```

================================================================================

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

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

                          (COMMISSION FILE NO. 0-24431)
                                ________________

                            INKSURE TECHNOLOGIES INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                   DELAWARE                              84-1417774
        State or other jurisdiction of      (I.R.S. Employer Identification No.)
        incorporation or organization

    P.O. BOX 7006, AUDUBON, PENNSYLVANIA                   19407
  (Address of principal executive offices)               (Zip Code)

                                 (954) 772-8507
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

Indicate by 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.

                               [X] Yes     [_] No

Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).

                               [_] Yes     [_] No

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

Large accelerated filer [_]
Accelerated filer [_]
Non-accelerated filer [_] (do not check if a smaller reporting company)
Smaller reporting company [X]

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

                               Yes [_]     No [X]

The number of shares of Common Stock outstanding as of July 28, 2010: 41,472,968
```

```

                            INKSURE TECHNOLOGIES INC.

                               INDEX TO FORM 10-Q

                                                                            PAGE

PART I.     FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

            CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2010
            (UNAUDITED) AND DECEMBER 31, 2009 (AUDITED)                       3

            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
            FOR THE SIX AND THREE MONTHS ENDED  JUNE 30, 2010 AND 2009        4

            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
            FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2010 AND 2009         5

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        6

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS                                             7

ITEM 4.     CONTROLS AND PROCEDURES                                           11

PART II.    OTHER INFORMATION                                                 11

Item 1.     Legal Proceedings

ITEM 6.     EXHIBITS                                                          12

SIGNATURES                                                                    13

                                       2
```

```

ITEM 1.  FINANCIAL STATEMENTS

                            INKSURE TECHNOLOGIES INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET
                           (U.S. DOLLARS IN THOUSANDS)

                                                                                                                JUNE 30,    DEC.31,
                                                                                                                 2010        2009
                                                                                                               --------    --------
                                                                                                               UNAUDITED   AUDITED
                                                                                                               --------    --------
       ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                                                                                 $  2,310    $  1,283
     Restricted cash                                                                                                 13       1,513
     Trade receivables                                                                                              383         371
     Other accounts receivable and prepaid expenses                                                                  96          91
     Inventories                                                                                                    178         193
                                                                                                               --------    --------

TOTAL CURRENT ASSETS                                                                                              2,980       3,451

PROPERTY AND EQUIPMENT, NET                                                                                         183         211
LONG TERM DEPOSIT                                                                                                    12           -
                                                                                                               --------    --------

TOTAL ASSETS                                                                                                   $  3,175    $  3,662
                                                                                                               ========    ========

       LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
     Trade payables                                                                                            $    167    $    248
     Employees and payroll accruals                                                                                 188         164
     Accrued expenses and other payables                                                                            625         770
     Convertible notes                                                                                                -       8,881
                                                                                                               --------    --------

TOTAL CURRENT LIABILITIES                                                                                           980      10,063

     Warrants to issue shares                                                                                       377         598
                                                                                                               --------    --------

TOTAL LIABILITIES                                                                                              $  1,357    $ 10,661
                                                                                                               --------    --------

STOCKHOLDERS' EQUITY (DEFICIENCY):
Capital Stock:
   Preferred stock of $ 0.01 par value - Authorized: 10,000,000 shares; Issued and outstanding: 0
   shares as of June 30,2010 and as of December 31, 2009
   Common stock of $ 0.01 par value - Authorized: 50,000,000; Issued and outstanding: 41,472,968 as
   of June 30, 2010 and 16,472,968 as of December 31, 2009                                                          415         164
   Additional paid-in capital                                                                                    16,825      13,661
   Accumulated other comprehensive income                                                                           118         118
   Accumulated deficit                                                                                          (15,540)    (20,942)
                                                                                                               --------    --------

TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)                                                                           1,818      (6,999)
                                                                                                               --------    --------

TOTAL LIABILITIES AND  STOCKHOLDERS' EQUITY (DEFICIENCY)                                                       $  3,175    $  3,662
                                                                                                               ========    ========

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

                                       3
```

```

                            INKSURE TECHNOLOGIES INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

                                                                                 THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                                      JUNE 30,                     JUNE 30,
                                                                            --------------------------    --------------------------
                                                                              2010             2009          2010             2009
                                                                            -----------    -----------    -----------    -----------
                                                                                    UNAUDITED                      UNAUDITED
