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

                                   FORM 10-KSB

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

                  For the fiscal year ended DECEMBER 31, 2007.

                                       OR

              [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934.

             For the transition period __________ from to __________

                         Commission file number 0-24431

                            INKSURE TECHNOLOGIES INC.
                 (Name of Small Business Issuer in its Charter)

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

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

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

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                     COMMON STOCK, PAR VALUE $0.01 PER SHARE
                                (Title of Class)

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [_]

Check whether the issuer : (1) filed all reports required to be filed by Section
13 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 90 days.

                               Yes [X]     No [_]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]

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

                               Yes [_]     No [X]

Issuer's revenues for its most recent fiscal year. $2,890,000
```

```

The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average bid and asked price of such
common equity, as of April 7, 2008 was $0.34.

As of April 7, 2008, 16,274,768shares of the issuer's common stock, par value
$0.01 per share, were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference into
the following parts of this Form 10-KSB: certain information required in Part
III of this Annual Report on Form 10-KSB is incorporated from the issuer's Proxy
Statement for the Annual Meeting of Stockholders to be held in 2008.

Transitional Small Business Disclosure Format (check one):

                               Yes [_]     No [X]
```

```

                                TABLE OF CONTENTS

                                                                         PAGE

PART I

ITEM 1.     DESCRIPTION OF BUSINESS                                         1
ITEM 2.     DESCRIPTION OF PROPERTY                                         9
ITEM 3.     LEGAL PROCEEDINGS                                              10
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS            10

PART II

ITEM 5.     MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS          11
ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS                           13
ITEM 7.     FINANCIAL STATEMENTS                                           26
ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE                            26
ITEM 8A.    CONTROLS AND PROCEDURES                                        26
ITEM 8B.    OTHER INFORMATION                                              27

PART III

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS
            AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A)
            OF THE EXCHANGE ACT                                            28
ITEM 10.    EXECUTIVE COMPENSATION                                         28
ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT AND RELATED STOCKHOLDER MATTERS                     28
ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
            DIRECTOR INDEPENDENCE                                          28
ITEM 13.    EXHIBITS                                                       28
ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES                         29

SIGNATURE PAGE                                                             31
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                                     PART I

Certain statements in this Form 10-KSB constitute forward-looking statements
within the meaning of the securities laws. Forward-looking statements include
all statements that do not relate solely to the historical or current facts, and
can be identified by the use of forward looking words such as "may", "believe",
"will", "expect", "expected", "project", "anticipate", "anticipated estimates",
"plans", "strategy", "target", "prospects" or "continue". These forward looking
statements are based on the current plans and expectations of our management and
are subject to a number of uncertainties and risks that could significantly
affect our current plans and expectations, as well as future results of
operations and financial condition and may cause our actual results,
performances or achievements to be materially different from any future results,
performances or achievements expressed or implied by such forward-looking
statements. This Form 10-KSB contains important information as to risk factors
under Item 6. In making these forward-looking statements, we claim the
protection of the safe-harbor for forward-looking statements contained in the
Private Securities Reform Act of 1995. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. We do not
assume any obligation to update these forward-looking statements to reflect
actual results, changes in assumptions, or changes in other factors affecting
such forward-looking statements.

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

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

ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL

     InkSure Technologies Inc. (together with its subsidiaries, is referred to
as "we", "us" and "our") develops, markets and sells customized authentication
systems designed to enhance the security of documents and branded products and
to meet the growing demand for protection from counterfeiting and diversion. In
this context, "counterfeit items" are imitation items that are offered as
genuine with the intent to deceive or defraud. "Diversion" (also termed
"parallel trading" or "gray market commerce") is the selling of goods (often
genuine goods) in a geographic market where both wholesale and retail prices are
high while falsely purchasing them for another market where wholesale prices are
lower, thus taking advantage of the price difference between the two markets. We
operate within the "authentication industry," an industry that includes a
variety of firms providing technologies and services designed to prevent the
counterfeiting and diversion of valuable documents and products. The World
Customs Organization estimates that the trade in fakes was in 2006 worth about
$512 billion, or 7%, of the world's trade. In the United States, the Bureau of
Customs and Border Protection estimates that counterfeiting costs the United
States $200 billion annually.

     Our products are based on three principal technologies:

          o    Unique fingerprint signature of a highly secure code incorporated
               in one of the hologram layers during standard production,

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

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

     Our uniquely formulated machine-readable taggants-based products provide a
customized solution by creating a unique chemical code for each product line or
document batch that can only be authenticated by our reader. We have been
awarded 3 patents and applied for another two patents related to the radio
frequency identification, or RFID, technology being developed by us. We are also
seeking protection under the Patent Cooperation Treaty. See "Description of
Business - Emerging Technology" and "Description of Business - Patents and
Proprietary Technology."

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     We are currently working on the development of next-generation RFID
technology that is being designed to enable low-cost tagging of items. This RFID
technology is being designed to permit "no line of sight" identification and
will be suitable for a variety of applications, including authentication, supply
chain management, proof of ownership, and life cycle information. If
successfully developed, we believe that such technology could eventually replace
the familiar barcode technology and other electronic article surveillance
solutions currently available. See "Description of Business - Research and
Development" and "Description of Business - Emerging Technology."

     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.

CORPORATE HISTORY

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

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

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

MARKET OPPORTUNITY

     In general, brand owners that are victims of counterfeiting do not
publicize their losses, nor do they publish their expenditures related to
controlling the problem. In a survey conducted by the International Anti
Counterfeiting Coalition in the year 2000, Fortune 500 companies reported that
they spend an average of between $2 to $4 million per year to combat
counterfeiting and some reported spending up to $10 million.

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

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

                                       2
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TRADITIONAL AUTHENTICATION TECHNOLOGIES

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

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

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

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

INKSURE SOLUTIONS

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

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

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

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

                                       3
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     MARKETING AND BUSINESS STRATEGY

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

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

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

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

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

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

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

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

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

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

SALES AND MARKETING

     Initially, we relied solely on intermediaries to market and distribute our
products and services. However, we currently sell our products and services
through a combination of our own sales personnel, strategic alliances and
licenses with intermediaries. To date, we have established key strategic
alliances or valuable relationships with end-users.

     In March 2004 and August 2004 we entered into two sales agreements to
supply our authentication solutions to two separate customers in North America
for brand protection projects. Each project involves the protection of millions
of items using our coding solutions and handheld authentication readers, as well
as our quality assurance tools, which are used to ensure that our inks are
applied according to specifications. Revenues from these two agreements were
$616,000, $1,187,000, $1,159,626 and $1,097,514 for the fiscal years ended
December 31, 2004, 2005, 2006 and 2007, respectively, representing approximately
65%, 73%, 58% and 38% of our revenues for the fiscal years ended December 31,
2004, 2005, 2006 and 2007, respectively.

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

CURRENT PRODUCTS

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

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

o    SIGNASURE(TM) - ADVANCED AUTHENTICATION READERS FOR SMART PROTECTION

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

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

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

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

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

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

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

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

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

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

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

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

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

EMERGING TECHNOLOGY

     We also plan to develop products that permit high volume tagging and
authentication without requiring a line of sight. We are currently working on
the development of next-generation chipless label technology for low cost RFID
applications. This RFID technology is being designed to permit "no line of
sight" identification and will be suitable for a variety of applications,
including authentication, supply chain management, proof of ownership, and life
cycle information.

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

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

     Our RFID technology is in the final development phase, and our goal is to
complete development with a view to launching our chipless label system by the
end of 2008. We aim to include, without limitation, the following RFID
deliverables:

     o    Fixed and hand-held readers;

     o    Specialized conductive inks;

     o    Unique symbology; and

     o    Printer quality control systems.

                                       6
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     If successfully developed, we believe that such technology could eventually
compete successfully with the familiar barcode technology and other electronic
article surveillance solutions that are currently available.

COMPETITION

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

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

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

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

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

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

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

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

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

     o    Ease of utilization/verification;

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

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

     o    Consistency and integrity of solution;

     o    Need for protection of variable vs. fixed data;

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

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

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

     Strong competitive pricing pressures exist, particularly with respect to
products whose customers seek to obtain volume discounts and economies of scale.
In addition, alternative goods or services, such as those involving electronic
commerce, could replace printed documents and thereby also adversely affect
demand for our products.

RESEARCH AND DEVELOPMENT

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

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     We pursue a process-oriented strategy which includes efforts aimed at
developing new or enhanced classes of products and services. As part of this
strategy, we work closely with current and potential customers, distributors and
other members of the industry to identify market needs and define appropriate
product specifications. Our research and development expenditures totaled
approximately $875,000, $1,186,000 and $1,308,000 for fiscal years 2005, 2006
and 2007, respectively.

