Increase in restricted cash balances                                                          (365)             -
Capital loss from sale of property                                                               -             (1)
Decrease (increase) in trade receivables                                                       350           (209)
Non cash financial income related to convertible notes, net                                    670            173
Increase in other accounts receivable and prepaid expenses                                     152            212
Decrease in inventories                                                                         77            107
(Decrease) increase in trade payables                                                          (59)            56
Increase (decrease) in employees and payroll accruals                                          (72)            60
Non cash financial expenses related to implementation of SFAS No. 123 (R)                      159            536
Amortization of Goodwill                                                                       271              -
Increase in accrued expenses and other payables                                                286            170
                                                                                           -------        -------
NET CASH USED IN OPERATING ACTIVITIES                                                       (1,755)        (1,738)
                                                                                           -------        -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                                                             (22)          (102)
Proceeds from sales of property                                                                  -              5
Proceeds from short-term bank deposits                                                           8          1,992
                                                                                           -------        -------
NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES                                          (14)         1,895
                                                                                           -------        -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of options to Common Stock                                                              -            127
Exercise of warrants to Common Stock                                                             -            133
Issuance of convertible notes, net                                                           2,775              -
                                                                                           -------        -------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                    2,775            260
                                                                                           =======        =======

Increase in cash and cash equivalents                                                        1,006            417
Cash and cash equivalents at the beginning of the year                                         820            403
                                                                                           -------        -------
Cash and cash equivalents at the end of the year                                           $ 1,826        $   820
                                                                                           =======        =======

The accompanying notes are an integral part of the consolidated financial
statements.


                                      F - 6

NOTE 1 - GENERAL

     A.   InkSure Technologies Inc. and its subsidiaries (together, "the
          Company") was incorporated under the laws of the State of Nevada,
          U.S., on April 22, 1997. On July 8, 2003, InkSure Technologies Inc.
          effected a reincorporation from Nevada to Delaware, through a merger
          with and into its wholly-owned subsidiary, InkSure Technologies
          (Delaware) Inc., which was incorporated as of June 30, 2003. The
          surviving corporation in the merger was InkSure Technologies
          (Delaware) Inc., which thereupon renamed itself InkSure Technologies
          Inc.

          The Company specializes in comprehensive security solutions, designed
          to protect branded products and documents of value from
          counterfeiting, fraud and diversion. During 2008, the Company
          generated most of its revenues from major customers (see also Note
          12).

          The Company conducts its operations and business with and through its
          direct and indirect subsidiaries: InkSure Inc., a Delaware corporation
          incorporated in March 2000; IST Operating Inc., a Delaware
          corporation, incorporated in May 2000 (formerly: InkSure Technologies
          Inc.) (as of December 31, 2008, IST Operating Inc. is inactive);
          InkSure Ltd., which was incorporated in December 1995 under the laws
          of Israel; and InkSure RF Inc., a Delaware corporation incorporated in
          March 2000 (as of December 31, 2008, InkSure RF Inc. is inactive).

     B.   As reflected in the accompanying financial statements, the Company's
          operations for the year ended December 31, 2008, resulted in a net
          loss of $3,528 and an increase in net stockholders' deficit to $4,715.
          The Company had a negative working capital (current assets less
          current liabilities) of approximately $5,003.

          The Company's ability to continue operating as a "going concern" is
          dependent on several factors; among them is its ability to obtain
          additional capital. Management's plans in this regard include, among
          others, raising additional cash from current and potential
          stockholders and lenders, and increasing the marketing of its current
          and new products.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements are prepared in accordance with
     United States generally accepted accounting principles ("U.S. GAAP").

     A.   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 amounts reported in the financial
          statements and accompanying notes. Actual results could differ from
          those estimates.

     B.   FINANCIAL STATEMENTS IN U.S. DOLLARS:

          A majority of the U.S. subsidiary's sales is made in U.S. dollars
          ("the dollar"). In addition, a substantial portion of the U.S.
          subsidiary costs is incurred in dollars and the majority of the
          expenses of the Israeli subsidiary is paid in new Israeli shekels
          ("NIS"); however, most of the expenses are denominated and determined
          in U.S. dollars. The Company's management believes that the dollar is
          the currency of the primary economic environment in which the Company
          and its subsidiaries operate. Thus, the functional and reporting
          currency of the Company and its subsidiaries is the dollar.

          Accordingly, monetary accounts maintained in currencies other than the
          dollar are re-measured into U.S. dollars in accordance with Statement
          of the Financial Accounting Standards No. 52, "Foreign Currency
          Translation" ("SFAS No. 52"). All transaction gains and losses of the
          re-measurement of monetary balance sheet items are reflected in the
          statements of operations as financial income or expenses, as
          appropriate.

     C.   PRINCIPLES OF CONSOLIDATION:

          The consolidated financial statements include the accounts of the
          Company and its subsidiaries. Intercompany transactions and balances
          have been eliminated upon consolidation.

     D.   CASH EQUIVALENTS:

          Cash equivalents are short-term highly liquid investments purchased
          with maturities of three months or less as of the date acquired.


                                      F - 7

     E.   INVENTORIES:

          Inventories are stated at the lower of cost or market value. Cost is
          determined as follows:

          Raw materials, parts and supplies - using the "first-in, first-out"
          method.

          Work in progress and finished products - on the basis of direct
          manufacturing costs with the addition of allocable indirect
          manufacturing costs.