                                                                            --------------------------    --------------------------

  Revenues                                                                  $       739    $       584    $     1,368    $     1,365
  Cost of revenues                                                                  102             43            217            122
                                                                            -----------    -----------    -----------    -----------

  GROSS PROFIT                                                                      637            541          1,151          1,243
                                                                            -----------    -----------    -----------    -----------

Operating expenses:
Research and development, net                                                       416            271            772            506
Selling and marketing                                                               228            108            408            284
General and administrative                                                          446            125            750            321
                                                                            -----------    -----------    -----------    -----------

  TOTAL OPERATING EXPENSES                                                        1,090            504          1,930          1,111
                                                                            -----------    -----------    -----------    -----------

  OPERATING PROFIT (LOSS)                                                          (453)            37           (779)           132
                                                                            -----------    -----------    -----------    -----------

  Gain on debt restructuring                                                          -              -          5,881              -
  Financial income (expenses)                                                       (21)          (137)            79           (267)
  Non cash financial income (expenses) related to convertible notes and
  warrants, net                                                                     538           (295)           221         (1,161)
                                                                            -----------    -----------    -----------    -----------
  Financial income (expenses), net                                                  517           (432)         6,181         (1,428)

  Net profit (loss)                                                         $        64    $      (395)   $     5,402    $    (1,296)
                                                                            ===========    ===========    ===========    ===========

  Basic net profit (loss) per share                                         $      0.00    $     (0.02)   $      0.17    $     (0.08)
                                                                            ===========    ===========    ===========    ===========

  Diluted net profit (loss) per share                                       $      0.00          (0.02)   $      0.15    $     (0.08)
                                                                            ===========    ===========    ===========    ===========

  Weighted average number of Common Stock used in computing basic and
  diluted net loss per share                                                 41,472,968     16,472,968     31,942,581     16,472,968
                                                                            ===========    ===========    ===========    ===========

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

                                       4
```

```

                            INKSURE TECHNOLOGIES INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                           (U.S. DOLLARS IN THOUSANDS)

                                                                                             SIX MONTHS ENDED
                                                                                                 JUNE 30,
                                                                                           --------------------
                                                                                             2010         2009
                                                                                           -------      -------
                                                                                                 UNAUDITED
                                                                                           --------------------

CASH FLOWS FROM OPERATING ACTIVITIES:

   Net profit (loss)                                                                       $ 5,402      $(1,296)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                              37          163
     Decrease in restricted cash                                                                 -          269
     Decrease (increase) in trade receivables                                                  (12)          13
     Non cash financial (income) expenses related to convertible notes, net                 (5,881)         526
     Non cash financial expenses (income) related to warrants to issue shares                 (221)         519
     Increase in other accounts receivable and prepaid expenses                                 (5)         (16)
     Decrease in inventories                                                                    15           56
     Decrease in trade payables                                                                (81)        (132)
     Increase in employees and payroll accruals                                                 24            9
     Non cash financial expenses related to implementation of SFAS No. 123 (ASC718-10)         360           41
     Decrease in accrued expenses and other payables                                          (145)         (56)
                                                                                           -------      -------

Net cash provided by (used for) operating activities                                          (507)          96
                                                                                           -------      -------

CASH FLOWS FROM INVESTING ACTIVITIES:

   Purchase of equipment                                                                        (9)         (12)
   Long-term lease deposits made                                                               (12)           -
                                                                                           -------      -------

Net cash used for investing activities                                                         (21)         (12)
                                                                                           -------      -------

CASH FLOWS FROM FINANCING ACTIVITIES:

Changes in restricted cash                                                                     500            -
Proceeds from private placement, net                                                         1,055            -
                                                                                           -------      -------

Net cash provided by financing activities                                                    1,555            -
                                                                                           -------      -------

Increase in cash and cash equivalents                                                        1,027           84
Cash and cash equivalents at the beginning of the period                                     1,283        1,826
                                                                                           -------      -------

Cash and cash equivalents at the end of the period                                         $ 2,310      $ 1,910
                                                                                           =======      =======

NON-CASH TRANSACTIONS

Conversion of debt to shares                                                                 2,000            -
Repayment as part of debt restructuring from restricted cash                                 1,000            -

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

                                       5
```

```

NOTE 1:- BASIS OF PRESENTATION

     The accompanying condensed unaudited interim 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-Q 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, 2010 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, 2009 that are included in the
Company's Form 10-K filed with the Securities and Exchange Commission on
February 26, 2010. 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, 2010.