MANUFACTURING AND PRODUCTION

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

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

MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

     For the fiscal year ended December 31, 2007, sales to three of our
customers in Europe and the Far East accounted for approximately 48% of our 2007
revenues. InkSure was informed in August, 2007 that one end-user of InkSure's
largest US customer was terminating its covert authentication program, effective
December 31, 2007 and will no longer be purchasing our products. Out of total
2007 sales to this customer of $731,506, this end-user accounted for $666,733
(91%). In addition to a second end-user which accounted for the other 9% of
sales, the customer told InkSure that it was bringing on a new SmartInk
end-user, though at much smaller volumes than the terminating end-user. Since
the notification, the costumer did not provide a new forecast for anticipated
sales to the remaining end-users. So far in 2008, InkSure has not had any sales
to this customer.

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

     For the fiscal year ended December 31, 2007, revenues attributed to
geographic areas based on the location of the end customers were:

                               REVENUES FOR THE             REVENUES FOR THE
                                 YEAR ENDED 31,               YEAR ENDED 31,
                                DECEMBER, 2007               DECEMBER, 2006
-----------------------    -------------------------   -------------------------

United States                                $ 1,244                     $ 1,273
-----------------------    -------------------------   -------------------------
Israel                                            34                           8
-----------------------    -------------------------   -------------------------
Turkey                                           698                         514
-----------------------    -------------------------   -------------------------
Other                                            914                         207
-----------------------    -------------------------   -------------------------
TOTAL                                        $ 2,890                     $ 2,002
-----------------------    -------------------------   -------------------------

PATENTS AND PROPRIETARY TECHNOLOGY

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

     With respect to the RFID technology being developed by us, we have filed
five patent families related to various aspects of the RFID technology. Two of
our patent families have been already matured into patents granted in the
following jurisdictions: United States (US6,819,244 and US6,997,388), France,
Germany, Switzerland and United Kingdom (EP1374156 and EP1599831). Our third
patent family has been matured into a patent granted in the United States
(US6,922,146), while in Europe it is in stage of allowance. Regarding our fourth
patent family, we have recently filed an International Patent Application (PCT).
In addition, regarding our fifth patent family, we have filed a Provisional
Patent Application with the United Stated Patent and Trademark Office, and we
will file by May 7, 2008 International Patent Application (PCT)

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     With respect to the product-authentication being developed by us, we have
entered into an assignment agreement by which InkSure has acquired
AuthentiForm's entire intellectual property portfolio of enhanced
product-authentication technology. The AuthentiForm portfolio includes methods
to establish authenticity and identify products at the item level by encoding
high information-density, invisible, and essentially tamper-proof signatures
within a product's formulation, on its surface, or through incorporation into
its packaging. AuthentiForm technology enables dynamic codes without
substantially changing the chemical composition of a product or its components,
which makes the AuthentiForm technology particularly attractive for use with
pharmaceutical products.

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

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

GOVERNMENT REGULATION

     Our scanning device and the next-generation radio frequency technology
scanning equipment must comply with the regulations of the United States Federal
Communications Commission, or the FCC, which may require certification,
verification or registration of the equipment with the FCC. Certification and
verification of new equipment requires testing to ensure the equipment's
compliance with the FCC's rules. In addition, the equipment must be labeled
according to the FCC's rules to show compliance with these rules. Electronic
equipment permitted or authorized to be used by the FCC through our
certification or verification procedures must not cause harmful interference to
licensed FCC users, and it is subject to radio frequency interference from
licensed FCC users.

EMPLOYEES

     As of April 9, 2008, we had 17 employees located in Israel, including
twelve engineers, three management and administrative personnel, and two
operations personnel. In addition, as of April 9, 2008, we had 5 employees
located in the United States, one of whom is a member of our management, one of
whom manages our operations in the United States, with the remaining four being
sales, marketing and customer support personnel. We consider our relations with
our employees to be satisfactory. We believe our future will depend in large
part on our ability to attract and retain highly-skilled employees.

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

ITEM 2. DESCRIPTION OF PROPERTY.

     We maintain our executive offices in approximately 2,000 square feet of
space that is located in Fort Lauderdale, Florida, pursuant to a lease which
expires in October 2010. Our monthly lease payments are approximately $2,800 per
month. We maintain our research and development facilities in Rehovot, Israel.
The facilities we lease in Israel are approximately 5,000 square feet pursuant
to a lease expiring in September 2008. We believe there are alternative
locations available nearby. Moving to such an alternative property will not,
most likely, affect our business. Monthly lease payments for such facility are
approximately $4,000 per month.

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ITEM 3. LEGAL PROCEEDINGS.

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

     On March 15, 2006, the court rendered a decision (i) denying the claim for
breach of contract; (ii) finding that there was a misappropriation of trade
secret, but not assessing any damages with respect thereto; (iii) requiring the
defendants to cease all activities involving the use of any confidential
information; and (iv) awarding the plaintiff reimbursement of the costs of the
litigation in the amount of NIS 130,000 (about $37,100), plus interest and VAT,
which the defendants intend to split equally. InkSure recorded in its 2006
financial statements a provision of NIS 65,000 (about $18,600).

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

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

On February 18,2008, Secu-Systems filed a petition with the district court to
amend the amount for which it has sued to NIS 25,000,000 (Approx. $ 7,000,000).
The company intends to file an answer to the petition.

On March 24, 2008, SuperCom (who changed its name to Vuance) provided us with an
opinion according to which, the following conclusions can be drawn:

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

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

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

In light of the above, provided that the opinion is adopted by the court, the
management of InkSure and its counsel handling the lawsuit believe that no
material amounts will be awarded to Secu-System in these proceedings.

On January 14, 2008, we entered into a settlement and release agreement with
certain warrant holders related to Mr. James E. Lineberger, a former director of
ours, in order to settle a dispute that had arisen as to the exercise price of
the warrants held by these warrant holders resulting from whether we were
required, or failed, to maintain the effectiveness of a registration statement
in light of the possible affiliate status of these warrant holders (which
arguably prevented the warrant holders from relying on Rule 144(k) promulgated
under the Securities Act of 1933, as amended). Pursuant to the settlement, we
have issued to the warrant holders an aggregate of 179,696 of our shares of
common stock, which 141,289 shares were issued in connection with the cashless
exercise of the warrants and the remaining 38,407 shares were issued as payment
of legal fees incurred by the warrants holders. Each of the warrant holders
represented to us that it is an accredited investor, within the meaning of
Regulation D promulgated under the Securities Act of 1933, as amended. The
issuance of the 141,289 shares is exempt from registration pursuant to Rule 3(a)
(9) thereof, and the issuance of the 38,407 shares is exempt from registration
pursuant to Rule 4(2) and 4(6) thereof.

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

     No matters were submitted to a vote of our security holders during the
fourth quarter of the year ended December 31, 2007.

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                                     PART II

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

PRICE RANGE OF COMMON STOCK

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

                                              HIGH        LOW
                                              -----      -----

FISCAL YEAR 2006
     1st Quarter                              $4.03      $1.75
     2nd Quarter                              $3.90      $1.52
     3rd Quarter                              $2.10      $1.40
     4th Quarter                              $3.80      $1.22

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

FISCAL YEAR 2008
     1st Quarter                              $0.74      $0.35
     2nd Quarter (through April 7, 2008)      $0.37      $0.30

     As of April 7, 2008 there were approximately 51holders of record of the
common stock.

     We have not paid dividends on the common stock since inception and do not
intend to pay any dividends to our stockholders in the foreseeable future. We
currently intend to retain earnings, if any, for the development of our
business. The declaration of dividends in the future will be at the election of
our board of directors and will depend upon our earnings, capital requirements,
financial position, general economic conditions, and other factors the board of
directors deem relevant.

EQUITY COMPENSATION PLAN INFORMATION

     The following table provides information about shares of our common stock
that may be issued upon the exercise of options and warrants under all of our
existing compensation plans as of December 31, 2007. Our stockholder approved
equity compensation plans consist of the 2002 Employee, Director and Consultant
Stock Option Plan. We have a number of options and warrants which were granted
pursuant to equity compensation plans not approved by security holders and such
securities are aggregated in the table below.