     F.   PROPERTY AND EQUIPMENT, NET:

          Property and equipment are stated at cost, net of accumulated
          depreciation. Depreciation is computed using the straight-line method,
          over the estimated useful lives of the assets as follows:

                                                YEARS
                                                -----

          Computers and peripheral equipment    3-5
          Office furniture and equipment        5-17
          Leasehold improvements                Over the shorter of the term of the
                                                lease or the life of the asset

     G.   GOODWILL:

          Goodwill represents excess of the costs over the fair value of net
          assets of businesses acquired. Under Statement of Financial Accounting
          Standard No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
          142") goodwill acquired in a business combination on or after July 1,
          2001, was written off during the fourth quarter of 2008.

          SFAS No.142 requires goodwill to be tested for impairment at least
          annually or between annual tests in certain circumstances, and written
          down when impaired, rather than being amortized as previous accounting
          standards required. Goodwill attributable to the reporting unit is
          tested for impairment by comparing the fair value of the reporting
          unit with its carrying value. Fair value is determined according to a
          financing round between unrelated parties.

     H.   IMPAIRMENT OF LONG-LIVED ASSETS

          The Company's long-lived assets and certain identified intangibles are
          reviewed for impairment in accordance with Statement of Financial
          Accounting Standard No. 144, "Accounting for the Impairment or
          Disposal of Long-Lived Assets" ("SFAS No. 144") whenever events or
          changes in circumstances indicate that the carrying amount of an asset
          may not be recoverable. Recoverability of assets to be held and used
          is measured by a comparison of the carrying amount of an asset to the
          future undiscounted cash flows expected to be generated by the assets.
          If such assets are considered to be impaired, the impairment to be
          recognized is measured by the amount by which the carrying amount of
          the assets exceeds the fair value of the assets.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     I    REVENUE RECOGNITION:

          The Company generates revenues mainly from sales of security inks and
          readers through a combination of its own sales personnel, strategic
          alliances and licenses with intermediaries.

          Revenues from product sales are recognized in accordance with "Revenue
          Recognition in Financial Statements" ("SAB No. 104"), when delivery
          has occurred, persuasive evidence of an agreement exists, the vendor's
          fee is fixed or determinable, no further obligation exists and
          collectability is probable. Delivery is considered to have occurred
          upon shipment of products. The Company does not grant a right of
          return to its customers.

          Revenues from certain arrangements may include multiple elements
          within a single contract. The Company's accounting policy complies
          with the provisions of Emerging Issues Task Force Issue 00-21,
          "Revenue Arrangements with Multiple Deliverables" ("EITF 00-21"),
          relating to the separation of multiple deliverables into individual
          accounting units with determinable fair value.

          In cases where the Company has partial delivery at the cut off dates
          and no fair value exist for the undelivered elements revenues are
          being deferred and recognized only at the point where the entire
          arrangement has been delivered.


                                      F - 8

     J.   WARRANTY:

          The Company provides a warranty for its products. The term of the
          warranty is three months for hardware products and up to 18 months for
          Smartink products.

          As of the balance sheet date, the Company did not receive any warranty
          claims and does not expect to receive any material warranty claims in
          the future. Therefore, the Company did not record a liability in
          respect of the warranty.

     K.   RESEARCH AND DEVELOPMENT COSTS:

          Research and development costs are charged to the statement of
          operations, as incurred.

     L.   BASIC AND DILUTED NET LOSS PER SHARE:

          Basic and diluted net loss per share is presented in accordance with
          Statement of Accounting Financial Standards No. 128, "Earnings per
          Share" ("SFAS No. 128") for all periods presented. Basic and diluted
          net loss per share of Common stock was determined by dividing net loss
          attributable to Common stock holders by weighted average number of
          shares of Common stock outstanding during the period. Diluted net loss
          per share of Common stock is the same as basic net loss per share of
          Common stock for all periods presented as the effect of the Company's
          potential additional shares of Common stock were anti-dilutive.

          All outstanding stock options and warrants have been excluded from the
          calculation of the diluted net loss per share of Common stock because
          all such securities are anti-dilutive for the periods presented. The
          total number of shares related to the outstanding options, warrants
          and convertible debt excluded from the calculations of diluted net
          loss per share was 23,294,082 and 3,570,172 for the years ended
          December 31, 2008 and 2007, respectively.

     M.   INCOME TAXES:

          The Company accounts for income taxes in accordance with Statement of
          Financial Accounting Standards No. 109, "Accounting for Income Taxes"
          ("SFAS No. 109"). This statement prescribes the use of the liability
          method whereby deferred tax assets and liability account balances are
          determined based on differences between financial reporting and tax
          bases of assets and liabilities and are measured using the enacted tax
          rates and laws that will be in effect when the differences are
          expected to reverse. The Company provides a valuation allowance, if
          necessary, to reduce deferred tax assets to their estimated realizable
          value.

     N.   CONCENTRATIONS OF CREDIT RISK:

          Financial instruments that potentially subject the Company to
          concentrations of credit risk consist principally of cash and cash
          equivalents and trade receivables.

          Cash and cash equivalents are invested in major banks in Israel and
          the United States. Such deposits in the United States may be in excess
          of insured limits and are not insured in other jurisdictions.
          Management believes that the financial institutions that hold the
          Company's investments are financially sound, and, accordingly, minimal
          credit risk exists with respect to these investments.