     In June 2009, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS No. 168, "The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles" [ASC 105-10]. SFAS No. 168 replaces SFAS No. 162, "The
Hierarchy of Generally Accepted Accounting Principles" and establishes the FASB
Accounting Standards Codification (Codification) as the source of authoritative
accounting principles recognized by the FASB to be applied by non-governmental
entities in the preparation of financial statements in conformity with GAAP.
Rules and interpretive releases of the SEC under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. The
Codification has become the exclusive authoritative reference effective
September 30, 2009.

NOTE 2:- PAST PERIOD NEGATIVE CASH FLOWS AND LOSSES

     During past periods we have incurred substantial losses and negative cash
flows from operating activities. In addition, we owed nearly $9,000,000 in
convertible notes, which if not restructured and eventually settled, would have
required us to obtain additional capital. Accordingly, our previous consolidated
financial statements (including those filed with our Annual Report on Form 10-K
for the year ended December 31, 2009 and our Quarterly Reports on Form 10-Q for
the 3-month periods ended March 31, 2009, June 30, 2009 and September 30, 2009)
have been presented on the basis that we will continue as a going concern. On
January 19, 2010,we completed debt restructuring transaction with our note
holders and on March 11, 2010 we closed a private placement raising a total
amount of $3,125,000 (see note 3 below). In addition, during 2009 we generated
$972,000 from operating activities. We therefore believe that our existing
resources, together with further cash generated from operating activities will
be sufficient to support our operations for at least 12 months.

NOTE 3:- DEBT RESTRUCTURING AND CLOSING OF PRIVATE PLACEMENT

     On January 19, 2010, a group of investors paid $2,000,000, together with an
amount of $1,000,000 from our sources to our note holders and as a result
$6,881,080 of our notes were retired. In addition, on March 11, 2010, we closed
a private placement financing, raising a total amount of $3,125,000, of which
$2,000,000 was used for retirement of the balance of our outstanding debt,
$1,000,000 was used to replenish our investment in the retirement of the notes
mentioned above, and $125,000 was used for legal accounting and other expenses
and for working capital. 25,000,000 new common shares were issued against the
total amount of $3,125,000.

NOTE 4:- LEGAL PROCEEDINGS

     On December 12, 1999, Secu-System Ltd. filed a lawsuit with the District
Court in Tel Aviv-Jaffa against Supercom Ltd. (the former owner of the company's
business) and InkSure Ltd. seeking a permanent injunction and damages at an
estimated amount of NIS 500,000 (approximately $ 129,400 at the exchange rate as
of July 2, 2010) asserting 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-System sought, among other
things, an injunction and a 50% share of profits from the printing method at
issue. On July 25, 2010, following mediation, the parties entered into a
settlement and release agreement (the "Settlement Agreement").

                                       6
```

```

     Pursuant to the Settlement Agreement, InkSure and SuperCom shall pay to
Secu-System an aggregate amount, which will be between NIS1,500,000 - NIS
2,000,000 (approximately between $388,200 and $517,600 at the exchange rate as
of July 22, 2010), with the exact amount (the "Settlement Amount") to be
determined by the mediator as follows: (i) each of InkSure and SuperCom shall be
responsible, severally but not jointly, to pay 50% of the Settlement Amount;
(ii) within 10 business days after the execution of the Settlement Agreement,
InkSure shall deposit 50% of the Settlement Amount in trust with the Trustee;
(iii) SuperCom shall deposit its 50% of the Settlement Amount with the Trustee
in 10 equal monthly installments, commencing on the first calendar month after
the execution of the Settlement Agreement. SuperCom's payments shall carry an
annual interest at the rate of a 4% per annum; and (iv) should SuperCom fail to
pay any of the monthly installments within 7 days of its due date, its entire
share of the Settlement Amount shall become immediately due. As of June 30,
2010, the company has accrued an amount of $226,400 to cover its share in the
settlement costs.