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                                                                                 NUMBER OF SECURITIES
                                                                                 REMAINING AVAILABLE
                                                                                 FOR FUTURE ISSUANCE
                                    NUMBER OF SECURITIES                             UNDER EQUITY
                                      TO BE ISSUED UPON      WEIGHTED-AVERAGE     COMPENSATION PLANS
                                    EXERCISE OF OUTSTANDING EXERCISE PRICE OF         (EXCLUDING
                                       OPTIONS, WARRANTS   OUTSTANDING OPTIONS,  SECURITIES REFLECTED IN
PLAN CATEGORY                             AND RIGHTS       WARRANTS AND RIGHTS        COLUMN (A))
-------------------------------          ------------          ------------          ------------
                                              (A)                   (B)                   (C)

Equity compensation plans
   approved by security holders             2,594,367          $       1.47               558,517
Equity compensation plans not
   approved by security holders               658,469          $       1.13                     0
                                         ------------                                ------------
   TOTAL                                    3,252,836                                     558,517

     We have authorized the issuance of equity securities under the compensation
plans described below without the approval of stockholders. No additional
options, warrants or rights are available for issuance under any of these plans,
except for additional shares which may become purchasable under warrants with
anti-dilution protection as noted below. We have either already registered or
agreed to register for resale the common stock underlying all of these plans.

     o    Commonwealth Associates, L.P. warrants, dated July 5, 2002, July 31,
          2002 and September 6, 2002: We issued warrants to purchase shares of
          InkSure Delaware common stock in connection with Commonwealth's role
          as placement agent in a private placement of InkSure Delaware's
          securities. The warrants were to purchase an aggregate of 550,933
          shares of InkSure Delaware common stock at an exercise price of $1.61
          per share. In connection with the merger of InkSure Delaware with our
          wholly owned subsidiary, these warrants to purchase shares of InkSure
          Delaware common stock were converted into warrants to purchase shares
          of our common stock. As of December 31, 2007, warrant holders had
          exercised 452,813 warrants. The remaining 98,120 warrants expired.

     o    Elie Housman option, dated February 6, 2002: We issued an option to
          purchase up to 478,469 shares of InkSure Delaware common stock at an
          exercise price of $0.966 per share, with an expiration date of
          February 6, 2009. In connection with the merger of InkSure Delaware
          with our wholly owned subsidiary, these options to purchase shares of
          InkSure Delaware common stock were converted into options to purchase
          shares of our common stock.

     o    March 15, 2005 warrant issued to Mr. Jerry Falkner: We issued a
          warrant to Mr. Falkner to purchase up to 50,000 shares of our common
          stock in connection with services he rendered to us. The warrant will
          expire in 10 years and has an exercise price of $1.40 per share.

     o    June 14, 2006 warrant issued to Mr. Peter McMullin: We issued a
          warrant to Mr. McMullin to purchase up to 90,000 shares of our common
          stock in connection with services he rendered to us. The warrant will
          expire in 5 years and has an exercise price of $1.60 per share.

     o    June 14, 2006 warrant issued to Jesup and Lamont securities
          corporation: We issued a warrant to Jesup and Lamont securities
          corporation to purchase up to 10,000 shares of our common stock in
          connection with services they rendered to us. The warrant will expire
          in 5 years and has an exercise price of $1.60 per share.

     o    June 26, 2007 warrant issued to Gelbart Kahana Ltd.: We issued a
          warrant to to Gelbart Kahana Ltd to purchase up to 30,000 shares of
          our common stock in connection with services they rendered to us. The
          warrant will expire in 5 years and has an exercise price of $1.83 per
          share.

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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.

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

     The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements and the Notes thereto
included in this report. This discussion contains certain forward-looking
statements that involve substantial risks and uncertainties. When used in this
report the words "may", "believe", "will", "expect", "expected", "project",
"anticipate", "anticipated estimates", "plans", "strategy", "target",
"prospects" or "continue" and similar expressions as they relate to our
management or us are intended to identify such forward-looking statements. Our
actual results, performance or achievements could differ materially from those
expressed in, or implied by, these forward-looking statements. Historical
operating results are not necessarily indicative of the trends in operating
results for any future period.

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 customers'
existing infrastructure and environment.

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

REVENUES

     We are currently concentrating on entering into and implementing
large-scale projects. These potential contracts are subject to a long sales
cycle and the timetable is lengthy for entering and implementing such projects.
These projects involve high volume sales through multiple-year sales contracts.
In the 2007 fiscal year, approximately 57% of our revenues were earned from
customers located outside the United States.

COSTS AND OPERATING EXPENSES

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

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

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

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

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

     We have not recorded any income tax benefit for net losses and credits
incurred for any period from inception to December 31, 2007. 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.

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CRITICAL ACCOUNTING POLICIES

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

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

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

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

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

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

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

     DEFERRED INCOME TAXES. Significant management judgment is required in
determining the provision for income taxes, deferred tax assets and any
valuation allowance recorded against net deferred tax assets. Due to the fact
that the company has a history of losses, it is likely that the deferred tax
will not be realized; therefore a valuation allowance of approximately
$1,794,000 has been recorded as of December 31, 2007.

A.   RESULTS OF OPERATIONS

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

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

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

                                        YEAR ENDED DECEMBER 31,
                                          2007          2006
                                       ----------    ----------

Revenues                                      100%          100%
Cost of Revenues                               38            43
                                       ----------    ----------
Gross profit                                   62            57

Operating expenses:
Research and development                       45            59
Selling and marketing                          58            95
General and administrative                     45            68
                                       ----------    ----------
Total operating expenses                      148           222

Operating loss                                (86)         (165)
Financial income (expense), net               (18)            9
Taxes on income                                 2             -
                                       ----------    ----------
Net loss                                     (101)         (156)
                                       ==========    ==========

                                       14
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YEAR ENDED DECEMBER 31, 2007 COMPARED WITH YEAR ENDED DECEMBER 31, 2006

     REVENUES. Revenues consist of gross sales of products. We are currently
concentrating on entering and implementing large-scale projects. These potential
contracts are subject to a long sales cycle and the timetable for entering and
implementing such projects fluctuates. This continued to effect our results in
2007. Our revenues increased by $888,000, or 44%, to $2,890,000 in 2007 from
$2,002,000 in 2006. This increase in revenues is mostly due to the addition of
one new major customer, accounting for 19.3% of our 2007 revenues. InkSure was
informed, during the second half of 2007, that one major customer and one major
end-user, who accounted for 6.4 % and 25.3 % of our 2007 revenues, will
discontinue ordering from us. This fact will have a negative effect on our 2008
and onward revenues, until such time as we are able to replace these customers.

     COST OF REVENUES. Cost of revenues consists of materials, sub-contractors
and compensation costs. Cost of revenues increased by $245,000, or 28%, to
$1,108,000 in 2007, from $863,000 in 2006. The increase in cost of revenues is
mainly due to the increase of sales, offset by the decrease of cost as a
percentage of revenues. Cost of revenues as a percentage of sales was 38 % in
2007, compared with 43% in 2006. The decrease in cost of revenues as a
percentage of sales is the result of our continued efforts to reduce the bill of
material of our products by getting better pricing for our materials and finding
lower cost suppliers. Cost of revenue included a non-cash expense of $1,000
related to the implementation of SFAS No. 123(R).

     RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses,
net, consist primarily of compensation costs attributable to employees engaged
in ongoing research and development activities, development-related raw
materials and sub-contractors and other related costs. Research and development
expenses increased by $122,000, or 10%, to $1,308,000 in 2007 from $1,186,000 in
2006. This increase in research and development expenses is primarily related to
the development and implementation of our RFID technology. Research and
development expenses for 2007 was reduced by a $394,000 grant from the Chief
Scientist related to our RFID project. Research and development expenses for
2007 included a non-cash expense of $30,000 as a result of the implementation of
SFAS No. 123(R).

     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. US sales
personnel (2 people in 2007, reduced to 1 person as of January 31, 2008) earn
commissions equal to 3% of the invoiced revenues (excluding freight charges) on
sales in their markets. Selling and marketing expenses decreased by $225,000, or
12%, to $1,678,000 in 2007, from $1,903,000 in 2006. This decrease in selling
and marketing expenses was primarily due to lower marketing expenses resulting
from savings in our Florida office and to a much lower non-cash expense, as a
result of the implementation of SFAS No. 123(R). of $68,000 in 2007, compared to
$176,000 in 2006. Savings in the Florida office were the result of the
termination of the US Operations Manager (field technical support) effective
October 31, 2007, as well as reduced marketing expenditures. A sales
representative resigned as of October 13, 2006, and was not replaced.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of compensation costs for administration, finance and general
management personnel, office maintenance, insurance, legal, accounting and
administrative costs. General and administrative expenses decreased by $58,000,
or 4%, to $1,294,000 in 2007, from $1,352, 000 in 2006. This decrease was
primarily due to a lower non-cash expense, as a result of the implementation of
SFAS No. 123(R), of $437,000 in 2007, compared to $631,000 in 2006. This
decrease was partly offset by an increase in legal expenses from $158,000 in
2006 to $212,000 in 2007.

     FINANCIAL EXPENSE, NET. Financial expense, net, amounted to $525,000 in
2007, versus financial income of $190,000 in 2006. The financial expense for
2007 was primarily due to non-cash financial expense, relating to the
convertible notes issued on September 2005, of $316,000, compared to non-cash
financial income of $315,000 in 2006; and interest expenses of $209,000 in 2007
compared to only $125,000 in 2006.

     NET LOSS. We had a net loss of $3,078,000 in 2007, compared with a net loss
of $3,112,000 in 2006, which is an decrease of $34,000, or 1%. The decrease in
net loss in 2007 in comparison with 2006 is primarily due to our decrease in
operating expenses.

     LIQUIDITY AND CAPITAL RESOURCES

     We have incurred substantial losses since our inception in May 2000. We had
an accumulated deficit of approximately $18,039,000 as of December 31, 2007, and
had a working capital (current assets less current liabilities) of approximately
$1,047,000 as of December 31, 2007. Losses are continuing and will continue in
the foreseeable future.

