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, 2006

    [_] 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 33309
          (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)

Check whether the Registrant (1) has filed all reports required to be filed by
Section 123 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past ninety days.

                               Yes [X]     No [_]

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

                               Yes [X]     No [_]

The number of shares outstanding of our Common Stock, $0.01 par value per share,
as of August 3, 2006, was 15,589,296 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, 2006 (unaudited)                                        2

             Condensed Consolidated Statements of Operations (unaudited)
             for the Six and Three Months Ended June 30, 2006 and 2005        3

             Statements of Stockholders' Equity as of
             June 30, 2006 (unaudited after December 31, 2005)                4

             Condensed Consolidated Statements of Cash Flows (unaudited)
             for the Six and Three Months Ended June 30, 2006 and 2005        5

             Notes to Consolidated Financial Statements                       6

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

Item 3       Controls and Procedures                                         14

PART II      OTHER INFORMATION                                               14

Item 1       Legal Proceedings                                               14

Item 2       Unregistered Sales of Equity Securities and Use of Proceeds     15

Item 3       Defaults Upon Senior Securities                                 15

Item 4       Submission of Matters to a Vote of Security Holders             15

Item 5       Other Information                                               16

Item 6       Exhibits                                                        16

SIGNATURES                                                                   17

                                     - i -
<PAGE>


ITEM 1.  FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

                            INKSURE TECHNOLOGIES INC.

                      CONDENSED CONSOLIDATED BALANCE SHEET

                           (U.S. DOLLARS IN THOUSANDS)

                                                    JUNE 30,
                                                      2006
                                                     ------
                                                    UNAUDITED
                                                     ------
   ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                          $  862
  Short-term deposit                                  3,079
  Trade receivables                                     316
  Other accounts receivable and prepaid expenses        166
  Inventories                                           634
                                                     ------

Total current assets                                  5,057
                                                     ------

PROPERTY AND EQUIPMENT, NET                             356
                                                     ------

DEFERRED CHARGES                                        600
                                                     ------

GOODWILL                                                271
                                                     ------

Total assets                                         $6,284
                                                     ======

         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,
                                                                                                     2006
                                                                                                    -------
                                                                                                   UNAUDITED
                                                                                                    -------
<S>                                                                                                 <C>
     LIABILITIES AND STOCKHOLDERS' EQUITY

 CURRENT LIABILITIES:
   Trade payables                                                                                       363
   Employees and payroll accruals                                                                       111
   Deferred income                                                                                      206
   Accrued expenses                                                                                     198
                                                                                                    -------

 Total current liabilities                                                                              878
                                                                                                    -------

ACCRUED SEVERANCE PAY                                                                                    18
                                                                                                    -------

 Convertible notes, net                                                                               5,820
 Warrants to purchase Convertible notes                                                                 108
                                                                                                    -------

Total amount related to Convertible notes                                                             5,928


 STOCKHOLDERS' EQUITY:
   Share capital:
     Preferred stock of $ 0.01 par value:
       Authorized: 10,000,000 stocks at June 30, 2006; Issued and outstanding: 0 stocks at June
       30, 2006
     Common Stock of $ 0.01 par value -
       Authorized: 35,000,000 stocks at June 30, 2006; Issued and outstanding: 15,589,296
       stocks at June 30, 2006                                                                          156
   Additional paid-in capital                                                                        12,803
   Accumulated other comprehensive income                                                               118
   Accumulated deficit                                                                              (13,617)
                                                                                                    -------

 Total stockholders' equity                                                                            (540)
                                                                                                    -------

 Total liabilities and stockholders' equity                                                           6,284
                                                                                                    =======
</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,
                                                    ------------------------------      ------------------------------
                                                        2006              2005              2006               2005
                                                    ------------      ------------      ------------      ------------
                                                              UNAUDITED                          UNAUDITED
                                                    ------------------------------      ------------------------------
<S>                                                 <C>               <C>               <C>               <C>
Revenues                                            $        977      $        781      $        439      $        287
Cost of revenues                                             421               489               224               187
                                                    ------------      ------------      ------------      ------------

