U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

                                   (Mark One)

     [X] Quarterly report pursuant to Sections 13 or 15(d) of the Securities
                              Exchange Act of 1934

                  For the quarterly period ended June 30, 2005

    [_] Transition report pursuant to Sections 13 or 15(d) of the Securities
                              Exchange Act of 1934

        For the transition period from _______________ to _______________

                         COMMISSION FILE NUMBER: 0-24431

                            INKSURE TECHNOLOGIES INC.
        (Exact Name of Small Business Issuer as Specified in Its Charter)

          DELAWARE                                               84-1417774
(State or Other Jurisdiction of                               (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)

                1770 N.W. 64TH STREET FORT LAUDERDALE, FL 433309
          (Address of Principal Executive Offices, Including Zip Code)


                                 (954) 772-8507
                (Issuer's Telephone Number, Including Area Code)

                  ____________________________________________
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)

The number of shares outstanding of our Common Stock, $0.01 par value per share,
as of August 5, 2005, was 15,011,579 shares.

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):

                               Yes [_]     No [X]

<PAGE>


                            INKSURE TECHNOLOGIES INC.


                              INDEX TO FORM 10-QSB



                                                                           PAGE

PART I       FINANCIAL INFORMATION                                          1

Item 1       Financial Statements                                           1

             Condensed Consolidated Balance Sheet as of
             June 30, 2005 (unaudited)                                      1

             Condensed Consolidated Statements of Operations (unaudited)
             for the Six and Three Months Ended June 30, 2005 and 2004      3

             Statements of Stockholders' Equity as of
             June 30, 2005 (unaudited after December 31, 2004)              4

             Condensed Consolidated Statements of Cash Flows (unaudited)
             for the Six and Three Months Ended June 30, 2005 and 2004      5

             Notes to Consolidated Financial Statements                     6

Item 2       Management's Discussion and Analysis or Plan of Operation      8

Item 3       Controls and Procedures                                       12

PART II      OTHER INFORMATION                                             13

Item 6       Exhibits and Reports on Form 8-K                              13

SIGNATURES                                                                 14

                                     - i -
<PAGE>


ITEM 1.           FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



                            INKSURE TECHNOLOGIES INC.


                      CONDENSED CONSOLIDATED BALANCE SHEET

                           (U.S. DOLLARS IN THOUSANDS)


                                                  JUNE 30,
                                                    2005
                                                  ---------
                                                  UNAUDITED
                                                  ---------
   ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                        $  876
  Trade receivables                                   283
  Other accounts receivable and prepaid expenses      126
  Inventories                                         491
                                                   ------

Total current assets                                1,776
                                                   ------

SEVERANCE PAY FUND                                    118
                                                   ------

PROPERTY AND EQUIPMENT, NET                           228
                                                   ------

GOODWILL                                              271
                                                   ------

Total assets                                       $2,393
                                                   ======


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


                                     - 1 -
<PAGE>


                                             INKSURE TECHNOLOGIES INC.


                                       CONDENSED CONSOLIDATED BALANCE SHEET

                                  (U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                                                      JUNE 30,
                                                                                                        2005
                                                                                                      --------
                                                                                                     UNAUDITED
                                                                                                      --------
<S>                                                                                                   <C>
     LIABILITIES AND STOCKHOLDERS' EQUITY

 CURRENT LIABILITIES:
   Trade payables                                                                                     $    272
   Employees and payroll accruals                                                                          100
   Deferred income                                                                                         206
   Accrued expenses                                                                                        185
                                                                                                      --------

 Total current liabilities                                                                                 763
                                                                                                      --------

ACCRUED SEVERANCE PAY                                                                                      132
                                                                                                      --------

 STOCKHOLDERS' EQUITY:
   Share capital:
     Preferred stock of $ 0.01 par value:
       Authorized: 10,000,000 stocks at June 30, 2005; Issued and outstanding: 0 stocks at
       June 30, 2005
     Common Stock of $ 0.01 par value -
       Authorized: 35,000,000 stocks at June 30, 2005; Issued and outstanding: 15,011,579 stocks at
       June 30, 2005                                                                                       150
   Additional paid-in capital                                                                           12,089
   Deferred compensation                                                                                   (40)
   Accumulated other comprehensive income                                                                  118
   Accumulated deficit                                                                                 (10,819)
                                                                                                      --------

 Total stockholders' equity                                                                              1,498
                                                                                                      --------

 Total liabilities and stockholders' equity                                                           $  2,393
                                                                                                      ========
</TABLE>


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


                                     - 2 -
<PAGE>


                            INKSURE TECHNOLOGIES INC.