                                       15
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```

     Capital expenditures were approximately $87,000 in 2007 and $103,000 in
2006. These expenditures were principally for computers and research and
development equipment purchases. We do not have any material commitments for
capital expenditures for the year ending December 31, 2007.

     As of December 31, 2007, we had cash, cash equivalents and short-term
deposits of approximately $820,000, compared to $2,412,000 in 2006. This
decrease is primarily the result of our continuing investments in research and
development and selling and marketing expenses. We had no short-term bank credit
in each of 2007 and 2006.

     We generated negative cash flow from operating activities of approximately
$1,738,000 in 2007 compared to $3,019,000 in 2006. The negative cash flow from
operating activities in 2007 was attributed to 2007 net loss of approximately
$3,078,000, and an increase in trade receivable of $209,000; partially offset by
$536,000 non cash expenses related to the implementation of FSAS No. 123,
$236,000 non cash depreciation expenses, a $212,000 increase in accounts
receivable, $107,000 decrease in inventories and a $458,000 in other payables
and non cash expenses.

     We generated positive cash flow from investing activities of approximately
$1,895,000 in 2007 compared to $2,249,000 in 2006. The positive cash flow from
investing activities in 2007 was attributed to proceeds we received from selling
our short term bank deposits.

     We generated positive cash flow from financing activities of approximately
$260,000 in 2007 compared to $441,000 in 2006. The positive cash flow from
financing activities in 2007 was attributed to proceeds received from the
exercise of options for cash.

     We believe that our existing cash, together with cash generated from
operations, 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 projected expansion plans.

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

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

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

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

     Lock-up agreements, by each of our officers and directors (other than Mr.
Albert Attias), and ICTS International, N.V., a principal stockholder of our
company, were entered into, pursuant to which, during a period of 180 days from
the date of the Agreements, no such officer or director (other than Mr. Attias)
or ICTS International, N.V. will transfer their shares of common stock without
the prior written consent of each investor.

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

                                       16
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```

     The consolidated financial statements have been presented on the basis that
we will continue as a going concern. Our auditors have stated in their audit
opinion that the Company has suffered recurring losses from operations and has a
shareholders' deficiency that raises doubt about its ability to continue as a
going concern. Our ability to continue as a going concern is dependent upon
number of factors, including our ability to obtain additional capital.
Therefore, we have engaged investment bankers to help effect a sale of certain
of our assets. There can be no assurance that we will be successful in
completing a transaction. Management's plans also include cost cuts and
increasing the marketing of its current and new products. In addition, we may
need to seek to raise additional capital to repay the notes before we may be
required to repay the notes before September 2009. However, no assurance can be
given that we will be able to obtain additional capital on terms favorable to
us, or that additional capital will be available to us at all. Our ability to
raise capital is impeded by the full ratchet anti-dilution provisions of our
convertible notes. Such provisions, unless waived or modified, would make equity
financing at less than $0.60 per share extremely dilutive to our existing
shareholders.

     RESEARCH AND DEVELOPMENT

     Our research and development expenses were approximately $1,186,000 in 2006
and $1,308,000 in 2007. To date, all research and development expenses have been
charged to operating expense as incurred.

     CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     Our contractual obligations and commitments as of December 31, 2007
principally include obligations associated with our future-operating lease
obligations and the lease of several automobiles. Our total future obligation is
$174,000 until the end of 2008. See Note 8 to the Consolidated Financial
Statements. We expect to finance these contractual commitments from cash on hand
and cash generated from operations.

                                       17
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                                  RISK FACTORS

     ALL FORWARD-LOOKING STATEMENTS SHOULD BE READ WITH CAUTION. STATEMENTS IN
THIS ANNUAL REPORT ON FORM 10-KSB UNDER THE CAPTIONS "DESCRIPTION OF BUSINESS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS," AND ELSEWHERE IN THIS FORM 10-KSB, AS
WELL AS STATEMENTS MADE IN PRESS RELEASES AND ORAL STATEMENTS THAT MAY BE MADE
BY US OR BY OFFICERS, DIRECTORS OR EMPLOYEES ACTING ON OUR BEHALF, THAT ARE NOT
STATEMENTS OF HISTORICAL FACT, CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS, INCLUDING THOSE DESCRIBED IN THIS FORM 10-KSB UNDER THE CAPTION
"RISK FACTORS," THAT COULD CAUSE OUR ACTUAL RESULTS TO BE MATERIALLY DIFFERENT
FROM THE HISTORICAL RESULTS OR FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY
SUCH FORWARD-LOOKING STATEMENTS. IN ADDITION TO STATEMENTS WHICH EXPLICITLY
DESCRIBE SUCH RISKS AND UNCERTAINTIES, READERS ARE URGED TO CONSIDER STATEMENTS
LABELED WITH THE TERMS "BELIEVES," "BELIEF," "EXPECTS," "PLANS," "ANTICIPATES,"
"INTENDS," "WILL," "CONTINUE," OR "ESTIMATE," TO BE UNCERTAIN AND
FORWARD-LOOKING. ALL CAUTIONARY STATEMENTS MADE IN THIS FORM 10-KSB SHOULD BE
READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY
APPEAR. INVESTORS SHOULD CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS THE
RISKS DESCRIBED ELSEWHERE IN THIS FORM 10-KSB.

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

     Although we believe that our existing cash, together with cash generated
from operations will be sufficient to support our operations for at least 12
months, continuing product development and enhancement, expected new product
launches, corporate operations and marketing expenses will continue to require
additional capital. Our current revenues from operations are insufficient to
cover any expansion plans.

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

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

WE HAVE A HISTORY OF OPERATING LOSSES AND THUS MAY NOT BE PROFITABLE IN THE
FUTURE.

     We have incurred substantial losses and negative cash flows since our
inception. We had an accumulated deficit of approximately $18,177,000 at
December 31, 2007 and had a working capital (current assets less current
liabilities) of approximately $1,047,000 at December 31, 2007. We incurred
losses of approximately $3,078,000 for the year ended December 31, 2007, and
losses are continuing. We expect to spend significant amounts to enhance our
products and services, develop further sales and operations, and fund expansion.
As a result, we will need to generate significant revenue to break even or
achieve profitability. Even if we do achieve profitability, we may not be able
to sustain or increase profitability on a quarterly or annual basis.

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

WE HAVE A HISTORY OF NEGATIVE CASH FLOWS.

     We have incurred substantial negative cash flows since our inception. We
generated negative cash flow from operating activities of approximately
$1,738,000 in 2007 and $3,019,000 in 2006. To the extent that we continue to
have negative cash flows, we will continue to require additional capital to fund
our operations. There can be no assurance that we will ever achieve positive
cash flow from our operations.

                                       18
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IF WE CONTINUE TO RELY ON A LIMITED NUMBER OF MAJOR CUSTOMERS FOR MOST OF OUR
REVENUES, THE LOSS OF SUCH CUSTOMERS COULD ADVERSELY AFFECT OUR BUSINESS.

For the fiscal year ended December 31, 2007, sales to three of our customers in
Europe and in the Far east accounted for approximately 48% of our revenues
..InkSure was informed in August, 2007 that one end-user of InkSure's largest US
customer was terminating its covert authentication program, effective December
31, 2007. Out of total 2007 sales to this customer of $731,506, this end-user
accounted for $666,733 (91%), in addition to a second end-user which accounted
for the other 9% of sales. The customer told InkSure that it was bringing on a
new SmartInk end-user, though at much smaller volumes than the terminating
end-user. Since the notification, the costumer did not provide a new forecast
for anticipated sales to the remaining end-users. So far in 2008, InkSure has
not had any sales to this customer. As a result, our revenues for 2008 and
thereafter will be adversely affected until such time as we are able to replace
these customers, if at all.

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

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

     We generate all of our revenue from sales of products relating to the
"authentication industry." The market for providing these products and services
is highly competitive and is affected by the introduction of new products and
services that compete with the products and services offered by us. Demand for
these products and services could be affected by numerous factors outside our
control, including, among others, market acceptance by prospective customers,
the introduction of new or superior competing technologies or products and
services that are available on more favorable pricing terms than those being
offered by us, and the general condition of the economy. Our products have not
yet achieved any significant market penetration. Market acceptance for our
products and services may not develop in a timely manner or may not be
sustainable. New or increased competition may result in market saturation, more
competitive pricing, and lower margins. Our business, operating results and
financial condition would be materially and adversely affected if the market for
our products and services fails to grow, grows more slowly than anticipated, or
becomes more competitive or if targeted customers do not accept our products and
services and we experience a corresponding reduction in revenues, a higher loss
and a failure to generate substantial revenues in the future.

                                       19
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WE HAVE A LONG AND VARIABLE SALES CYCLE WHICH CAN RESULT IN SIGNIFICANT
FLUCTUATIONS IN OUR REVENUE FROM QUARTER TO QUARTER.

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

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

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

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

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

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

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

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

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

     In addition, we have entered into several agreements pursuant to which we
have granted third parties broad, exclusive rights to distribute and sell
certain of our technology, subject to customary provisions governing
confidentiality and nondisclosure. Failure of these third parties to effectively
market products and services based upon our technology could have a material
adverse effect on our business, operating results, and financial condition due
to the lack of revenues expected to be generated from such agreements.