Gross profit                                                 556               292               215               100
                                                    ------------      ------------      ------------      ------------

Operating expenses:
  Research and development                                   553               370               322               188
  Selling and marketing                                      933               700               417               350
  General and administrative                                 639               284               268               159
                                                    ------------      ------------      ------------      ------------

TOTAL operating expenses                                   2,125             1,354             1,007               697
                                                    ------------      ------------      ------------      ------------

Operating loss                                            (1,569)           (1,062)             (792)             (597)
                                                    ------------      ------------      ------------      ------------

Financial income (expenses)                                  (38)               17               (44)                6
Non cash financial expenses related to
convertible notes, net                                       (23)                -              (189)                -
                                                    ------------      ------------      ------------      ------------
Financial income (expenses), net                             (61)               17              (233)                6

Net loss                                            $     (1,630)     $     (1,045)     $     (1,025)     $       (591)
                                                    ============      ============      ============      ============

Basic and diluted net loss per share                $      (0.11)     $      (0.07)     $      (0.07)     $      (0.04)
                                                    ============      ============      ============      ============

Weighted average number of Common Stock used in
  computing basic
  and diluted net loss per share                      15,308,704        15,011,579        15,381,742        15,011,579
                                                    ============      ============      ============      ============
</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   DEFERRED      OTHER                      TOTAL
                                                        SHARE      PAID-IN   STOCK-BASED  COMPREHENSIVE ACCUMULATED   STOCKHOLDERS'
                                                       CAPITAL     CAPITAL   COMPENSATION    INCOME       DEFICIT       EQUITY
                                                       --------    --------    --------     --------      --------     --------
<S>                                                    <C>         <C>              <C>     <C>           <C>          <C>
Balance as of January 1, 2004                          $    119    $  9,683           -     $    118      $ (7,713)    $  2,207

  Issuance of Common stock and warrants, net                 31       2,348           -            -             -        2,379
  Net loss                                                    -           -           -            -        (2,061)      (2,061)
                                                       --------    --------    --------     --------      --------     --------

Balance as of December 31, 2004                             150      12,031           -          118        (9,774)       2,525

Grant of warrant                                                         58         (58)                                      -
Amortization of deferred stock-based compensation                                    46                                      46
Conversion of 368,429 warrants into 223,278
 ordinary shares                                              2          71                        -             -           73
  Net loss                                                    -           -                        -        (2,213)      (2,213)
                                                       --------    --------    --------     --------      --------     --------

Balance as of December 31, 2005                             152      12,160         (12)         118       (11,987)         431

Stock based compensation                                      -         457           -            -             -          457

Amortization of deferred stock-based compensation             -           -          12            -             -           12
Conversion of 380,723 warrants/options into 354,442
 ordinary shares                                              4         186           -            -                        190
Net loss                                                      -           -           -            -        (1,630)      (1,630)
                                                       --------    --------    --------     --------      --------     --------
Balance as of June 30, 2006                            $    156    $ 12,803           -     $    118      $(13,617)    $   (540)
                                                       ========    ========    ========     ========      ========     ========
</TABLE>

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


                                      - 4 -
<PAGE>


                            INKSURE TECHNOLOGIES INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                            U.S. DOLLARS IN THOUSANDS