          The trade receivables of the Company are mainly derived from sales to
          customers located in the United States and Europe. The Company has
          performed credit evaluations of its customers and to date has not
          experienced any material losses. An allowance for doubtful accounts is
          determined with respect to those amounts that the Company has
          determined to be doubtful of collection. In certain circumstances, the
          Company may require letters of credit, other collateral or additional
          guarantees.

          The Company has no off-balance-sheet concentration of credit risk such
          as foreign exchange contracts, option contracts or other foreign
          hedging arrangements.

     O.   FAIR VALUE OF FINANCIAL INSTRUMENTS:

          The following methods and assumptions were used by the Company in
          estimating fair value and disclosures for financial instruments:

          The carrying amounts reported in the balance sheet for cash and cash
          equivalents, trade receivables, and trade payables approximate their
          fair value due to the short-term maturities of such instruments.

     P.   ACCOUNTING FOR STOCK-BASED COMPENSATION:

          Effective January 1, 2006, the Company adopted SFAS No. 123 (revised
          2004), "Share-Based Payment" (SFAS No. 123R) requiring that
          compensation cost relating to share-based payment awards made to
          employees and directors be recognized in the financial statements. The
          principal awards issued under Company stock-based compensation plans
          include stock options. The cost for such awards is measured at the
          grant date based on the calculated fair value of the award. The value
          of the portion of the award that is ultimately expected to vest is
          recognized as expense over the requisite service periods (generally
          the vesting period of the equity award) in the Company Consolidated
          Statement of Operations.


                                      F - 9

          Compensation cost related to stock options is recognized in operating
          results (included in cost of revenues, research and development,
          selling and marketing, general and administrative expenses) under SFAS
          No. 123R in 2008 was $159,000.

          Under SFAS 123 (R), the fair market value of each option grant is
          estimated on the date of grant using the "Black-Scholes option
          pricing" method with the following weighted-average assumptions:(1)
          expected life of 3 years (2007 - 3.25); (2) dividend yield of 0% (3)
          expected volatility of 125% (2007 - 95%) and (4) risk-free interest
          rate of 2.82% (2007 - 4.8%).

     Q.   INITIAL ADOPTION OF NEW STANDARDS:

          FAS 157-3- In October 2008, the FASB staff issued Staff Position (FSP)
          No. FAS 157-3, "Determining the Fair Value of a Financial Asset When
          the Market for That Asset Is Not Active." The FSP amends Statement 157
          by incorporating "an example to illustrate key considerations in
          determining the fair value of a financial asset" in an inactive
          market. The FSP is effective upon issuance and should be applied to
          prior periods for which financial statements have not been issued.

          The FSP's illustrative example and associated guidance clarifies
          various application issues raised by preparers of financial
          statements. With regard to the measurement principles of Statement
          157, the FSP emphasizes the following:

          Objective of Fair Value - The objective of a fair value measurement is
          to determine the price that would be received to sell an asset in an
          orderly transaction that is not a forced liquidation or distressed
          sale between market participants as of the measurement date. This
          objective does not change even when there is little, if any, market
          activity for an asset as of the measurement date.

          Distressed Transactions - "Even in times of market dislocation, it is
          not appropriate to conclude that all market activity represents forced
          liquidations or distressed sales. However, it is also not appropriate
          to automatically conclude that any transaction price is determinative
          of fair value." The evaluation of whether individual transactions are
          forced (that is, whether one of the parties is forced or otherwise
          compelled to transact) depends on the facts and circumstances and may
          require the use of significant judgment.

          Relevance of Observable Data - Observable market data may require
          significant adjustment to meet the objective of fair value. "For
          example, in cases where the volume and level of trading activity in
          the asset have declined significantly, the available prices vary
          significantly over time or among market participants, or the prices
          are not current, the observable inputs might not be relevant and could
          require significant adjustment." If the adjustment is significant, the
          measurement would be considered Level 3.

          The Company's Assumptions and Nonperformance and Liquidity Risks - The
          use of the Company's internal "assumptions about future cash flows and
          appropriately risk-adjusted discount rates" is acceptable when
          relevant observable market data does not exist. In addition, such
          assumptions or techniques must incorporate adjustments for
          nonperformance and liquidity risks that market participants would
          consider in valuing the asset.

          Third Party Pricing Quotes - Quotes and information obtained from
          brokers or pricing services "are not necessarily determinative if an
          active market does not exist for the financial asset" being measured.
          In addition, "an entity should place less reliance on quotes that do
          not reflect actual market transactions."

          The Company considered the guidance in this FSP in evaluating
          convertible loan.


                                     F - 10

     R.   RECENTLY ISSUED ACCOUNTING STANDARDS

          SFAS NO. 162

          In May 2008, the FASB issued Statement of Financial Accounting
          Standards (SFAS) No. 162, The Hierarchy of Generally Accepted
          Accounting Principles. SFAS No. 162 identifies the sources of
          accounting principles and provides entities with a framework for
          selecting the principles used in preparation of financial statements
          that are presented in conformity with GAAP. The current GAAP hierarchy
          has been criticized because it is directed to the auditor rather than
          the entity, it is complex, and it ranks FASB Statements of Financial
          Accounting Concepts, which are subject to the same level of due
          process as FASB Statements of Financial Accounting Standards, below
          industry practices that are widely recognized as generally accepted
          but that are not subject to due process. The FASB believes the GAAP
          hierarchy should be directed to entities because it is the entity (not
          its auditors) that is responsible for selecting accounting principles
          for financial statements that are presented in conformity with GAAP.
          The adoption of FASB 162 is not expected to have a material impact on
          the Company's financial position.