                                       20
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WE WILL HAVE TO KEEP PACE WITH NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE IN
ORDER TO REMAIN COMPETITIVE IN THE MARKETPLACE.

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

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

     The market for our products and services is highly competitive. Many of our
competitors have far greater financial, human, and other resources. Barriers to
entry in our business are relatively insubstantial and companies with
substantially greater financial, technical, marketing, manufacturing and human
resources, as well as those with far greater name recognition than us, may also
attempt to enter the market. We believe that our ability to compete depends on
our technology and price, as well as on our distribution channels and the
quality of products and services. If we do not successfully compete, we will not
generate significant revenues or profits.

Visible barcodes in particular are considered an authentication technology, and
are essentially free. In the pharmaceutical industry, there is a new movement to
visible 2D barcodes to be used both for authentication and for electronic
pedigree, in anticipation of state and federal electronic pedigree requirements
for pharmaceuticals. These will require the ability to trace products through
the supply chain. As a result, a larger amount of data has to be encoded into
the product. Regarding covert machine-readable authentication, we believe there
are competitors who are lower priced, but whose technology is not as robust as
ours. Within brand protection, we believe that none of these competitors have
achieved a significant market position. However, within public/financial
documents (including tax stamps and bank notes), SICPA, a private Swiss based
security solutions provider, has achieved a leading market position due to its
long history of sales of security inks for government applications, which has
produced a major network of governmental contacts. SICPA also has the advantage
prior success in winning publicly bid tax stamp projects, which it uses for
referential value in new projects.

Lack of financial, personnel and other resources has adversely affected our
ability to compete. In 2007 we only had three dedicated sales people in the
company (two in the US and one in Asia); that number has been reduced to two as
of January 31, 2008. Western Europe, Latin America, Africa and much of Asia are
effectively lacking any sales coverage. Limited marketing resources limits the
audience that can be reached through print ads, direct mail and e-mail, trade
shows, conferences and trade group memberships.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     InkSure Ltd., our principal operating subsidiary, is incorporated under
Israeli law and its principal office; manufacturing facility and research and
development facility are located in Israel. Political, economic and military
conditions in Israel directly affect InkSure Ltd.'s operations. Since the
establishment of the state of Israel in 1948, a number of armed conflicts have
taken place between Israel and its Arab neighbors and a state of hostility,
varying in degree and intensity, has led to security and economic problems for
Israel. Despite negotiations to effect peace between Israel and its Arab
neighbors, the future of these peace efforts is uncertain. Since October 2000,
there has been a significant increase in violence primarily in the West Bank and
Gaza Strip, negotiations between Israel and the Palestinian Authority have
ceased and there has been increased military activity characterized by some as
war. Violence has spread to Jerusalem and areas near Tel Aviv. Furthermore,
several countries still restrict trade with Israeli companies, which may limit
our ability to make sales, or purchase components from, in those countries. Any
future armed conflict, political instability, continued violence in the region
or restrictions could limit our ability to operate our business and could have a
material adverse effect on our business, operating results and financial
condition.

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

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

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

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

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

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

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

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

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

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

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

     ICTS International, N.V. and its affiliates beneficially own, as of March
27, 2008, 4,515,555 shares of our common stock, representing approximately 27.8%
of our outstanding common stock. Such ownership interest gives ICTS and its
affiliates substantial influence over the outcome of all matters submitted to
our stockholders, including the election of directors and the adoption of a
merger agreement, and such influence could make us a less attractive acquisition
or investment target.

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

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

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

     We have never paid cash or other dividends on our common stock. It is our
intention to retain any earnings to finance the operation and expansion of our
business, and therefore, we do not expect to pay any cash dividends on our
common stock in the foreseeable future.

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THE TRADING OF OUR COMMON STOCK IS ILLIQUID AND VOLATILE WHICH MAY PREVENT A
STOCKHOLDER FROM SELLING ITS STOCK AT THE TIME OR PRICE THEY DESIRE.

     Our common stock is traded on the over-the-counter market with quotations
published on the NASD OTC Bulletin Board under the symbol "INKS". The trading
volume of our common stock historically has been limited and sporadic, and the
stock prices have been volatile. For example, during the twelve months prior to
April 8, 2008, our common stock traded at prices ranging from $2.25to $0.30. As
a result of the limited and sporadic trading activity, the quoted price for our
common stock on the over-the-counter market is not necessarily a reliable
indicator of its fair market value. The price at which our common stock will
trade in the future may be highly volatile and may fluctuate as a result of a
number of factors, including, without limitation, quarterly variations in our
operating results (which have historically been, and we expect to continue to
be, substantial) and actual or anticipated announcements of new products or
services by us, other business partners, or competitors as well as the number of
shares available for sale in the market.

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

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

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

     Of the 16,095,072 shares of common stock held by our present stockholders
as of December 31, 2007, approximately 6,000,000 shares may be available for
public sale by means of ordinary brokerage transactions in the open market
pursuant to Rule 144, promulgated under the Act, subject to certain limitations.
In general, under Rule 144, a person (or persons whose shares are aggregated)
who has satisfied a six month holding period for stock traded on the Over The
Counter Bulletin Board may, under certain circumstances, sell within any
three-month period a number of securities which does not exceed the greater of
1% of the then outstanding shares of common stock. Rule 144 also permits, under
certain circumstances, the sale of securities, without any limitation, by a
person who is not our affiliate and who has satisfied a one-year holding period.
In addition, 3,500,000 shares of common stock underlying both current options to
purchase our common stock and future issuances of options to purchase our common
stock are available, once vested, for public sale by means of ordinary brokerage
transactions in the open market. The substantial number of shares eligible for
sale could cause our common stock price to be less than it would be in the
absence of such an offering, whether or not such shares are actually sold, and
sales of a significant number of such shares at any one time could further
decrease our stock price.

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

     Our $9,000,000 principal amount of convertible notes are currently
convertible into shares of our common stock at an initial conversion rate of
$0.60 per share. Based on this initial conversion price we would issue
approximately 15,000,000 shares of common stock upon conversion in full of the
$9,000,000 of convertible notes. The exercise price of warrants to purchase
3,570,337 shares of common stock are currently exercisable at $0.60 per share.
The convertible notes and warrants contain a full ratchet anti-dilution
provision, which provides, unlike a more traditional weighted average
anti-dilution provision, that if we issue convertible or equity securities in
the future (subject to certain exceptions) at a price per share less than the
conversion rate of the notes or exercise price of the warrants, the conversion
rate of the convertible notes and exercise price of the warrants will be
automatically adjusted down to that lesser price. In such case, the number of
shares into which the convertible notes are convertible and warrants are
exercisable would increase correspondingly. By way of example only, if the price
per share of common stock were $0.50, and we were to issue securities at such
reduced price, the conversion rate of the convertible notes would be
automatically adjusted down to $0.50 per share, the number of shares into which
the convertible notes would be convertible would increase from 15,000,000 shares
to 18,000,000 and the number of shares issuable upon exercise of the warrants
would increase from 3,570,337 shares to 4,912,124 shares. Accordingly, if we
trigger the full ratchet anti-dilution provision, our stockholders could suffer
substantial dilution. In addition, because we are required to reserve 130% of
the number of shares issuable upon conversion of the convertible notes and
exercise of the warrants; we may not have sufficient authorized shares to issue
a significant number of additional shares, especially if the anti-dilution
provisions are triggered. Because of the current market price of our common
stock, it is unlikely that we will be able to raise any additional equity
financing without triggering these provisions.

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

     We currently have $9 million of debt outstanding under convertible notes.
The convertible notes prohibit us, from among other things, from incurring debt
or liens (subject to limited exceptions) or pay cash, dividends or redeem any
capital stock. These restrictions may limit our ability to obtain additional
financing and restrict our ability to operate our business.

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

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

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

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

ITEM 7. FINANCIAL STATEMENTS.

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

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     None.

ITEM 8A. CONTROLS AND PROCEDURES.

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

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

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

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

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

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

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

     Our management, including our Chief Executive Officer and Chief Financial
Officer, has conducted an assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2007.

This assessment includes:

a) Evaluation of the design of our internal control over financial reporting
("ICFR").

b) Testing of the operational effectiveness of these controls.

The design of our ICFR includes:

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

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

     o    Assessment and judgment of how much these risks are material.

     o    Design and implement internal controls (including policies, procedures
          and activities - most of them manual controls), taking into account
          that InkSure operates in two locations (Israel and Florida).

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

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

The testing of the operational effectiveness of those controls includes:

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

     o    Randomly, in a sample size of at least 5%, checking the whole process
          of the control from start to finish.

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

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

     Our assessment was conducted in accordance with the interpretive guidance
issued by the Commission in Release No. 34-55929. Based on our assessment,
management has concluded that our internal control over financial reporting was
effective as of December 31, 2007.