<TABLE>
<CAPTION>
                                                           SIX MONTHS ENDED            THREE MONTHS ENDED
                                                               JUNE 30,                    JUNE 30,
                                                        ---------------------       ---------------------
                                                          2006          2005          2006          2005
                                                        -------       -------       -------       -------
                                                              UNAUDITED                   UNAUDITED
                                                        ---------------------       ---------------------
<S>                                                     <C>           <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                $(1,630)      $(1,045)      $(1,025)      $  (591)
Adjustments to reconcile net loss to net cash used
  in operating activities:
Depreciation and amortization                               513            47           159            22
Accrued severance pay, net                                   (1)            -            (2)            -
Decrease (increase) in trade receivables                     44            35           104           (10)
Non cash financial (income) expenses related to
  convertible notes, net                                    (49)            -           153             -
Increase in other accounts receivable and prepaid
  expenses                                                   26           (15)           53            34
Decrease (increase) in inventories                          (39)           39            31           (45)
Increase (decrease) in trade payables                      (131)         (109)          (32)         (132)
Increase (decrease) in employees and payroll
  accruals                                                    7            (8)           (3)           (7)
Increase (decrease) in other payables                       (15)          277             7           253
                                                        -------       -------       -------       -------
Net cash used in operating activities                    (1,275)         (779)         (555)         (476)
                                                        -------       -------       -------       -------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment                          (63)          (11)          (15)           (7)
Proceeds from short-term bank deposits                    1,278             -           826             -
                                                        -------       -------       -------       -------
Net cash provided by (used in) investing
  activities                                              1,215           (11)          811            (7)
                                                        -------       -------       -------       -------

CASH FLOWS FROM FINANCING ACTIVITIES:

Exercise of options                                         190             -           190             -
Issuance of common stock, net                                 -            18             -            18
                                                        -------       -------       -------       -------

Net cash provided by (used in) financing
  activities                                                190            18           190            18
                                                        -------       -------       -------       -------
Increase (decrease) in cash and cash
  equivalents                                               130          (772)          446          (465)
Cash and cash equivalents at the beginning
  of the period                                             732         1,648           416         1,341
                                                        -------       -------       -------       -------
Cash and cash equivalents at the end
of the period                                           $   862       $   876       $   862       $   876
                                                        =======       =======       =======       =======
</TABLE>

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


                                      - 5 -
<PAGE>


                            INKSURE TECHNOLOGIES INC.

        NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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-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, 2006
     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, 2005 that are included in the
     Company's Form 10-KSB filed with the Securities and Exchange Commission on
     March 30, 2006 (the "2005 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, 2006.

NOTE 2: - STOCK-BASED COMPENSATION

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
     Payment." SFAS No. 123(R) which requires the Company to measure all
     employee stock-based compensation awards using a fair value method and
     record such expense in its consolidated financial statements. In March
     2005, the SEC issued Staff Accounting Bulletin (SAB) 107, which provides
     the Staff's views regarding interactions between SFAS No. 123(R) and
     certain SEC rules and regulations and provides interpretations of the
     valuation of share-based payments for public companies. The adoption of
     SFAS No. 123(R) requires additional accounting related to the income tax
     effects and additional disclosure regarding the cash flow effects resulting
     from share-based payment arrangements. The adoption of SFAS No. 123(R) in
     the fiscal quarter ended March 30, 2006, had a material impact on the
     Company's consolidated results of operations, financial position and
     statement of cash flows.

     InkSure adopted the provisions of SFAS No. 123(R), "Share-Based Payment".
     SFAS No. 123(R) establishes accounting for stock-based awards exchanged for
     employee services. Accordingly, stock-based compensation cost is measured
     at grant date, based on the fair value of the award, and is recognized as
     expense over the employee requisite service period. The Company previously
     applied Accounting Principles Board (APB) Opinion No. 25, "Accounting for
     Stock Issued to Employees," and related Interpretations and provided the
     required pro forma disclosures of SFAS No. 123, "Accounting for Stock-Based
     Compensation". Prior to the adoption of SFAS No. 123(R), the Company
     provided the disclosures required under SFAS No. 123, "Accounting for
     Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
     Stock-Based Compensation - Transition and Disclosures."