          FSP APB 14-1

          In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1,
          "Accounting for Convertible Debt Instruments That May Be Settled in
          Cash upon Conversion (Including Partial Cash Settlement)" ("APB
          14-1"). APB 14-1 requires the issuer to separately account for the
          liability and equity components of convertible debt instruments in a
          manner that reflects the issuer's nonconvertible debt borrowing rate.
          The guidance will result in companies recognizing higher interest
          expense in the statement of operations due to amortization of the
          discount that results from separating the liability and equity
          components. APB 14-1 will be effective for financial statements issued
          for fiscal years beginning after December 15, 2008, and interim
          periods within those fiscal years. The Company is currently assessing
          the impact of APB 14-1 on its consolidated financial statements.

          FSP EITF 03-6-1

          In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1,
          "Determining Whether Instruments Granted in Share-Based Payment
          Transactions Are Participating Securities" ("FSP EITF 03-6-1"). FSP
          EITF 03-6-1 establishes that unvested share-based payment awards that
          contain nonforfeitable rights to dividends or dividend equivalents
          (whether paid or unpaid) are participating securities as defined in
          Emerging Issues Task Force ("EITF") Issue No. 03-6, "Participating
          Securities and the Two-Class Method under FASB Statement No. 128", and
          should be included in the computation of earnings per share pursuant
          to the two-class method as described in Statement of Financial
          Accounting Standards No. 128, "Earnings per Share". FSP EITF 03-6-1 is
          effective for financial statements issued for fiscal years beginning
          after December 15, 2008, and interim periods within those years. All
          prior-period earnings per share data presented shall be adjusted
          retrospectively to conform to the provisions of FSP EITF 03-6-1. Early
          application is not permitted. The Company is currently evaluating the
          impact that the adoption of FSP EITF 03-6-1 will have on its
          consolidated financial statements but believes that its effect will be
          immaterial due to immaterial use of instruments within the scope of
          the FSP.

          EITF ISSUE NO. 07-5

          In June 2008, the FASB Emerging Items Task Force reached a consensus
          on EITF Issue No. 07-5, "Determining Whether an Instrument (or an
          Embedded Feature) Is Indexed to an Entity's Own Stock". The Consensus
          was reached on the following three issues:

          1.   The way an entity should evaluate whether an instrument (or
               embedded feature) is indexed to its own stock.

          2.   The way the currency in which the strike price of an
               equity-linked financial instrument (or embedded equity-linked
               feature) is denominated affects the determination of whether the
               instrument is indexed to an entity's own stock.

          3.   The way an issuer should account for market-based employee stock
               option valuation instruments.

          This consensus will affect entities with (1) options or warrants on
          their own shares (not within the scope of Statement 150), including
          market-based employee stock option valuation instruments; (2) forward
          contracts on their own shares, including forward contracts entered
          into as part of an accelerated share repurchase program; and (3)
          convertible debt instruments and convertible preferred stock. Also
          affected are entities that issue equity-linked financial instruments
          (or financial instruments that contain embedded equity-linked
          features) with a strike price that is denominated in a foreign
          currency.

          The consensus is effective for fiscal years (and interim periods)
          beginning after December 15, 2008. The consensus must be applied to
          outstanding instruments as of the beginning of the fiscal year in
          which the issue is adopted as a cumulative-effect adjustment to the
          opening balance of retained earnings for that fiscal year. Early
          application is not permitted.

          The Company is currently evaluating the effect of EITF 07-5 and has
          not yet determined the impact of the consensus on its financial
          position or results of operations.


                                     F - 11

NOTE 3 - OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

                           AS OF DECEMBER 31,
                           -----------------
                           2 0 0 8    2 0 0 7
                           -------    -------

Government authorities     $    11    $    24
Prepaid expenses                58         75
Other                            4        126
                           -------    -------
                                73       $225
                           =======    =======

NOTE 4 - INVENTORIES

                                        AS OF DECEMBER 31,
                                        -------------------
                                        2 0 0 8     2 0 0 7
                                        -------     -------

Raw materials, parts and supplies       $   252     $   359
Finished products                            70          40
                                        -------     -------
                                            322     $   399
                                        =======     =======

NOTE 5 - PROPERTY AND EQUIPMENT, NET

                                            AS OF DECEMBER 31,
                                           -------------------
                                           2 0 0 8    2 0 0 7
                                           -------    -------

Cost:
  Computers and peripheral equipment       $  721     $  704
  Office furniture and equipment              128        131
  Leasehold improvements                      126        118
                                           ------     ------
                                              975     $  953
                                           ------     ------

Accumulated depreciation:
  Computers and peripheral equipment       $  490     $  444
  Office furniture and equipment               85         40
  Leasehold improvements                      121        117
                                           ------     ------
                                              696     $  601
                                           ======     ======

Net book value                             $  279     $  352
                                           ======     ======

          Depreciation expenses for the years ended December 31, 2008 and 2007,
          amounted to $ 95 and $ 93, respectively.

NOTE 6 - ACCRUED SEVERANCE PAY

          Under Israeli law and labor agreements, the Company is required to
          make severance payments to its dismissed employees and employees
          leaving its employment in certain other circumstances. The Company's
          severance pay obligation to its employees, if any, is reflected by the
          accrual presented in the balance sheet.