     Should SuperCom fail to timely pay any of the monthly installments and the
balance of the Settlement Amount shall became immediately due, Secu-System may
declare that the Settlement Agreement did not become effective, in which case
the proceedings in the case shall continue with each party maintaining its
respective rights and claims.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

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

     This Quarterly Report on Form 10-Q contains statements that may constitute
"forward-looking statements". Generally, forward-looking statements include
words or phrases such as "anticipates," "believes," "estimates," "expects,"
"intends," "plans," "projects," "could," "may," "might," "should," "will" and
words and phrases of similar import. 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, our ability to improve our margins,
costs and availability of raw materials, fluctuations in operating results,
delays in development of highly complex products, risks from uncertainties
regarding litigation or mediation, 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-Q and with the Risk Factors included in Item 1A in
our Annual Report on Form 10-K for the year ended December 31, 2009.

     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 governments, 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 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.

     We are currently developing chipless Radio Frequency Identification, or
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
production floor control, authentication, supply chain management, proof of
ownership, and life cycle information.

     REVENUES

     We concentrate on developing and implementing large-scale projects. Such
projects involve the use of our generic products and/or products developed for
such projects. These potential projects are subject to a long sales cycle and
the timetable is lengthy for entering and implementing such projects. We
anticipate that these projects would involve high volume sales through
multiple-year sales contracts. In the first half of 2010, approximately 57% of
our revenues were earned from one customer located in Europe.

                                       7
```

```

     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 solutions targeted for existing and
new customers and market segments. 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, 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, 2010. 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.

THREE MONTHS ENDED JUNE 30, 2010 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2009

     REVENUES. Revenues consist of gross sales of products less discounts. We
concentrate on developing and implementing large-scale projects. In the three
months ended June 30, 2010, we had revenue of $739,000, compared to $584,000 in
the three months ended June 30, 2009. The increase in the revenue is mainly due
to higher volume of deliveries to three of our customers, two located in the US
and one located in Europe.

     COST OF REVENUES. Our cost of revenues consists of materials,
sub-contractors and compensation costs. Cost of revenues was $102,000 in the
three months ended June 30, 2010, compared to $43,000 in the three months ended
June 30, 2009. Cost of revenues as a percentage of sales was 14% in the three
months ended June 30, 2010, compared with 7% in the three months ended June 30,
2009. The increase in costs of revenue, as a percentage of sales, in the three
months ended June 30, 2010 was mainly due to more profitable sales mix of
certain SmartInkTM products in 2009.

     RESEARCH AND DEVELOPMENT EXPENSES, NET 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,
net increased by $145,000, or 54%, to $416,000 in the three months ended June
30, 2010 from $271,000 in the three months ended June 30, 2009. This increase in
research and development expenses is primarily related to the increase of
subcontractors expenses ($61,000) and decrease of governmental research and
development grant ($60,000).

     Research and development expenses included non-cash expenses of $19,000
related to the impact of SFAS No. 123(R) (ASC718-10). To date, all research and
development expenses have been charged to operating expenses as incurred.

     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 $120,000, or 111%, to $228,000 in the three
months ended June 30, 2010 from $108,000 in the three months ended June 30,
2009. This increase in selling and marketing expenses is primarily related to
the increase in payroll and consultants expenses ($90,000) and non-cash expenses
($29,000) related to the impact of SFAS No. 123(R) (ASC718-10).

     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 $321,000, or 257%, to $446,000
in the three months ended June 30, 2010 from $125,000 in the three months ended
June 30, 2009. This increase in general and administrative expenses is mainly
due to the additional provision for legal expenses of $209,000 associated with
the settlement agreement reached with Secu-Systems (see Note 4 in the above
financial statements) and increase of non-cash expenses related to the
implementation of SFAS No. 123(R) (ASC718-10) in an amount of $46,000, increase
in accrued board fees and expenses ($30,000) and increase in provision for
doubtful debts ($34,000).

                                       8
```

```

     OPERATING PROFIT (LOSS). As a result of the foregoing, the Company had an
operating loss of $453,000 in the three months ended June 30, 2010 compared to
an operating profit of $37,000 in the three months ended June 30, 2009.

     FINANCIAL INCOME (EXPENSES), NET. Financial income, net was $517,000 in the
three months ended June 30, 2010. Financial income, net was comprised of: (i)
financial expenses of $21,000, and (ii) non-cash financial income of $538,000
related to warrants to issue shares. Financial income (expenses), net changed by
$949,000 from financial expenses, net of $432,000 in the three months ended June
30, 2009. This change in financial income (expenses), net was primarily due to
the retirement of the convertible notes and increase of $480,000 in non-cash
financial income related to warrants to issue shares.