                                      - 6 -
<PAGE>


     The pro-forma information for the six months and three months periods ended
     June 30, 2005 was as follows:

                                                   SIX MONTHS    THREE MONTHS
                                                      ENDED         ENDED
                                                     JUNE 30,      JUNE 30,
                                                     -------       -------
                                                       2005          2005
                                                     -------       -------
                                                    UNAUDITED     UNAUDITED
                                                     -------       -------

Net loss, as reported                                $(1,045)      $  (591)
Deduct: Total stock-based compensation
  expense determined under fair value
  method for all awards                                 (160)          (84)
                                                     -------       -------

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

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

Basic and diluted net loss per share, pro forma      $ (0.08)      $ (0.04)
                                                     =======       =======


                                      - 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 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.


                                      - 8 -
<PAGE>


     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.

     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.

     POLITICAL FACTORS: Our operations and earnings have been, and may in the
future be, affected from time to time in varying degrees 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 into and implementing
large-scale projects. These potential contracts are subject into to a long sales
cycle and the timetable is lengthy for entering into 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 2006
consisted of revenues from (i) our sales agreements for brand protection with
two North American customers; and (ii) ink sales related to projects in Turkey
(iii) initial sales to new customers. In the second quarter of 2006
approximately 72% 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
expenses 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 the 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.


                                      - 9 -
<PAGE>


     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, 2006. 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, 2005.

     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.


                                     - 10 -
<PAGE>


THREE MONTHS ENDED JUNE 30, 2006 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2005

     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, 2006, we had revenue of $439,000, compared to
$287,000 in the three months ended June 30, 2005. Revenues increased by
$152,000, or 53.0%, in the three months ended June 30, 2006 compared to the
three months ended June 30, 2005. The increase is mainly related to higher sales
in regard to brand protection project with one of our North American customers
and higher sales to one project in Turkey.

     COST OF REVENUE. Our cost of revenue consists of materials, sub-contractors
and compensation costs. Cost of revenues increased by $37,000, or 19.8%, to
$224,000 in the three months ended June 30, 2006 from $187,000 in the three
months ended June 30, 2005. Cost of revenues as a percentage of sales was 51.0%
in the three months ended June 30, 2006, compared with 65.1% in the three months
ended June 30, 2005. The decrease in cost of revenues is mainly related to
higher sales with higher gross margin.

     Cost of revenue included a non cash expenses of $4,000 related to the
implementation of SFAS No. 123(R).

     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
increased by $134,000, or 71.3%, to $322,000 in the three months ended June 30,
2006 from $188,000 in the three months ended June 30, 2005. This increase in
research and development expenses is primarily related to non-cash expenses of
$8,000 as a result of the implementation of SFAS No. 123(R), a one time charge
of $65,000 as a result of settlement agreement in an action relating to a real
property lease and higher research and development expenses related to our RFID
project.

     SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist
primarily of costs relating to compensation attributable to employees engaged in
sales and marketing activities, promotion, advertising, trade shows and
exhibitions, sales support, travel, commissions and related expenses. Selling
and marketing expenses increased by $67,000, or 19.1%, to $417,000 in the three
months ended June 30, 2006 from $350,000 in the three months ended June 30,
2005. This increase in selling and marketing expenses was primarily due to
non-cash expenses of $22,000 as a result of the implementation of SFAS No.
123(R) and higher sales and marketing expenses related to the expansion of our
marketing activates in the US.

     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 $109,000, or 68.6%, to $268,000
in the three months ended June 30, 2006 from $159,000 in the three months ended
June 30, 2005. The increase was primarily related to non-cash expenses of
$103,000 as a result of the implementation of SFAS No.123(R) and higher legal
expenses.

     FINANCIAL EXPENSES, NET. Financial expenses, net, increased by $239,000 to
$233,000 in the three months ended June 30, 2006 from income of $6,000 in the
three months ended June 30, 2005. This increase is due to non-cash financial
expenses of $189,000 related to the convertible notes and changes in the
exchange rate between the United States Dollar, the Israeli New Shekel and the
Great Britain Pound.