Changes in Internal Control Over Financial Reporting

     There has been no change in InkSure's internal control over financial
reporting for the yearr ended December 31, 2007 that materially affected our
internal control over financial reporting.

ITEM 8B. OTHER INFORMATION.

     None.

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                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
        GOVERNANVCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

     The information required by this item is incorporated by reference to the
company's definitive proxy statement related to the company's Annual Meeting of
Shareholders to be held in 2008.

ITEM 10. EXECUTIVE COMPENSATION.

     The information required by this item is incorporated by reference to the
company's definitive proxy statement related to the company's Annual Meeting of
Shareholders to be held in 2008.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS.

     The information required by this item is incorporated by reference to the
company's definitive proxy statement related to the company's Annual Meeting of
Shareholders to be held in 2008.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
         INDEPENDENCE.

     The information required by this item is incorporated by reference to the
company's definitive proxy statement related to the company's Annual Meeting of
Shareholders to be held in 2008.

ITEM 13. EXHIBITS.

EXHIBIT NO.    DESCRIPTION

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

3.1            Certificate of Change in Number of Authorized Shares of Class and
               Series of the Company (previously filed as exhibit 3.1 to the
               Company's Current Report filed on Form 8-K with the Commission on
               November 8, 2002).

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

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

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

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

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

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

10.2           Employment Agreement, dated as of July 13, 2006, by and among the
               Company and Mickey Brandt (previously filed as exhibit 10.1 to
               the Company's Current Report filed on Form 8-K with the
               Commission on July 19, 2006).

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

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

                                       28
```

```

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

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

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

23.2           Consent of Yossi Avraham, Arad & Co.*

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

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

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

* Filed herewith.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

     The information required by this item is incorporated by reference to the
company's definitive proxy statement related to the company's Annual Meeting of
Shareholders to be held in 2008.

                                       29

                 INKSURE TECHNOLOGIES INC. AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2007

                            U.S. DOLLARS IN THOUSANDS

                                       30

                 INKSURE TECHNOLOGIES INC. AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2007

                            U.S. DOLLARS IN THOUSANDS

                                      INDEX

                                                                        PAGE
                                                                     ----------

Report of Independent Registered Public Accounting Firm                 F-2

Consolidated Balance Sheet                                              F-3

Consolidated Statements of Operations                                   F-4

Statements of Changes in Stockholders' deficiency                       F-5

Consolidated Statements of Cash Flows                                   F-6

Notes to Consolidated Financial Statements                           F-7 - F-20

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

We have audited the accompanying consolidated balance sheet of InkSure
Technologies Inc. ("the Company") and its subsidiaries as of December 31, 2007,
and the related consolidated statements of operations, stockholders' Deficiency
and cash flows for each of the two years in the period ended December 31, 2007.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries as of December 31, 2007, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2007, in conformity with U.S. generally accepted accounting
principles.

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

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

Tel-Aviv, Israel
27 March, 2008

                                     F - 2

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

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

CURRENT ASSETS:
  Cash and cash equivalents                                     $    820
  Trade receivables                                                  453
  Other accounts receivable and prepaid expenses (Note 3)            225
  Inventories (Note 4)                                               399
                                                                --------

TOTAL CURRENT ASSETS                                               1,897
                                                                --------

LONG TERM DEPOSIT                                                     17
                                                                --------

PROPERTY AND EQUIPMENT, NET (NOTE 5)                                 352
                                                                --------

DEFERRED CHARGES                                                     385
                                                                --------

GOODWILL                                                             271
                                                                ========

TOTAL ASSETS                                                       2,922
                                                                ========

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
  Trade payables                                                $    284
  Employees and payroll accruals                                     204
  Accrued expenses and other payables                                362
                                                                --------

TOTAL CURRENT LIABILITIES                                            850
                                                                --------

Convertible notes, net (Note 7)                                    5,691
                                                                --------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)

STOCKHOLDERS' DEFICIENCY
  Stock capital (Note 9):                                            161
   Preferred stock of $ 0.01 par value -
   Authorized: 10,000,000 stocks; Issued and outstanding:
     0 stocks as of 12/31/2006 and 12/31/2005
   Common stock of $ 0.01 par value -
   Authorized: 50,000,000; Issued and outstanding:
   16,095,072 and 15,838,579 as of 12/31/2007 and
     12/31/2006 respectively
  Additional paid-in capital                                      14,279
  Accumulated other comprehensive income                             118
  Accumulated deficit                                            (18,177)
                                                                --------

TOTAL STOCKHOLDERS' DEFICIENCY                                  $ (3,619)
                                                                ========

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

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

                                     F - 3

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

                                                           YEAR ENDED DECEMBER 31,
                                                       --------------------------------
                                                         2 0 0 7             2 0 0 6
                                                       ------------        ------------

Revenues (Note 12)                                     $      2,890        $      2,002
Cost of revenues                                              1,108                 863
                                                       ------------        ------------

GROSS PROFIT                                                  1,782               1,139
                                                       ------------        ------------

Operating expenses:
  Research and development, net                               1,308               1,186
  Selling and marketing                                       1,678               1,903
  General and administrative                                  1,294               1,352
                                                       ------------        ------------

Total operating expenses                                      4,280               4,441
                                                       ============        ============

Operating loss                                               (2,498)             (3,302)
                                                       ------------        ------------

Financial income (expense), net                                (209)               (125)
Non cash financial  income (expenses)
  related to convertible notes, net                            (316)                315
                                                       ------------        ------------

Financial income (expenses), net (Note 11)                     (525)                190
                                                       ------------        ------------

Net loss before taxes                                        (3,023)             (3,112)

Taxes on income                                                  55                   -
                                                       ------------        ------------

Net loss                                               $     (3,078)       $     (3,112)
                                                       ------------        ------------

Basic and diluted net loss per share                   $       (0.2)       $       (0.2)
                                                       ============        ============

Weighted average number of Common stocks used in
  computing basic and diluted net loss per share         15,912,774          15,238,942
                                                       ============        ============

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

                                     F - 4

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

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

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

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

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

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

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

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

                                     F - 5

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

                                                                  YEAR ENDED DECEMBER 31,
                                                                  ----------------------
                                                                  2 0 0 7        2 0 0 6
                                                                  -------        -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                          $(3,078)       $(3,112)
Adjustments required to reconcile net loss to net
  cash used in operating activities:
Depreciation and amortization                                         236             89
Capital gain (loss)from sale of property                               (1)             -
Decrease (increase) in trade receivables                             (209)           115
Non cash financial income related to convertible notes, net           173           (459)
Increase in other accounts receivable and prepaid expenses            212           (174)
Decrease (increase) in inventories                                    107             89
(Decrease) increase in trade payables                                  56           (266)
Increase (decrease) in employees and payroll accruals                  60             22
Non cash financial expenses related to implementation
  of SFAS No. 123 (R)                                                 536            903
Decrease in other payables                                            170           (226)
                                                                  -------        -------

NET CASH USED IN OPERATING ACTIVITIES                              (1,738)        (3,019)
                                                                  -------        -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                                   (102)          (103)
Proceeds from sales of property                                         5              4
Proceeds from short-term bank deposits                              1,992          2,348
                                                                  -------        -------

NET CASH FROM INVESTING ACTIVITIES                                  1,895          2,249
                                                                  -------        -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of options to Common Stock                                   127            251
Exercise of warrants to Common Stock                                  133            190
Issuance of convertible notes, net of deferred charges                  -              -
Issuance of warrants to purchase convertible notes                      -              -
                                                                  -------        -------

NET CASH PROVIDED BY FINANCING ACTIVITIES                             260            441
                                                                  =======        =======

Increase (decrease) in cash and cash equivalents                      417           (329)
Cash and cash equivalents at the beginning of the year                403            732
                                                                  -------        -------

Cash and cash equivalents at the end of the year                  $   820        $   403
                                                                  =======        =======

Supplemental cash flow information:
Cash paid for interest                                            $   240        $   240
                                                                  =======        =======

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

                                     F - 6

NOTE 1 - GENERAL

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

          The Company specializes in comprehensive security solutions, designed
          to protect branded products and documents of value from
          counterfeiting, fraud and diversion. During 2007, the Company
          generated most of its revenues from major customers (see also Note
          12).

          The Company conducts its operations and business with and through its
          direct and indirect subsidiaries: InkSure Inc., a Delaware corporation
          incorporated in March 2000; IST Operating Inc., a Delaware
          corporation, incorporated in May 2000 (formerly: InkSure Technologies
          Inc.) (as of December 31, 2007, IST Operating Inc. is inactive);
          InkSure Ltd., which was incorporated in December 1995 under the laws
          of Israel; and InkSure RF Inc., a Delaware corporation incorporated in
          March 2000 (as of December 31, 2007, InkSure RF Inc. is inactive).