                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

          (U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                                  SIX MONTHS ENDED              THREE MONTHS ENDED
                                                      JUNE 30,                       JUNE 30,
                                           ----------------------------    ----------------------------
                                               2005            2004            2005             2004
                                           ------------    ------------    ------------    ------------
                                                    UNAUDITED                       UNAUDITED
                                           ----------------------------    ----------------------------
<S>                                        <C>             <C>             <C>             <C>
Revenues                                   $        781    $        539    $        287    $        382
Cost of revenues                                    489             224             187             179
                                           ------------    ------------    ------------    ------------

Gross profit                                        292             315             100             203
                                           ------------    ------------    ------------    ------------

Operating expenses:
  Research and development                          370             394             188             196
  Selling and marketing                             700             555             350             259
  General and administrative                        284             309             159             121
                                           ------------    ------------    ------------    ------------

TOTAL operating expenses                          1,354           1,258             697             576
                                           ------------    ------------    ------------    ------------

Operating loss                                   (1,062)           (943)           (597)           (373)
                                           ------------    ------------    ------------    ------------

Financial income, net                                17              10               6               4
                                           ------------    ------------    ------------    ------------

Net loss                                   $     (1,045)   $       (933)   $       (591)   $       (369)
                                           ============    ============    ============    ============

Basic and diluted net loss per share       $      (0.07)   $      (0.07)   $      (0.04)   $      (0.03)
                                           ============    ============    ============    ============

Weighted average number of Common Stock
 used in computing basic and diluted net
 loss per share                              15,011,579      12,997,155      15,011,579      13,886,578
                                           ============    ============    ============    ============
</TABLE>


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


                                     - 3 -
<PAGE>


                            INKSURE TECHNOLOGIES INC.

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                            U.S. DOLLARS IN THOUSANDS


<TABLE>
<CAPTION>
                                                                                  ACCUMULATED
                                                        ADDITIONAL                   OTHER                       TOTAL
                                             SHARE       PAID-IN      DEFERRED   COMPREHENSIVE  ACCUMULATED  STOCKHOLDERS'
                                            CAPITAL      CAPITAL    COMPENSATION     INCOME      DEFICIT        EQUITY
                                            --------     --------     --------      --------     --------      --------
<S>                                         <C>          <C>          <C>           <C>          <C>           <C>
Balance as of January 1, 2005               $    150     $ 12,031     $      -      $    118     $ (9,774)     $  2,525

  Deferred compensation                            -           58          (58)            -            -             -

  Amortization of deferred compensation            -            -           18             -            -            18

  Net loss                                         -            -            -             -       (1,045)       (1,045)
                                            --------     --------     --------      --------     --------      --------

Balance as of June 30, 2005 (Unaudited)     $    150     $ 12,089     $    (40)     $    118     $(10,819)     $  1,498
                                            ========     ========     ========      ========     ========      ========
</TABLE>

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


                                     - 4 -
<PAGE>


                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                            U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                              SIX MONTHS ENDED     THREE MONTHS ENDED
                                                                  JUNE 30,               JUNE 30,
                                                             ------------------    ------------------
                                                               2005       2004       2005       2004
                                                             -------    -------    -------    -------
                                                                 UNAUDITED              UNAUDITED
                                                             ------------------    ------------------
<S>                                                          <C>        <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss                                                     $(1,045)   $  (933)   $  (591)   $  (369)
Adjustments to reconcile net loss to net cash used in
  operating activities:
Depreciation and amortization                                     65         73         40         37
Accrued severance pay, net                                         -         (7)         -         (4)
Decrease (increase) in trade receivables                          35        144        (10)       183
Increase in other accounts receivable and prepaid expenses       (15)       (53)        34         17
Decrease (increase) in inventories                                39       (194)       (45)      (149)
Increase (decrease) in trade payables                           (109)        12       (132)        52
Increase (decrease) in employees and payroll accruals             (8)       (19)        (7)       (22)
Increase in other payables                                       277         (7)       253        (68)
                                                             -------    -------    -------    -------