                                     - 11 -
<PAGE>


     NET LOSS. We had a net loss of $1,025,000 in the three months ended June
30, 2006, compared with a net loss of $591,000 in the three months ended June
30, 2005. The 73.4% increase in net loss in the three months ended June 30, 2006
in comparison with the three months ended June 30, 2005 is attributable mainly
to non-cash expenses of $137,000 as a result of the implementation of SFAS No.
123(R), non-cash expenses of $189,000 related to the convertible notes and
various influences described above.

SIX MONTHS ENDED JUNE 30, 2006 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2005

     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 $196,000,
or 25.1%, in the six months ended June 30, 2006 compared to the six months ended
June 30, 2005. In the six months ended June 30, 2006, we had revenue of
$977,000, compared to $781,000 in the six months ended June 30, 2005, 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, 2006
was $421,000, compared to $489,000 in the six months ended June 30, 2005. Cost
of revenue as a percentage of sales was 43.1% in the six months ended June 30,
2006, compared with 62.6% in the six months ended June 30, 2005. The decrease
in cost of revenue is mainly related to higher sales with higher gross margin.

     Cost of revenue included non-cash expenses of $5,000 related to the
implementation of SFAS No. 123(R).

     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
increased by $183,000, or 49.4%, to $553,000 in the six months ended June 30,
2006 from $370,000 in the six months ended June 30, 2005. This increase in
research and development expenses is primarily related to non-cash expenses of
$41,000 as a result of the implementation of SFAS No. 123(R), one time charge of
$65,000 as a result of a settlement agreement in regard to a lawsuit relating to
a real property lease and higher research and development expenses related to
our RFID project.

     SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist
primarily of costs relating to compensation attributable to employees engaged in
sales and marketing activities, promotion, advertising, trade shows and
exhibitions, sales support, travel, commissions and related expenses. Selling
and marketing expenses increased by $233,000, or 33.3%, to $933,000 in the six
months ended June 30, 2006 from $700,000 in the six months ended June 30, 2005.
This increase in selling and marketing expenses was primarily due to non-cash
expenses of $101,000 as a result of the implementation of SFAS No. 123(R) and
higher sales and marketing expenses related to the expansion of our marketing
activities in the US. 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 increased by $355,000, or 125.0%, to
$639,000 in the six months ended June 30, 2006 from $284,000 in the six months
ended June 30, 2005. The increase was primarily related to non-cash expenses of
$310,000 as a result of the implementation of SFAS No.123(R) and higher legal
expenses.


                                     - 12 -
<PAGE>


     FINANCIAL EXPENSES, NET. Financial expenses, net, increased by $78,000, to
$61,000 in the six months ended June 2006 from income of $17,000 in the six
months ended June 30, 2005. This increase is due to non-cash financial expenses
of $23,000 related to the convertible notes and changes in the exchange rate
between the United States Dollar, the Israeli New Shekel and the Great Britain
Pound.

     NET LOSS. We had a net loss of $1,630,000 in the six months ended June 30,
2006, compared with a net loss of $1,045,000 in the six months ended June 30,
2005. The 56.0% increase in net loss in the six months ended June 30, 2006 in
comparison with the six months ended June 30, 2005 is attributable to the
various influences described in the immediately preceding paragraph.

B.   LIQUIDITY AND CAPITAL RESOURCES

     We have incurred substantial losses since our inception in May 2000. We had
an accumulated deficit of approximately $13,617,000 at June 30, 2006, and had a
working capital (current assets less current liabilities) of approximately
$4,179,000 at June 30, 2006.

     Capital expenditures were approximately $15,000 in the three months ended
June 30, 2006 and $7,000 in the three months ended June 30, 2005. Capital
expenditures were approximately $63,000 in the six months ended June 30, 2006
and $11,000 in the six months ended June 30, 2005. We do not have any material
commitments for capital expenditures for the year ending December 31, 2006.