     NET PROFIT (LOSS). We had a net profit of $64,000 in the three months ended
June 30, 2010, compared with a net loss of $395,000 in the three months ended
June 30, 2009. The change in the net profit (loss) in the three months ended
June 30, 2010 compared to the net loss in the three months ended June 30, 2009
is attributable mainly to the change by $949,000 in the financial income
(expenses), net which was offset by the increase in the operating loss
($490,000).

SIX MONTHS ENDED JUNE 30, 2010 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2009

     REVENUES. In the six months ended June 30, 2010, we had revenue of
$1,368,000, compared to $1,365,000 in the six months ended June 30, 2009.

     COST OF REVENUES. Cost of revenues was $217,000 in the six months ended
June 30, 2010, compared to $122,000 in the six months ended June 30, 2009. Cost
of revenues as a percentage of sales was 16% in the six months ended June 30,
2010, compared with 9% in the six months ended June 30, 2009. The increase in
costs of revenue, as a percentage of sales, in the six months ended June 30,
2010 was mainly due to approximately $27,000 increase in provision for inventory
write-offs in the six months ended June 30, 2010 and due to more profitable
sales mix of certain SmartInkTM products in 2009.

     RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses
increased by $266,000, or 53%, to $772,000 in the six months ended June 30, 2010
from $506,000 in the six months ended June 30, 2009. This increase in research
and development expenses is primarily related to the increase in subcontractors'
expenses ($225,000) and increase of non-cash expenses ($42,000) related to the
impact of SFAS No. 123(R) (ASC718-10).

     Research and development expenses included non-cash expenses of $52,000
related to the impact of SFAS No. 123(R) (ASC718-10).

     SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased by
$124,000, or 43%, to $408,000 in the six months ended June 30, 2010 from
$284,000 in the six months ended June 30, 2009. This increase in selling and
marketing expenses was primarily due to increase of non-cash expenses of $84,000
related to the impact of SFAS No. 123(R) (ASC718-10) and increase in payroll
expenses ($66,000).

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $429,000, or by 134%, to $750,000 in the six months ended June 30,
2010 from $321,000 in the six months ended June 30, 2009. This increase in
general and administrative expenses was primarily due to the additional
provision for legal expenses of $209,000 associated with the settlement
agreement reached with Secu-Systems (see Note 4 in the above financial
statements) and increase of $191,000 in non-cash expenses related to the
implementation of SFAS No. 123(R) (ASC718-10) and increase in board fees and
expenses ($40,000).

     OPERATING PROFIT (LOSS). As a result of the foregoing, the Company had an
operating loss of $779,000 in the six months ended June 30, 2010 compared to an
operating profit of $132,000 in the six months ended June 30, 2009.

     GAIN ON DEBT RESTRUCTURING. Gain on debt restructuring was $5,881,000 in
the six months ended June 30, 2010 compared with zero gain on debt restructuring
in the six months ended on June 30, 2009. The gain on debt restructuring in the
six months ended on June 30, 2010 was as a result of the restructuring of our
senior secured convertible notes.

     FINANCIAL INCOME (EXPENSES), NET. Financial income, net was $6,181,000 in
the six months ended June 30, 2010 compared with a net loss of $1,428,000 in the
six months ended June 30, 2009. Financial income, net was comprised of: (i) Gain
on debt restructuring in amount of $5,881,000 (i) financial income, net of
$79,000 and (ii) non cash financial income of $221,000 related to warrants to
issue shares.

     NET INCOME (LOSS). We had net profit of $5,402,000 in the six months ended
June 30, 2010, compared with a net loss of $1,296,000 in the six months ended
June 30, 2009. The change in net income (loss) in the six months ended June 30,
2010 compared to the six months ended June 30, 2009 is attributable mainly to
the non cash gain on the debt restructuring. Without the non cash gain on the
debt restructuring, we would have had net loss of $479,000 in the six months
ended June 30, 2010.

     LIQUIDITY AND CAPITAL RESOURCES

     We have incurred substantial losses since our inception in April 1997. We
had an accumulated deficit of approximately $15,540,000 as of June 30, 2010. We
had a positive working capital (current assets less current liabilities) of
approximately $2,000,000 as of June 30, 2010. Losses may continue in the
foreseeable future.