Net cash used in operating activities                           (761)      (984)      (458)      (323)
                                                             -------    -------    -------    -------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment                               (11)       (54)        (7)       (28)
                                                             -------    -------    -------    -------
Net cash provided by (used in) investing
  activities                                                     (11)       (54)        (7)       (28)
                                                             -------    -------    -------    -------

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance expenses                                                  -          -          -        (28)
Issuance of common stock, net                                      -      1,267          -          -
                                                             -------    -------    -------    -------

Net cash provided by (used in) financing
  activities                                                       -      1,267          -        (28)
                                                             -------    -------    -------    -------
Increase (decrease) in cash and cash
  equivalents                                                   (772)       229       (465)      (379)
Cash and cash equivalents at the beginning
  of the period                                                1,648      1,432      1,341      2,040
                                                             -------    -------    -------    -------
Cash and cash equivalents at the end
  of the period                                              $   876    $ 1,661    $   876    $ 1,661
                                                             =======    =======    =======    =======
</TABLE>


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


                                     - 5 -
<PAGE>


              NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
                                   STATEMENTS


NOTE 1 - BASIS OF PRESENTATION

     The accompanying condensed unaudited interim condensed consolidated
     financial statements have been prepared by INKSURE TECHNOLOGIES INC. (the
     "Company") in accordance with accounting principles generally accepted in
     the United States of America for interim financial information and the
     instructions to Form 10-QSB and Article 10 of Regulation S-X. These
     financial statements reflect all adjustments, consisting of normal
     recurring adjustments and accruals, which are, in the opinion of
     management, necessary for a fair presentation of the financial position of
     the Company as of June 30, 2005 and the results of operations and cash
     flows for the interim periods indicated in conformity with generally
     accepted accounting principles applicable to interim periods. Accordingly,
     certain information and footnote disclosures normally included in annual
     financial statements prepared in accordance with generally accepted
     accounting principles have been condensed or omitted. These financial
     statements should be read in conjunction with the audited financial
     statements and notes thereto of the Company for the year ended December 31,
     2004 that are included in the Company's Form 10-KSB filed with the
     Securities and Exchange Commission on March 30, 2005 (the "2004 10-KSB").
     The results of operations presented are not necessarily indicative of the
     results to be expected for future quarters or for the year ending December
     31, 2005.


NOTE 2: - STOCK-BASED COMPENSATION

     The Company has elected to follow Accounting Principles Board Opinion No.
     25, "Accounting for Stock Issued to Employees" ("APB No. 25") and FASB
     Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
     Compensation" ("FIN No. 44") in accounting for its employee stock option
     plans. Under APB No. 25, when the exercise price of the Company's stock
     options is less than the market price of the underlying shares on the date
     of grant, compensation expense is recognized.

     Under Statement of Financial Accounting Standard No. 123, "Accounting for
     Stock Based Compensation" ("SFAS No. 123"), pro forma information regarding
     net loss and loss per share is required, and has been determined as if the
     Company had accounted for its employee stock options under the fair value
     method of that statement. The fair value for these options was estimated at
     the date of grant using a Black-Scholes Option Valuation model with the
     following weighted-average assumptions for six months ended June 30, 2005
     and 2004: weighted-risk-free interest rate of 3.94% and 1.5% for each
     period respectively, with dividend yields of 0% for each period, volatility
     factors of the expected market price of the Company's Common Stock of 1.16
     and 1.04, and a weighted-average expected life of the options of 5 and 2
     years. Stock compensation, for pro forma purposes, is amortized over the
     vesting period.


                                     - 6 -
<PAGE>


NOTE 2: - STOCK-BASED COMPENSATION (CONT.)