                                     F - 12

NOTE 7 - CONVERTIBLE NOTE

     ISSUANCE OF CONVERTIBLE NOTES

     On September 30, 2005, the Company completed a private placement of
     convertible notes ("Convertible notes"), in the aggregate principal amount
     of $6,000 pursuant to the Securities Purchase Agreement as of such date
     between the Company and certain investors ("the Investors").

     The Convertible notes were unsecured and due on September 30, 2010. The
     investors had the ability to cause the Company to redeem the notes on
     September 30, 2009. Prior to maturity, the notes were interest-only, with
     interest payments due quarterly at the rate of 4% per year.

     The Convertible notes were convertible initially into shares of the
     Company's common stock at an initial conversion price per share of $3.00,
     subject to full ratchet anti-dilution protection with respect to any future
     stock issuances below such conversion price. Through July 24, 2007, the
     Investors had the right to participate up to one-third with any subsequent
     equity or equity-linked capital raising by the Company.

     In accordance with the issuing of the Convertible notes, the Company
     accrued issuance charges in the amount of $696, which is amortized over a
     five year period.

     The Convertible notes contained embedded derivatives. Derivatives
     instruments are contractual commitments or payment exchange agreements
     between counterparties that derive their value from an underlying asset,
     liability or equity, depending on their characteristics. Each derivative
     component should be recorded as a liability. The Company valued the
     derivative components using Black Scholes model. The value of the
     derivatives as of December 31, 2007 and 2006 is $296 and $380,
     respectively. The derivatives are revalued at each reporting period.

     ISSUANCE OF WARRANTS TO PURCHASE CONVERTIBLE NOTES

     In September 2005, in connection with the initial issuance of the
     Convertible notes, the Investors were granted the opportunity to invest an
     additional $1,250 through the purchase of additional convertible notes at a
     conversion price of $3.60 per share until March 30, 2007. The Company
     assessed the characteristics of the warrants to purchase Convertible notes
     and determined that they should be recorded as a liability and valued by
     using Black Scholes model. The value of the warrants as of December 31,
     2006 was $152. As a result of recording the warrants and the derivative
     instruments at fair value at the date of issuance, the Company recorded a
     discount in the amount of $1,352, which is being amortized over a four year
     period

     ISSUANCE OF SENIOR SECURED CONVERTIBLE NOTES

     On April 9, 2008, the company completed a private placement of senior
     secured convertible notes in an aggregate principal amount of $3,000,000
     pursuant to Amendment, Exchange and Purchase Agreements. The private
     placement resulted in gross proceeds of $3,000,000, of which $750,000 was
     placed in a cash collateral account to secure interest payments under the
     notes. Pursuant to the agreements, the investors were issued $3,000,000
     principal amount of new notes and exchanged their $6,000,000 principal
     amount of existing notes for the same principal amount of amended and
     restated senior secured convertible notes (together with the $3,000,000
     principal amount of new notes, referred to as the "new notes") each of
     which is convertible into shares of common stock at a conversion price is
     $0.60, subject to adjustment. The new notes are secured by our assets and
     the assets of our subsidiaries and are guaranteed by each of our
     subsidiaries. In addition, all of the shares of each of our subsidiaries
     are pledged as collateral to secure our obligations under the new notes,
     the security agreements and related documents. The investors may require us
     to redeem all or any portion of the outstanding principal amount of the new
     notes in cash plus accrued but unpaid interest on or after September 30,
     2009.

     We may require the investors to convert all or any portion of the new notes
     into shares of common stock upon the occurrence of certain conditions
     relating to the trading price of our common stock. Upon any such
     conversion, the investors will be entitled to receive a pro rata amount of
     the cash deposit in the collateral account which we have established to
     secure interest payments under the new notes based on the principal amount
     of the new notes that we require to be converted. We may also redeem the
     new notes at any time by paying the buyers a premium of 5%-25% of the
     outstanding principal amount of the notes (based upon the time of
     redemption) plus interest and the amounts initially secured in the
     collateral account; at the time of such redemption we will also issue to
     the buyers warrants to purchase common stock, expiring on September 30,
     2010, at an exercise price of $0.60.


                                     F - 13


     If we sell or license all or substantially all of the assets in our ink
     business, we may be required to redeem the new notes at 100% of their
     outstanding principal amount up to the net proceeds of such sale or
     licensing transaction. If we consummate a transaction that results in a
     change of control or other merger or reorganization or recapitalization, we
     may be required to redeem the new notes at 125% of their outstanding
     principal amount. The new notes are due on September 30, 2010, unless they
     are redeemed or converted earlier. In addition, we issued to the buyers
     warrants to acquire 3,570,337 shares at an exercise price of $0.60. These
     warrants have a term of ten years.

     During the second quarter of 2008, certain holders of our Senior Secured
     Convertible Notes converted an aggregate principal amount of $118,920 of
     Senior Secured Convertible Notes into an aggregate of 198,200 shares of our
     common stock (at a conversion price of $0.60 per share). At the time of
     each such conversion, in addition to the issuance of common stock, we paid
     to the converting entity the outstanding interest on the principal amount
     of the Senior Secured Convertible Note converted and a pro-rata amount of
     the cash collateral account established to secure interest payments on the
     Senior Secured Convertible Notes.