     B.   As reflected in the accompanying financial statements, the Company's
          operations for the year ended December 31, 2007, resulted in a net
          loss of $2,940 and the Company's balance sheet reflects a net
          stockholders' deficit of $3,481. The Company had a working capital
          (current assets less current liabilities) of approximately $1,047. The
          Company ability to continue operating as a "going concern" is
          dependent on several factors, among them is its ability to obtain
          additional capital. Management's plans in this regards include, among
          others, raising additional cash from current and potential
          stockholders and lenders, and increasing the marketing of its current
          and new products.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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

     A.   USE OF ESTIMATED:

          The preparation of financial statements in conformity with generally
          accepted accounting principles requires management to make estimates
          and assumptions that affect the amounts reported in the financial
          statements and accompanying notes. Actual results could differ from
          those estimates.

     B.   FINANCIAL STATEMENTS IN U.S. DOLLARS:

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

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

     C.   PRINCIPLES OF CONSOLIDATION:

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

                                     F - 7

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     D.   CASH EQUIVALENTS:

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

     E.   INVENTORIES:

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

          Raw materials, parts and supplies - using the "first-in, first-out"
          method. Work in progress and finished products - on the basis of
          direct manufacturing costs with the addition of allocable indirect
          manufacturing costs.

     F.   PROPERTY AND EQUIPMENT, NET:

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

                                                               YEARS
                                                  ------------------------------

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

     G.   GOODWILL:

          Goodwill represents excess of the costs over the fair value of net
          assets of businesses acquired. Under Statement of Financial Accounting
          Standard No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
          142") goodwill acquired in a business combination on or after July 1,
          2001, is not amortized.

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

     H.   IMPAIRMENT OF LONG-LIVED ASSETS

          The Company's long-lived assets and certain identified intangibles are
          reviewed for impairment in accordance with Statement of Financial
          Accounting Standard No. 144, "Accounting for the Impairment or
          Disposal of Long-Lived Assets" ("SFAS No. 144") whenever events or
          changes in circumstances indicate that the carrying amount of an asset
          may not be recoverable. Recoverability of assets to be held and used
          is measured by a comparison of the carrying amount of an asset to the
          future undiscounted cash flows expected to be generated by the assets.
          If such assets are considered to be impaired, the impairment to be
          recognized is measured by the amount by which the carrying amount of
          the assets exceeds the fair value of the assets. As of December 31,
          2007, no impairment losses had been identified.

                                     F - 8

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     I.   REVENUE RECOGNITION:

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

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

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

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

     J.   WARRANTY:

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

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

     K.   RESEARCH AND DEVELOPMENT COSTS:

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

     L.   BASIC AND DILUTED NET LOSS PER SHARE:

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

          All outstanding stock options and warrants have been excluded from the
          calculation of the diluted net loss per share of Common stock because
          all such securities are anti-dilutive for the periods presented. The
          total number of shares related to the outstanding options and warrants
          excluded from the calculations of diluted net loss per share, was
          2,582,367 and 3,570,172 for the years ended December 31, 2007 and
          2006, respectively.

                                     F - 9

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     M.   INCOME TAXES:

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

     N.   CONCENTRATIONS OF CREDIT RISK:

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

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

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

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

     O.   FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

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

     P.   ACCOUNTING FOR STOCK-BASED COMPENSATION:

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

          Compensation cost related to stock options is recognized in operating
          results (included in cost of revenues, research and development,
          selling and marketing, general and administrative expenses) under SFAS
          No. 123R in 2007 was $536,000.

          Under SFAS 123 (R), the fair market value of each option grant is
          estimated on the date of grant using the "Black-Scholes option
          pricing" method with the following weighted-average assumptions:(1)
          expected life of 3.25 years (2006 - 3.5); (2) dividend yield of 0% (3)
          expected volatility of 95% (2006 - 102%) and (4) risk-free interest
          rate of 4.8% (2006 - 4.84%).

                                     F - 10

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     Q.   RECENT ACCOUNTING PRONOUNCEMENTS:

          In September 2006, the FASB issued SFAS No. 157, "Fair Value
          Measurements" (SFAS No. 157). The purpose of SFAS No. 157 is to define
          fair value, establish a framework for measuring fair value, and
          enhance disclosures about fair value measurements. The measurement and
          disclosure requirements are effective for the Company beginning in the
          first quarter of fiscal year 2008. The Company does not expect that
          the adoption of SFAS No. 157 will have a significant impact on its
          financial statements.

          In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
          for Financial Assets and Financial Liabilities" (SFAS No. 159). SFAS
          No. 159 permits companies to choose to measure certain financial
          instruments and certain other items at fair value. The standard
          requires that unrealized gains and losses on items for which the fair
          value option has been elected be reported in earnings. SFAS No. 159 is
          effective for the Company beginning in the first quarter of fiscal
          year 2008, although earlier adoption is permitted. The Company is
          currently evaluating the impact that SFAS No. 159 will have on its
          financial statements.

          In June 2007, the FASB ratified Emerging Issues Task Force (EITF)
          Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for
          Goods or Services to Be Used in Future Research and Development
          Activities" (EITF 07-3). EITF 07-3 requires non-refundable advance
          payments for goods and services to be used in future research and
          development activities to be recorded as an asset and the payments to
          be expensed when the research and development activities are
          performed. EITF 07-3 applies prospectively for new contractual
          arrangements entered into beginning in the first quarter of fiscal
          year 2008. We currently recognize these non-refundable advanced
          payments as an expense upon payment. The adoption of EITF 07-3 is not
          expected to have a significant impact on the Company's consolidated
          financial statements.

          In December 2007, the FASB issued SFAS No. 141(R) "Business
          Combinations" ("SFAS 141(R)") and SFAS No. 160, "Non-controlling
          Interests in Consolidated Financial Statement" ("SFAS 160"). SFAS
          141(R) requires the acquiring entity in a business combination to
          record all assets acquired and liabilities assumed at their respective
          acquisition-date fair values and changes other practices under FAS
          141, some of which could have a material impact on how we account for
          business combinations. SFAS 141(R) also requires additional disclosure
          of information surrounding a business combination, such that users of
          the entity's financial statements can fully understand the nature and
          financial impact of the business combination. SFAS 160 requires
          entities to report non-controlling (minority) interests in
          subsidiaries as equity in the consolidated financial statements. We
          are required to adopt SFAS 141(R) and SFAS 160 simultaneously in our
          fiscal year beginning November 1, 2009. The provisions of SFAS 141(R)
          will only impact the Company if it is a party to a business
          combination after the pronouncement has been adopted.

                                     F - 11

NOTE 3 - OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

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

         Government authorities                        $       24
         Prepaid expenses                                      75
         Other                                                126
                                                       ----------
                                                       $      225
                                                       ==========

NOTE 4 - INVENTORIES

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

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

NOTE 5 - PROPERTY AND EQUIPMENT, NET

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

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

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

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

     Depreciation expenses for the years ended December 31, 2007 and 2006,
     amounted to $ 93 and $ 89, respectively.

                                     F - 12

NOTE 6 - ACCRUED SEVERANCE PAY

     Under Israeli law and labor agreements, the Company is required to make
     severance payments to its dismissed employees and employees leaving its
     employment in certain other circumstances. The Company's severance pay
     obligation to its employees, which is calculated on the basis of the salary
     of the employee for the last month of the reported period multiplied by the
     years of such employee's employment, is reflected by the accrual presented
     in the balance sheet.

     Severance pay expenses amounted to $95 and $64 for the years ended December
     31, 2007 and 2006, respectively.

NOTE 7 - CONVERTIBLE NOTE

     ISSUANCE OF CONVERTIBLE NOTES

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

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

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

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

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

                                     F - 13

NOTE 7 - CONVERTIBLE NOTE (CONT.)

     ISSUANCE OF CONVERTIBLE NOTES (CONT.)

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

     ISSUANCE OF WARRANTS TO PURCHASE CONVERTIBLE NOTES

     In September 2005, in connection with the initial issuance of the
     Convertible notes, the Investors were granted the opportunity to invest an
     additional $1,250 through the purchase of additional convertible notes at a
     conversion price of $3.60 per share until March 30, 2007.

     The Company assessed the characteristics of the warrants to purchase
     Convertible notes and determined that they should be recorded as a
     liability and valued by using Black Scholes model. The value of the
     warrants as of December 31, 2006 was $152.

     As a result of recording the warrants and the derivative instruments at
     fair value at the date of issuance, the Company recorded a discount in the
     amount of $1,352, which being amortized over 4 years period

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

     Convertible note                                $ 6,000
     Discount                                           (605)
     Bifurcated embedded                                 296
                                                       5,691
                                                     =======

                                     F - 14

NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES

     A.   LEASE COMMITMENTS:

          The Company leases its facilities and certain motor vehicles under
          various operating lease agreements, which expire on various dates, the
          latest of which is in 2010. The annual minimum future rental payments
          under non-cancelable operating leases as of December 31, 2007, are as
          follows:

          Year endeing December 31, 2008

                                                        $ 174
                                                        -----
                                                        $ 174
                                                        =====

          Total rent expenses for the years ended December 31, 2007 and 2006,
          were approximately $ 84 and $ 118, respectively.

          Motor vehicle lease expenses for the years ended December 31, 2007 and
          2006 were approximately $ 107 and $ 64, respectively.