          The following table illustrates the effect on net loss and loss per
          share as if the fair value method had been applied to all outstanding
          and unvested awards in each period:

<TABLE>
<CAPTION>
                                                   SIX MONTHS ENDED     THREE MONTHS ENDED
                                                       JUNE 30,              JUNE 30,
                                                  ------------------    ------------------
                                                    2005       2004       2005       2004
                                                  -------    -------    -------    -------
                                                       UNAUDITED             UNAUDITED
                                                  ------------------    ------------------
<S>                                               <C>        <C>        <C>        <C>
Net loss, as reported                             $(1,045)   $  (933)   $  (591)   $  (369)
Deduct: Total stock-based compensation
  expense determined under fair value
  method for all awards                              (160)      (144)       (84)       (85)
                                                  -------    -------    -------    -------

Pro forma net loss                                $(1,205)   $(1,077)   $  (675)   $  (454)
                                                  =======    =======    =======    =======

Basic and diluted net loss per share, as
 reported                                         $ (0.07)   $ (0.07)   $ (0.04)   $ (0.03)
                                                  =======    =======    =======    =======

Basic and diluted net loss per share, pro forma   $ (0.08)   $ (0.07)   $ (0.04)   $ (0.03)
                                                  =======    =======    =======    =======
</TABLE>


                                     - 7 -
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     In this section, "Management's Discussion and Analysis or Plan of
Operation," references to "we," "us," "our," and "ours" refer to InkSure
Technologies Inc. and its consolidated subsidiaries.

     This Quarterly Report on Form 10-QSB contains statements that may
constitute "forward-looking statements" within the meaning, and made pursuant to
the Safe Harbor provisions, of the Private Securities Litigation Reform Act of
1995. Such statements are based on management's current expectations and are
subject to a number of risks and uncertainties, including, but not limited to,
the difficulty inherent in operating an early-stage company in a new and rapidly
evolving market, market and economic conditions, the impact of competitive
products, product demand and market acceptance risks, changes in product mix,
costs and availability of raw materials, fluctuations in operating results,
delays in development of highly complex products, risk of customer contract or
sales order cancellations and other risks detailed from time to time in our
filings with the Securities and Exchange Commission. These risks and
uncertainties could cause our actual results to differ materially from those
described in the forward-looking statements. Any forward-looking statement
represents our expectations or forecasts only as of the date it was made and
should not be relied upon as representing its expectations or forecasts as of
any subsequent date. Except as required by law, we undertake no obligation to
correct or update any forward-looking statement, whether as a result of new
information, future events or otherwise, even if our expectations or forecasts
change.

     The following discussion and analysis should be read in conjunction with
the financial statements, related notes and other information included in this
Quarterly Report on Form 10-QSB.

     OVERVIEW

     We specialize in comprehensive security solutions, designed to protect
branded products and documents of value from counterfeiting, fraud, and
diversion. By creating "Smart Protection" systems from proprietary
machine-readable authentication technologies, we help companies and
organizations worldwide regain control over their most valuable assets, their
products, their reputation and their revenues. We employ a team of experts in
the fields of material science, electro-optics and software. We utilize
cross-disciplinary technological innovations to implement customized and cost
efficient security systems for data and asset integrity within the customer's
existing infrastructure and environment.

     Our SmartInk(TM) 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.

     FACTORS AFFECTING FUTURE RESULTS

     INDUSTRY AND ECONOMIC FACTORS: Our operations and earnings are affected by
local, regional and global events or conditions that affect supply and demand
for products and services. These events or conditions are generally not
predictable and include, among other things, general economic growth rates and
the occurrence of economic recessions; the development of new supply sources;
supply disruptions; technological advances, including advances in security
technology and advances in technology relating to security usage; changes in
demographics, including population growth rates and consumer preferences; and
the competitiveness of alternative security sources or product substitutes.
Currently, the economy in general is suffering. As a result, raising capital has
become extremely difficult, and there is pressure on the pricing of our products
and services.

     COMPETITIVE FACTORS: The brand and document protection industry is
competitive. There is competition with the traditional document protection
suppliers (mainly protection for bank notes) and also with other emergent "next
generation" technology providers. We compete with other firms in the sale and
purchase of various products and services in many national and international
markets and employ all methods of competition, which are lawful and appropriate
for such purposes. We believe that a key component of our competitive position
is our technology.