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     Capital expenditures were approximately $9,000 in the six months ended June
30, 2010 and $12,000 in the six months ended June 30, 2009. These expenditures
were principally for computers and research and development equipment purchases.
We do not have any material commitments for capital expenditures as of June 30,
2010.

     As of June 30, 2010, we had cash, cash equivalents and short-term deposits
of approximately $2,310,000, compared to $1,283,000 as of December 31, 2009.
This increase is primarily due to the replenishment in the amount of $1,500,000,
which we received in connection with the private placement financing following
our debt restructuring during the six months ended June 30, 2010 which was
partially offset by the cash used for operating activities.

     We had negative cash flow from operating activities of approximately
$507,000 during the six months ended June 30, 2010 compared to positive cash
flow from operating activities of $96,000 during the six months ended June 30,
2009. The increase in the negative cash flow from operating activities in the
six months ended June 30, 2010 is attributable mainly to the operating loss
during the six months ended June 30, 2010.

     We had negative cash flow from investing activities of approximately
$21,000 during the six months ended June 30, 2010 compared to negative cash flow
of $12,000 during the six months ended June 30, 2009. The negative cash flow
from investing activities during the six months ended June 30, 2010 was due to
purchase of fixed assets and deposits made in connection of long term lease.

     We had a positive cash flow from financing activities of approximately
$1,555,000 during the six months ended June 30, 2010 compared to zero positive
cash flow from financing activities during the six months ended June 30, 2009.
The positive cash flow during the six months ended June 30, 2010 is due to the
debt restructuring and the closing of the private placement.

     We believe that our existing cash, together with cash to be collected from
customers and governmental grants, will be sufficient to support our operations
for the next twelve months. 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 long term business plans.

     On January 19, 2010, we, together with a group of seven different
investors, or the Investors, paid a total of $3,000,000 to all of the holders,
or the Noteholders of our $8,881,080 of our outstanding Senior Secured
Convertible Notes, or the Notes. An amount of $1,000,000 of the funds was
provided by us from available cash, and the balance of $2,000,000 was provided
by the Investors. As a result of the transaction, $6,881,080 of the Notes were
retired. The balance of $2,000,000 remained outstanding as a secured senior
obligation to the Investors in accordance with the terms of the Notes. In
addition, as part of the transaction, we and the Noteholders exchanged mutual
releases, all of our Series B-1 and Series B-2 Warrants issued in the names of
the Noteholders, which were exercisable for an aggregate of 15,000,000 shares of
our common stock, were cancelled, and our Series A Warrants issued in the name
of one of the Noteholders, which were exercisable for an aggregate of 3,570,337
shares of our common stock at an exercise price of $0.60 per share, were
amended, such that they may be exercised for an aggregate of 2,183,000 shares of
our common stock at an exercise price of $0.15 per share.

     On March 11, 2010, we closed a private placement financing, raising a total
amount of $3,125,000 from twenty different accredited investors, or the New
Investors. In connection with the private placement, we issued to the New
Investors a total of 25,000,000 shares of our common stock at a purchase price
of $0.125 per share.

     We used the proceeds from the private placement to retire all of our
remaining outstanding notes.

     An additional $1,000,000 of the proceeds was used to replenish the
$1,000,000 used by us in connection with the January 19, 2010 purchase of the
Notes. The balance of the private placement proceeds of $125,000 was used to pay
the legal and other costs of the private placement and the Notes repurchase, and
for working capital purposes.

     During the first quarter of 2010, we granted to our employees, directors
and officers new stock options to purchase up to 4,520,000 shares of our common
stock, cancelling and replacing substantially all of their then existing stock
option grants. In addition, we granted to certain directors and to our new Chief
Executive Officer stock options to purchase up to 1,100,000 shares of our common
stock.

     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.

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     With respect to the RFID technology we are developing, we have filed six
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, France, Germany, Switzerland and United Kingdom.
Our third patent family has matured into a patent granted in the United States
and France, Germany Switzerland, United Kingdom, while EP divisional application
is still being examined in Europe. Regarding our fourth patent family, we have
filed an International Patent Application and thereafter National Phase entry
applications in United States, Europe, Japan and Hong Kong were filed. These
applications are still in examination. In addition, during the second quarter of
2007, we filed an International Patent Application relating to our fifth patent
family and thereafter National Phase entry applications in United States,
Europe, Japan and Hong Kong were filed. These applications are still in
examination. On July 2009, we filed a US provisional application with regards to
our sixth patent family.

     CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     Our contractual obligations and commitments at June 30, 2010 principally
include obligations associated with operating lease obligations and the lease of
several automobiles. Our total future obligation is approximately $88,000 until
September 2011. We expect to finance these contractual commitments from cash on
hand and cash generated from operations.

     During 2007-2009 and through June 30, 2010, we received a governmental
research and development grant of approximately $1,904,000 from the Office of
the Chief Scientist of Israel, or the OCS. This royalties-bearing research and
development grant partially covers our innovative 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 based on the know-how developed during the RFID
project. 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 actually received from the OCS plus interest. We have no assurance that
the RFID project or commercialization plan will be successful.

ITEM 4.      CONTROLS AND PROCEDURES

     (a) We maintain a system of disclosure controls and procedures that are
designed for the purposes of ensuring that information required to be disclosed
in our SEC reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer, or CEO, and our Chief Financial Officer, or CFO, as appropriate to
allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our CEO and our
CFO, of the effectiveness of our disclosure controls and procedures as defined
in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on
that evaluation, our CEO and CFO concluded that our disclosure controls and
procedures are effective.

     (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 1.  LEGAL PROCEEDINGS

     On December 12, 1999, Secu-System Ltd. filed a lawsuit with the District
Court in Tel Aviv-Jaffa against Supercom Ltd. (the former owner of the company's
business) and InkSure Ltd. seeking a permanent injunction and damages at an
estimated amount of NIS 500,000 (approximately $ 129,400 at the exchange rate as
of July 2, 2010) asserting 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-System sought, among other
things, an injunction and a 50% share of profits from the printing method at
issue. On July 25, 2010, following the mediation, the parties entered into a
settlement and release agreement (the "Settlement Agreement").

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     Pursuant to the Settlement Agreement, InkSure and SuperCom shall pay to
Secu-System an aggregate amount, which will be between NIS1,500,000 -
NIS2,000,000 (approximately between $388,200 and $517,600 at the exchange rate
as of July 22, 2010), with the exact amount (the "Settlement Amount") to be
determined by the mediator as follows: (i) each of InkSure and SuperCom shall be
responsible, severally but not jointly, to pay 50% of the Settlement Amount;
(ii) within 10 business days after the execution of the Settlement Agreement,
InkSure shall deposit 50% of the Settlement Amount in trust with the Trustee;
(iii) SuperCom shall deposit its 50% of the Settlement Amount with the Trustee
in 10 equal monthly installments, commencing on the first calendar month after
the execution of the Settlement Agreement. SuperCom's payments shall carry an
annual interest at the rate of a 4% per annum; and (iv) should SuperCom fail to
pay any of the monthly installments within 7 days of its due date, its entire
share of the Settlement Amount shall become immediately due. As of June 30,
2010, the company has accrued an amount of $226,400 to cover its share in the
settlement costs.

     Should SuperCom fail to timely pay any of the monthly installments and the
balance of the Settlement Amount shall became immediately due, Secu-System may
declare that the Settlement Agreement did not become effective, in which case
the proceedings in the case shall continue with each party maintaining its
respective rights and claims.

ITEM 6.  EXHIBITS

The following exhibits are being filed with this Report:

    EXHIBIT
    NUMBER       DESCRIPTION
---------------  ----------------

31.1             Certification of Principal Executive Officer Pursuant to Rules
                 13a-14(a) and 15d-14(a) under the Securities Exchange Act of
                 1934, as amended.*

31.2             Certification of Principal Financial Officer Pursuant to Rules
                 13a-14(a) and 15d-14(a) under the Securities Exchange Act of
                 1934, as amended.*

32.1             Certification of Principal Executive Officer and Principal
                 Financial Officer Pursuant to 18 U.S.C. Section 1350.*

* Filed herewith

**Furnished herewith

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     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: July 30, 2010                       By: /s/ Tal Gilat
                                           --------------------------
                                           Tal Gilat
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)

Dated: July 30, 2010                       By: /s/ Tzlil Peker
                                           ------------------------
                                           Tzlil Peker
                                           Chief Financial Officer,
                                           Secretary and Treasurer
                                           (Principal Financial Officer)

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