                                      AS OF DECEMBER 31,
                                   -----------------------
                                    2 0 0 8        2 0 0 7
                                   --------       --------

          Convertible note          $ 8,881        $ 6,000
          Discount                   (1,990)          (605)
          Bifurcated embedded           196            296
                                      7,087          5,691
                                    =======        =======

NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES

     A.   LEASE COMMITMENTS:

     The Company leases its facilities and certain motor vehicles under various
     operating lease agreements, which expire on various dates, the latest of
     which is in 2011. The future rental payments under non-cancelable operating
     leases as of December 31, 2008, are as follows:

           2009-2011                            $ 222
                                                -----
                                                $ 222
                                                =====

     B.   CHARGES AND GUARANTEES:

     The Company provided bank guarantees in the amount of $13 to secure its
     lease commitments.

     C.   LEGAL PROCEEDINGS:

     On December 12, 1999, Secu-Systems filed a lawsuit with the District Court
     in Tel Aviv-Jaffa against Supercom Ltd. (InkSure Delaware's former parent
     company) and InkSure Ltd. seeking a permanent injunction and damages. The
     plaintiff asserted in its suit that the printing method applied to certain
     products that has been developed by InkSure Ltd. constitutes, inter alia:
     (a) breach of a confidentiality agreement between the plaintiff and
     Supercom; (b) unjust enrichment of Supercom and InkSure Ltd.; (c) a breach
     of fiduciary duties owed to the plaintiff by Supercom and InkSure Ltd.; and
     (d) a tort of misappropriation of trade secret and damage to plaintiff's
     property. As part of its complaint, Secu-Systems sought, among other
     things, an injunction and a 50% share of profits from the printing method
     at issue.

     On March 15, 2006, the court rendered a decision (i) denying the claim for
     breach of contract; (ii) finding that there was a misappropriation of trade
     secret, but not assessing any damages with respect thereto; (iii) requiring
     the defendants to cease all activities involving the use of any
     confidential information; and (iv) awarding the plaintiff reimbursement of
     the costs of the litigation in the amount of NIS 130,000 (about $34,000
     based on the exchange rate as of December 31, 2008), plus interest and
     value added tax, which the defendants intend to split equally. InkSure
     recorded in its 2006 financial statements a provision of NIS 65,000 (about
     $17,000 at the exchange rate as of December 31, 2008).

     Both the plaintiff and the defendants appealed the court's decision.

     On November 1, 2007, the Supreme Court ruled in favor of Secu-Systems'
     appeal. This ruling accepts that InkSure and Supercom have breached the
     confidentiality agreement. Consequently, the appeal that had been filed by
     InkSure and Supercom was dismissed. The Supreme Court instructed that the
     case will be returned to the District Court for determining the remedies to
     which Secu-Systems is entitled to.

     On February 18, 2008, Secu-Systems filed a petition with the district court
     to amend the amount for which it has sued to NIS 25,000,000 (approx. $
     7,460,000).

     On March 24, 2008, SuperCom (which changed its name to Vuance Ltd) provided
     the Company with an opinion of an accounting expert, according to which,
     the following conclusions can be drawn:

          1.   In light of the costs analysis, SuperCom had no economic profit
               from the sale of the Company shares.

          2.   The consideration received from the sale of the Company shares on
               2002, incorporates the value of the cash flow of the Company
               following the sale. Therefore, a calculation based upon both the
               sale price and the future cash flow of the Company is not
               accurate and does not agree with customary accountant standards,
               since it calculates the factor of the future cash flow twice.

                                     F - 14


          3.   The examination of the results of the Company's business activity
               from 2002-2007, as reflected in its financial statements, show
               that the Company had not made any profit, and incurred losses
               during such periods. The financial statements also reflect that
               the Company had negative cash flow during these years, which was
               financed by bank loans and fund raising.

     In light of the above, provided that the opinion is adopted by the court,
     the Company believes that no material amounts will be awarded to
     Secu-System in these proceedings.

     D.   R&D GRANTS:

     The Company has received non-royalty-bearing grants amounting to $229 from
     the European commission. These grants are recognized at the time the
     Company was entitled to such grants on the basis of the costs incurred and
     included as a reduction in research and development expenses.

     During 2007 and through December 31, 2008, the Company received a
     governmental research and development grant of approximately US$790,000 (of
     which US$306,000 were received during 2007) from the Office of the Chief
     Scientist (OCS) at the Ministry of Trade and Industry of the Government of
     Israel. This royalties-bearing research and development grant partially
     covers the Company' RFID research and development project expenses.
     Royalties would become due to OCS only if the RFID research and development
     project funded by the grant is successfully commercialized and results in
     sales revenues. The royalty rate is 3%-4% of the sales revenues based on
     the RFID research and development project funded by the grant, and is
     capped at the grant amount received from the OCS plus interest.

     E.   OTHER CONTINGENT LIABILITIES:

     On October 1, 2007, the company engaged a contractor to develop services
     and design a Transmitter Receiver Module (TRM) for our RFID project. In
     this service agreement, among other things, if the Company engages a third
     party other than this contractor to produce TRM units for us, the
     contractor is entitled to payment in an amount equal to 10% of the
     production and assembly costs of the TRM paid by us for the first 10,000
     units or through September 30, 2011, whichever comes first.

     On May 28, 2006, the Company engaged a contractor for consulting,
     development and assistance services. Under this service agreement, among
     other things, the contractor is entitled to a 1% royalty on sales of
     antennas and front ends through 2009 as payment for consulting, development
     and assistance services during the transfer of antennas and front ends into
     mass production.