                                     - 8 -
<PAGE>


     POLITICAL FACTORS: Our operations and earnings have been, and may in the
future be, affected from time to time in varying degree by political instability
and by other political developments and laws and regulations, such as forced
divestiture of assets; restrictions on production; imports and exports; war or
other international conflicts; civil unrest and local security concerns that
threaten the safe operation of our facilities, particularly those that are
located in Israel; price controls; expropriation of property; and the
cancellation of contract rights. Both the likelihood of such occurrences and
their overall effect upon us vary greatly from country to country and are not
predictable.

     PROJECT FACTORS: In addition to the factors cited above, the advancement,
cost and results of particular projects depend on the outcome of negotiations
with potential partners, governments, suppliers, customers or other third
parties; changes in operating conditions or costs; and the occurrence of
unforeseen technical difficulties.

     REVENUES

     We are currently concentrating on entering 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. We have
completed several successful field trials during the last year related to these
projects. Our revenues in the second quarter of 2005 consisted of revenues from
(i) our new sales agreements for brand protection with two North American
customers; (ii) ink sales related to a project in Turkey; and (iii) initial
sales to new North American customers. In the second quarter of 2005
approximately 87% of our revenues were earned from customers located in 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
expense and depreciation.

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

     Our research and development expenses consist primarily of costs associated
with development of new generic products and the development of new products
related to customer projects. 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 and credits
incurred for any period from inception to June 30, 2005. 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 as of December 31, 2004.


                                     - 9 -
<PAGE>


     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.

     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 exist 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 net realizable
value. Cost is determined by calculating raw materials, work in process and
finished products using the "first in, first out" method.

     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.

THREE MONTHS ENDED JUNE 30, 2005 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2004

     REVENUES. Revenues consist of gross sales of products less discounts. We
are currently concentrating on entering and implementing large-scale projects.
In the three months ended June 30, 2005, we had revenue of $287,000, compared to
$382,000 in the three months ended June 30, 2004. Revenues decreased by $95,000,
or 24.9%, in the three months ended June 30, 2005 compared to the three months
ended June 30, 2004. The decrease is mainly related to lower sales to our
project in Turkey during the second quarter of 2005.

     COST OF REVENUE. Our cost of revenue consists of materials, sub-contractors
and compensation costs. Cost of revenues increased by $8,000, or 4%, to $187,000
in the three months ended June 30, 2005 from $179,000 in the three months ended
June 30, 2004. Cost of revenues as a percentage of sales was 65.1% in the three
months ended June 30, 2005, compared with 46.8% in the three months ended June
30, 2004.

     RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of compensation costs attributable to employees engaged in
ongoing research and development activities, development-related raw materials
and sub-contractors, and other related costs. Research and development expenses
decreased by $8,000, or 4%, to $188,000 in the three months ended June 30, 2005
from $196,000 in the three months ended June 30, 2004. This decrease in research
and development expenses is primarily related to the decrease in amortization
expenses.

     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 increased by $91,000, or 35.1%, to $350,000 in the three
months ended June 30, 2005 from $259,000 in the three months ended June 30,
2004. This increase in selling and marketing expenses was primarily due to
higher marketing expenses related to the new sales agreements we have entered
into. We believe that the significant investment in pre-sales and marketing
activities will contribute to our short-term and long-term sales levels.


                                     - 10 -
<PAGE>


     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of compensation costs for administration, finance and general
management personnel, insurance, legal, accounting and administrative costs.
General and administrative expenses increased by $38,000, or 31.4%, to $159,000
in the three months ended June 30, 2005 from $121,000 in the three months ended
June 30, 2004. The increase was primarily related to higher investor relation
expenses.

     FINANCIAL INCOME, NET. Financial income, net increased by $2,000, or 50% to
$6,000 in the three months ended June 30, 2005 from $4,000 in the three months
ended June 30, 2004. This increase is due to changes in the exchange rate
between the United States Dollar and the Israeli New Shekel.