     At June 30, 2005, we had cash, cash equivalents and short-term deposits of
approximately $3,941,000, compared to $876,000 at June 30, 2005. The differences
from June 30, 2006 to June 30, 2005 are due to the issuance of convertible notes
with net proceeds of $5,304,000, as such amount is offset by our continuing
investments in research and development and selling and marketing expenses.

     We generated negative cash flow from operating activities of approximately
$555,000 in the three months ended June 30, 2006, compared to $476,000 in the
three months ended June 30, 2005. We generated negative cash flow from operating
activities of approximately $1,275,000 in the six months ended June 30, 2006
compared to $779,000 in the six months ended June 30, 2005.

     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 at least 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 $322,000 in the
three months ended June 30, 2006, compared to $188,000 in the three months ended
June 30, 2005. Our research and development expenses were approximately $553,000
in the six months ended June 30, 2006, compared to $370,000 in the six months
ended June 30, 2005. To date, all research and development expenses have been
charged to operating expenses as incurred.


                                     - 13 -
<PAGE>


     We currently hold one pending patent in the United States and we have been
issued two patents in Israel relating to our technology of marking documents for
the purpose of authentication.

     With respect to the RFID technology being developed by us, we have applied
for four patents: we have been issued patents for our first application in each
of the United States, France, Germany, Switzerland and the United Kingdom; we
have been issued a patent in the United States and a European Patent for our
second application; we have been issued a patent in the United States for our
third application and we hold one pending patent before the European Patent
Office; and we have only recently made an application before the United States
Patent and Trademark Office with respect to our fourth patent application.

D.   CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     Our contractual obligations and commitments at June 30, 2006 principally
include obligations associated with operating lease obligations and the lease of
several automobiles. Our total future obligation is approximately $120,000 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.

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

     On March 15, 2006, the court rendered a decision (i) denying the claim for
breach of contract; (ii) finding that there was a misappropriation of a trade
secret, but not assessing any damages with respect thereto; (iii) requiring the
defendants to cease all activity involving the use of any confidential
information; and (iv) awarding the plaintiff reimbursement of the costs of the
litigation in the amount of NIS 130,000, plus interest and VAT, which the
defendants had split equally.


                                     - 14 -
<PAGE>


     Both the plaintiff and the defendants have filed an appeal to the court's
decision, and the parties are awaiting the court's decision.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None.

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

     The Company held its Annual Meeting of Stockholders on June 15, 2006. The
following matters were voted on at the Annual Meeting of Stockholders:

     Proposal 1: Election of a Board of Directors.

                             NUMBER OF SHARES VOTED

                            FOR              AGAINST    WITHHELD
                            ---              -------    --------

Elie Housman             12,022,381              0        80

Yaron Meerfeld           12,022,381              0        80

James Lineberger         12,022,381              0        80

Philip Getter            12,022,381              0        80

Michael Acks             12,022,381              0        80

Albert Attias            12,022,381              0        80

David Sass               12,022,381              0        80


     Proposal 2: Ratification of the appointment of Brightman Almagor & Co.,
Certified Public Accountants, A member firm of Deloitte Touche Tohmatsu, as the
independent auditors and accountants for the Company for the year ending
December 31, 2006. There were a total of 12,022,461 votes cast in favor this
proposal, with no votes withheld or cast against this proposal.


                                     - 15 -
<PAGE>


ITEM 5.  OTHER INFORMATION

     None.

ITEM 6.  EXHIBITS

     The following exhibits are being filed with this Report:

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

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.


                                     - 16 -
<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 3, 2006                        By: /s/ Eyal Bigon
                                                   --------------------
                                                   Eyal Bigon
                                                   Chief Financial Officer,
                                                   Secretary and Treasurer
                                                   (Principal Financial and
                                                   Accounting Officer)



Dated: As of August 3, 2006                        By: /s/ Elie Housman
                                                   --------------------
                                                   Elie Housman
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)


                                     - 17 -