NOTE 9 - STOCK CAPITAL

     A.   STOCKHOLDERS' RIGHTS:

          Shares of Common stock confer upon the holders' right to receive
          notice to participate and vote in the general meetings of the Company,
          and the right to receive dividends, if and when declared.

     B.   STOCK OPTIONS:

          The terms and conditions of the Company's 2002 stock option plan ("the
          2002 Plan") relating to vesting periods and exercise prices are the
          same as in the 2001 Plan. Under the 2002 Plan, up to 3,500,000 options
          may be granted to officers, directors, employees and consultants of
          the Company.

          The options vest ratably over a period of time as approved by the
          board or by the compensation committee, if delegated by the board,
          commencing with the date of grant. The options generally expire no
          later than five years from the date of grant. Any options, which are
          forfeited or cancelled before expiration, become available for future
          grants.

          As of December 31, 2008, an aggregate of 960,017 options are still
          available for future grant under the Company's stock option plans.

          The following is a summary of the Company's stock options granted
          among the various plans:

                                                     YEAR ENDED DECEMBER 31,
                                    --------------------------------------------------------
                                           2 0 0 8                           2 0 0 7
                                    -------------------------     --------------------------

                                                   WEIGHTED                        WEIGHTED
                                      AMOUNT        AVERAGE         AMOUNT         AVERAGE
                                    OF OPTIONS   EXERCISE PRICE   OF OPTIONS    EXERCISE PRICE
                                    ----------     ----------     ----------      ----------

Outstanding at beginning of year     2,594,367     $     1.47      2,440,867      $     1.39
Granted                              1,042,083     $     0.30        443,000      $     1.82
Exercised                                    -              -        (97,833)     $     1.21
Forfeited                              406,000     $     1.60       (191,667)     $     1.63
                                    ----------     ----------     ----------      ----------
Outstanding at end of year           3,230,450     $     1.12      2,594,367      $     1.47
                                    ==========     ==========     ==========      ==========
Exercisable at end of year           2,291,471     $     1.26      1,967,514      $     1.32
                                    ==========     ==========     ==========      ==========

                                     F - 15

          The Company recognized compensation expenses of $159 and $536 for the
          year ended December 31, 2008 and 2007.

     C.   STOCK WARRANTS:

          The Company has issued warrants, as follows:

                OUTSTANDING AS OF                   EXERCISABLE AS OF   EXERCISABLE
ISSUANCE DATE   DECEMBER 31 2008   EXERCISE PRICE   DECEMBER 31, 2008     THROUGH
-------------   ----------------   --------------   -----------------     -------

April 2004 (1)      1,485,295       $     1.00          1,485,295        April 2009
March 2005 (2)         50,000       $     1.40             50,000        March 2015
June 2006  (3)        100,000       $     1.60            100,000         June 2011
June 2007  (4)         30,000       $     1.83             30,000         June 2012

          (1)  Issued to investors in the 2004 private placement.

          (2)  Issued to a consultant of the company.

          (3)  Issued to a consultant of the company.

          (4)  Issued to a consultant of the company.

     D.   DIVIDENDS:

          According to the terms of the convertible notes, distribution of cash
          dividends is prohibited without the consent of the holders of the
          majority of the principal amount of convertible notes outstanding.

NOTE 10 - TAXES ON INCOME

     A.   MEASUREMENT OF TAXABLE INCOME UNDER THE INCOME TAX LAW (INFLATIONARY
          ADJUSTMENTS), 1985:

          The results for tax purposes of the Israeli subsidiary are measured in
          terms of earnings in NIS, after certain adjustments for increases in
          the Israeli Consumer Price Index ("CPI"). As explained in Note 2b, the
          financial statements are measured in U.S. dollars. The difference
          between the annual change in the Israeli CPI and in the NIS/dollar
          exchange rate causes a further difference between taxable income and
          the income before taxes shown in the financial statements. In
          accordance with paragraph 9(f) of SFAS No. 109, the Company has not
          provided deferred income taxes on the difference between the
          functional currency and the tax bases of assets and liabilities at the
          Israeli subsidiary.

     B.   DEFERRED INCOME TAXES:

          Deferred income taxes reflect the net tax effects of temporary
          differences between the carrying amounts of assets and liabilities for
          financial reporting purposes and the amounts used for income tax
          purposes. Significant components of the Company's deferred tax assets
          are as follows:

                                                    YEAR ENDED DECEMBER 31,
                                                      --------------------
                                                      2 0 0 8      2 0 0 7
                                                      -------      -------

Net loss carry-forward                                $ 2,042      $ 1,663
Other deductions for tax purposes                         161          131
                                                      -------      -------

Net deferred tax asset before valuation allowance       2,203        1,794
Valuation allowance                                    (2,203)      (1,794)
                                                      -------      -------

Net deferred tax asset                                $     -      $     -
                                                      =======      =======

          The Company has provided valuation allowances in respect of deferred
          tax assets resulting from tax loss carry-forward and other temporary
          differences. Management currently believes that since the Company has
          a history of losses it is more likely than not that the deferred tax
          regarding the loss carry-forward and other temporary differences will
          not be realized in the foreseeable future.