     NET LOSS. We had a net loss of $591,000 in the three months ended June 30,
2005, compared with a net loss of $369,000 in the three months ended June 30,
2004. The 60.4% increase in net loss in the three months ended June 30, 2005 in
comparison with the three months ended June 30, 2004 is attributable mainly to
the decrease in revenue and to the increase in cost of revenue described above.

SIX MONTHS ENDED JUNE 30, 2005 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2004

     REVENUE. Revenue consists of gross sales of products less discounts. We are
currently concentrating on entering and implementing large-scale projects. These
potential contracts are subject to a long sales cycle and fluctuated timetable
for entering and implementing such projects. Revenues increased by $242,000, or
44.9%, in the six months ended June 30, 2005 compared to the six months ended
June 30, 2004. In the six months ended June 30, 2005, we had revenue of
$781,000, compared to $539,000 in the six months ended June 30, 2004, primarily
due to our new customers located in the United States.

     COST OF REVENUE. Our cost of revenue consists of materials, sub-contractors
and compensation costs. Cost of revenue in the six months ended June 30, 2005
was $489,000, compared to $224,000 in the six months ended June 30, 2004. Cost
of revenues as a percentage of sales was 62.6% in the six months ended June 30,
2005, compared with 41.6% in the six months ended June 30, 2004. The increase in
cost of revenues is the result of our strategic decision to reduce the price
paid by the customer in one of new major contracts.

     RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of compensation costs attributable to employees engaged in
ongoing research and development activities, development-related raw materials
and sub-contractors, and other related costs. Research and development expenses
decreased by $24,000, or 6.1%, to $370,000 in the six months ended June 30, 2005
from $394,000 in the six months ended June 30, 2004. This decrease in research
and development expenses is primarily related to the decrease in amortization
expenses.

     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 increased by $145,000, or 26.1%, to $700,000 in the six
months ended June 30, 2005 from $555,000 in the six months ended June 30, 2004.
This increase in selling and marketing expenses was primarily due to higher
marketing expenses related to the new sales agreements we have entered into. We
believe that the significant investment in pre-sales and marketing activities
will contribute to our short-term and long-term sales levels.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of compensation costs for administration, finance and general
management personnel, insurance, legal, accounting and administrative costs.
General and administrative expenses decreased by $25,000, or 8.1 %, to $284,000
in the six months ended June 30, 2005 from $309,000 in the six months ended June
30, 2004. This decrease was primarily related to lower legal expenses.

     FINANCIAL INCOME, NET. Financial income, net increased by $7,000, to
$17,000 in the six months ended June 30, 2005 from $10,000 in the six months
ended June 30, 2004. This increase is due to changes in the exchange rate
between the United States Dollar and the Israeli New Shekel.

     NET LOSS. We had a net loss of $1,045,000 in the six months ended June 30,
2005, compared with a net loss of $933,000 in the six months ended June 30,
2004. The 12.0% increase in net loss in the six months ended June 30, 2005 in
comparison with the six months ended June 30, 2004 is attributable to the
various influences described above.


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<PAGE>


B.   LIQUIDITY AND CAPITAL RESOURCES

     We have incurred substantial losses since our inception in May 2000. We had
an accumulated deficit of approximately $10,819,000 at June 30, 2005, and had a
working capital (current assets less current liabilities) of approximately
$1,013,000 at June 30, 2005.

     Capital expenditures were approximately $7,000 in the three months ended
June 30, 2005 and $28,000 in the three months ended June 30, 2004. Capital
expenditures were approximately $11,000 in the six months ended June 30, 2005
and $54,000 in the six months ended June 30, 2004. We do not have any material
commitments for capital expenditures for the year ending December 31, 2005.

     At June 30, 2005, we had cash, cash equivalents and short-term deposits of
approximately $876,000, compared to $1,682,000 at June 30, 2004. The differences
from June 30, 2005 to June 30, 2004 are due to the negative cash flow from
operating activities during the last fiscal year.

     We generated negative cash flow from operating activities of approximately
$458,000 in the three months ended June 30, 2005 compared to $323,000 in the
three months ended June 30, 2004. We generated negative cash flow from operating
activities of approximately $761,000 in the six months ended June 30, 2005
compared to $984,000 in the six months ended June 30, 2004.

     We believe that cash generated from operations will provide sufficient cash
resources to finance our operations and the projected expansion of our marketing
and research and development activities for the next twelve months. However, if
our operations do not generate cash to the extent currently anticipated, or we
grow more rapidly than currently anticipated, it is possible that we would
require more funds than presently anticipated.

C.   RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

     We believe that our future success will depend upon our ability to enhance
our existing products and systems and introduce new commercially viable products
and systems addressing the demands of the evolving markets for brand and
document protection. As part of the product development process, we work closely
with current and potential customers, distribution channels and leaders in
certain industry segments to identify market needs and define appropriate
product specifications. Our employees also participate in industry forums in
order to stay informed about the latest industry developments.

     Our research and development expenses were approximately $188,000 in the
three months ended June 30, 2005, compared to $196,000 in the three months ended
June 30, 2004. Our research and development expenses were approximately $370,000
in the six months ended June 30, 2005, compared to $394,000 in the six months
ended June 30, 2004. To date, all research and development expenses have been
charged to operating expense as incurred.

     We currently hold five pending patents on our technologies and we have been
issued two patents related to our RF technology in the United States. In
addition a patent application for such technology has been approved in the
European Union. Currently we are seeking additional protection for such
technology in certain European countries.

D.   CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     Our contractual obligations and commitments at June 30, 2005 principally
include obligations associated with operating lease obligations and the lease of
several automobiles. Our total future obligation is approximately $181,000 until
2007. We expect to finance these contractual commitments from cash on hand and
cash generated from operations.

ITEM 3. 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
Quarterly Report on Form 10-QSB, 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 Quarterly Report on Form 10-QSB was
being prepared.


                                     - 12 -
<PAGE>


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


PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

The following exhibits are being filed with this Report:

EXHIBIT
NUMBER      DESCRIPTION

2.1  Agreement and Plan of Merger, dated July 5, 2002, among the Company, LILM
     Acquisition and InkSure Delaware. (Incorporated by reference to the
     Company's Information Statement on Schedule 14C, filed with the Commission
     on October 8, 2002.)

2.2  Agreement and Plan of Merger, dated July 3, 2003 among the Company and
     InkSure Technologies (Delaware) Inc. (Incorporated by reference to the
     Company's report filed on Form 8-K, filed with the Commission on July 22,
     2003.)

3.1  Certificate of Incorporation of the Company. (Incorporated by reference to
     the Company's report filed on Form 8-K, filed with the Commission on July
     22, 2003.)

3.2  By-Laws of the Company. (Incorporated by reference to the Company's report
     filed on Form 8-K, filed with the Commission on July 22, 2003.)

16.1 Letter from Kost, Forer Gabbay & Kasierer, a member of Ernst and Young
     Global (Incorporated by reference to the Company's report filed on Form
     8-K, filed with the Commission on April 14, 2004).

31.1* Certification of Principal Financial Officer Pursuant to Section 302 of
     the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

31.2* Certification of Principal Executive Officer Pursuant to Section 302 of
     the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

32.1* Certification of Principal Executive Officer and Principal Financial
     Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
     U.S.C. Section 1350.


* Filed herewith

(b)  Reports on Form 8-K

     During the three months ended June 30, 2005, we filed two reports on Form
8-K with the Commission:

     1. A report on Form 8-K was filed with the Commission on April 14, 2005 in
connection with changes in our accountant.

     2. A report on form 8-K was filed with the Commission on May 24, 2005 in
connection with changes in principal officers.


                                     - 13 -
<PAGE>


                                   SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                                   INKSURE TECHNOLOGIES INC.

Dated: As of August 1, 2005                        By: /s/ Eyal Bigon
                                                   ------------------
                                                   Eyal Bigon
                                                   Chief Financial Officer,
                                                   Secretary and Treasurer
                                                   (Principal Financial and
                                                   Accounting Officer)



Dated: As of August 1, 2005                        By: /s/ Elie Housman
                                                   --------------------
                                                   Elie Housman
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)


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