                                     F - 16

          Net loss consists of the following:

            YEAR ENDED DECEMBER 31,
             --------------------
             2 0 0 8      2 0 0 7
             -------      -------

Domestic     $(2,262)     $(1,610)
Foreign       (1,266)      (1,468)
             -------      -------

             $(3,528)     $(3,078)
             =======      =======

     C.   On July 24, 2002, Amendment 132 to the Israeli Income Tax Ordinance
          ("the Amendment") was approved by the Israeli parliament and came into
          effect on January 1, 2003. The principal objectives of the Amendment
          were to broaden the categories of taxable income and to reduce the tax
          rates imposed on employees' income.

          The material consequences of the Amendment applicable to the Israeli
          subsidiary include, among other things, imposing tax upon all income
          of Israel residents, individuals and corporations, regardless of the
          territorial source of income and certain modifications in the
          qualified taxation tracks of employee stock options.

     D.   TAX LOSS CARRY-FORWARDS:

          Net operating loss carry-forwards as of December 31, 2008 are as
          follows:

Israel               11,404
United States *)     10,301
                     ------

                     21,705
                     ======

          Net operating losses in Israel may be carried forward indefinitely.
          Net operating losses in the U.S. are available through 2024.

          *)   Utilization of U.S. net operating losses may be subject to
               substantial annual limitation due to the "change in ownership"
               provisions of the Internal Revenue Code of 1986 and similar state
               provisions. The annual limitation may result in the expiration of
               net operating losses before utilization.

     E.   The main reconciling items between the statutory rate of the Company
          and the effective tax rate are the non-recognition of tax benefits
          from the accumulated net operating losses carry-forward among the two
          subsidiaries due to the uncertainty of the realization of such tax
          benefits.

     F.   REDUCTION IN CORPORATE TAX RATE:

     On July 25, 2005 an amendment to the Israeli tax law was approved by the
     Israeli parliament, which reduces the tax rates imposed on Israeli
     companies to 31% for 2006. This amendment states that the corporate tax
     rate will be further reduced in subsequent tax years as follows: in 2007
     29%, in 2008 27%, in 2009 26% and thereafter 25%. This change does not have
     a material effect on the Company's financial statements.

NOTE 11 - FINANCIAL INCOME (EXPENSES), NET

                                                              YEAR ENDED DECEMBER 31,
                                                                 ----------------
                                                                2 0 0 8    2 0 0 7
                                                                --------   --------

Interest, bank charges and fees, net                            $   (449)  $   (244)
Foreign currency translation differences                             (13)        35
Non cash income (expenses) related to convertible notes, net        (882)      (316)
                                                                --------   --------
                                                                $ (1,344)  $   (525)
                                                                ========   ========

                                     F - 17

NOTE 12 - MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

     The Company manages its business on a basis of one reported operating
     segment: Security Solutions (see Note 1 for a brief description of the
     Company's business). Total revenues are attributed to geographic areas
     based on the location of the end customers. This data is presented in
     accordance with Statement of Financial Accounting Standards No. 131,
     "Disclosure About Segments of an Enterprise and Related Information" ("SFAS
     No. 131").

     The following data presents total revenue for the years ended December 31,
     2008 and 2007, based on the customer's location and long-lived assets as of
     December 31, 2008 and 2007:

                            2 0 0 8              2 0 0 7
                       -----------------     -----------------
                        TOTAL   LONG-LIVED    TOTAL   LONG-LIVED
                      REVENUES    ASSETS    REVENUES    ASSETS
                       ------     ------     ------     ------

United States          $  504     $    3     $1,244     $  281
Export:
   Israel                   3     $  276         34     $  342
   Asia and Europe      1,651          -      1,612          -
                       ------     ------     ------     ------

                       $2,158     $  279     $2,890     $  623
                       ======     ======     ======     ======

          Major customer data as a percentage of total revenues, is as follows:

                YEAR ENDED DECEMBER 31,
                 --------------------
                 2 0 0 8      2 0 0 7
                 -------      -------

Customer A           61%         19%
Customer B            9%          0%
Customer C            9%         13%
Customer D            8%         11%
Customer E            7%         18%
Customer F            1%         25%

                                     F - 18

                                 SIGNATURE PAGE

Pursuant to with Section 13 or 15(d) 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.

           SIGNATURE                               TITLE                              DATE

/s/ Yaron Meerfeld                       Acting Chief Executive Officer           March 30, 2009
---------------------------------
Yaron Meerfeld

     In accordance with the Exchange Act of 1934, as amended, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.

           SIGNATURE                               TITLE                                 DATE

/s/ Yaron Meerfeld                       Acting Chief Executive Officer (Pricipal    March 30, 2009
---------------------------------        Executive Officer) and Director
Yaron Meerfeld

/s/ Philip M. Getter                     Chairman of the Board                       March 30, 2009
---------------------------------
Philip M. Getter

/s/ Tzlil Peker                          Chief Financial Officer (Principal          March 30, 2009
---------------------------------        Financial and Accounting Officer)
Tzlil Peker

/s/ Gadi Peleg                           Director                                    March 30, 2009
---------------------------------
Gadi Peleg

                                         Director
---------------------------------
Randy F. Rock

/s/ David W. Sass                        Director                                    March 30, 2009
---------------------------------
David W. Sass

/s/ Pierre L. Schoenheimer               Director                                    March 30, 2009
---------------------------------
Pierre L. Schoenheimer

/s/ Elie Housman                         Director                                    March 30, 2009
---------------------------------
Elie Housman