     B.   CHARGES AND GUARANTEES:

          The Company obtained bank guarantees in the amount of $ 9, to secure
          its lease commitments.

     C.   OTHER CONTINGENCIES:

          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 trade secret, but not assessing any damages with respect thereto;
          (iii) requiring the defendants to cease all activities involving the
          use of any confidential information; and (iv) awarding the plaintiff
          reimbursement of the costs of the litigation in the amount of NIS
          130,000 (about $37,100), plus interest and VAT, which the defendants
          intend to split equally. InkSure recorded in its 2006 financial
          statements a provision of NIS 65,000 (about $18,600).

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

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

          On February 18,2008, Secu-Systems filed a petition with the district
          court to amend the amount for which it has sued to NIS 25,000,000
          (Approx. $ 7,000,000). The company intends to file an answer to the
          petition.

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

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

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

                                     F - 15

NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)

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

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

     D.   EUROPEAN COMMISSION GRANTS:

          The Company has received non-royalty-bearing grants amounting to $205
          from the European commission. During the years ended 31, December 2007
          and 2006, the Company recognized income of $0 and $85, respectively.
          These grants are recognized at the time the Company is entitled to
          such grants on the basis of the costs incurred and included as a
          reduction in research and development expenses.

     E.   In connection with its research and development, the Company received
          grants from the State of Israel in the total amount of approximately
          $0.5 million. The Company is committed to pay royalties at a rate of
          3.5% of sales of the developed product, up to 100% of the amount of
          grants received. As of the date of approval for programs approved from
          2007 and thereafter.

                                     F - 16

NOTE 9 - STOCK CAPITAL

     A.   STOCKHOLDERS' RIGHTS:

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

     B.   PRIVATE PLACEMENTS:

          In March 2004, the Company entered into an investment agreement with
          certain investors. In April 2004, under the agreement, the Company
          issued in a private placement 1,904,412 units with each unit
          consisting of a share of Common stock and a five-year warrant to
          purchase a share of Common stock at an exercise price of $ 1 per
          share. The price per unit was $ 0.68 with net proceeds to the Company
          of $ 1,267 (net of issuance expenses).

          In July 2004, the Company entered into an additional investment
          agreement with certain investors. According to the agreement, the
          Company issued in a private placement an aggregate of 1,125,000 of
          shares of Common stock, at a price per share equal to $ 1 with gross
          proceeds to the Company of $ 1,112 (net of issuance expenses).

     C.   STOCK OPTIONS:

          On August 24, 2001, the board of directors of InkSure Delaware adopted
          the 2001 Employee Stock Option Plan ("the 2001 Plan"). Under the 2001
          Plan 600,000 shares have been reserved for issuance upon the exercise
          of options granted thereafter. The 2001 Plan expired in August 24,
          2007 and no further options will be granted under this plan.

          According to the merger agreement and according to the approval of the
          Board of Directors of InkSure Technologies Inc., all outstanding
          option agreements (as mentioned above) have been replaced with new
          options agreements in accordance with the Company's 2002 stock option
          plan ("the 2002 Plan").

          The terms and conditions of the 2002 Plan relating to vesting periods
          and exercise prices are the same as in the 2001 Plan.

          Under the 2002 Plan, up to 3,500,000 options may be granted to
          officers, directors, employees and consultants of the Company.

          The options vest ratably over a period of up to four years, commencing
          with the date of grant. The options generally expire no later than
          five years from the date of grant. Any options, which are forfeited or
          cancelled before expiration, become available for future grants.

          As of December 31, 2007, an aggregate of 558,517 options are still
          available for future grant under the Company's stock option plans.

                                     F - 17

NOTE 9 - STOCK CAPITAL (CONT.)

     C.   STOCK OPTIONS: (CONT.)

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

                                                YEAR ENDED DECEMBER 31,
                                  -----------------------------------------------------
                                          2 0 0 7                      2 0 0 6
                                  -----------------------     -------------------------
                                                WEIGHTED                      WEIGHTED
                                    AMOUNT       AVERAGE        AMOUNT        AVERAGE
                                  OF OPTIONS  EXERCISE PRICE  OF OPTIONS   EXERCISE PRICE
                                  ----------   ----------     ----------     ----------

Outstanding at beginning of
  year                             2,440,867   $     1.39     2,451,494     $     0.98
Granted                              443,000   $     1.82       671,000     $     2.41
Exercised                            (97,833)  $     1.21      (249,283)    $     1.07
Forfeited                           (191,667)  $     1.63      (432,344)    $     1.20
                                  ----------   ----------    ----------     ----------

Outstanding at end of year         2,594,367   $     1.47     2,440,867     $     1.41
                                  ==========   ==========    ==========     ==========

Exercisable at end of year         1,967,514   $     1.32     1,780,500     $     1.14
                                  ==========   ==========    ==========     ==========

          The options outstanding as of December 31, 2007, have been separated
          into ranges of exercise price as follows:

                                                                                 WEIGHTED
                        OPTIONS         WEIGHTED                  OPTIONS         AVERAGE
                      OUTSTANDING       AVERAGE     WEIGHTED    EXERCISABLE      EXERCISE
 RANGE OF                AS OF         REMAINING    AVERAGE        AS OF          PRICE OF
 EXERCISE             DECEMBER 31,    CONTRACTUAL   EXERCISE    DECEMBER 31,     OPTIONS
  PRICE                   2007        LIFE (YEARS)    PRICE        2007         EXERCISABLE
-----------           ----------      ----------   ----------   ----------      ----------

0.8 - 1.35             1,504,367            1.54         1.02    1,470,187            1.02

1.45 - 2.80            1,090,000            2.48         2.10      497,327            2.20
                      ----------      ----------   ----------   ----------      ----------

                       2,594,367            1.93         1.47    1,967,514            1.32
                      ==========      ==========   ==========   ==========      ==========

          The company recognized compensation expenses of $536 and $891 for the
          year ended December 31, 2007 and 2006.

                                     F - 18

NOTE 9 - STOCK CAPITAL (CONT.)

     D.   STOCK WARRANTS:

          The Company has issued warrants, as follows:

                     OUTSTANDING                EXERCISABLE
                       AS OF                       AS OF
                     DECEMBER 31,    EXERCISE   DECEMBER 31,     EXERCISABLE
ISSUANCE DATE           2007          PRICE        2007            THROUGH
--------------    --------------- ------------- -----------   ----------------

April 2004 (1)       1,720,589       $   1.00    1,720,589       April 2009
March 2005 (2)          50,000       $   1.40       50,000       March 2015
June 2006  (3)         100,000       $   1.60      100,000       June 2011
June 2007  (4)          30,000       $   1.83       30,000       June 2012

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

          (2)  Issued to a consultant of the company

          (3)  Issued to a consultant of the company

          (4)  Issued to a consultant of the company

     E.   DIVIDENDS:

          In the event that dividends are declared in the future, such dividends
          will be paid in U.S. dollars.

          The Company does not intend to pay cash dividends in the foreseeable
          future.

NOTE 10 - TAXES ON INCOME

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

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

     B.   DEFERRED INCOME TAXES:

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

                                                                YEAR ENDED DECEMBER 31,
                                                                  -------------------
                                                                  2 0 0 7     2 0 0 6
                                                                  --------   --------

          Net operating loss carryforward                         $  1,663   $  2,531
          Other deductions for tax purposes                            131        182
                                                                  --------   --------

          Net deferred tax asset before valuation allowance          1,794      2,713
          Valuation allowance                                       (1,794)    (2,713)
                                                                  --------   --------

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

                                     F - 19

NOTE 10 - TAXES ON INCOME (CONT.)

     B.   DEFERRED INCOME TAXES (CONT.):

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

          Net loss consists of the following:

                         YEAR ENDED DECEMBER 31,
                         ----------------------
                         2 0 0 7        2 0 0 6
                         -------        -------

          Domestic       $(1,468)       $(1,577)
          Foreign         (1,610)        (1,535)
                         -------        -------

                         $(3,078)       $(3,112)
                         =======        =======

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

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

     D.   TAX LOSS CARRYFORWARDS:

          Net operating loss carryforwards as of December 31, 2007 are as
          follows:

          Israel                                       4,381
          United States *)                             7,488
                                                      ------

                                                      11,869
                                                      ======

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

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

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

     F.   REDUCTION IN CORPORATE TAX RATE:

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

                                     F - 20

NOTE 11 - FINANCIAL INCOME (EXPENSES), NET

                                                                 YEAR ENDED DECEMBER 31,
                                                                   ------------------
                                                                  2 0 0 7      2 0 0 6
                                                                   -----        -----

Interest, bank charges and fees, net                               $(244)       $ (99)
Foreign currency translation differences                              35          (26)
Non cash income (expenses) related to convertible notes, net        (316)         315
                                                                   -----        -----

                                                                   $(525)       $ 190
                                                                   =====        =====

NOTE 12 - MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

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

     The following data presents total revenue for the years ended December 31,
     2007 and 2006, based on the customer's location and long-lived assets as of
     December 31, 2007 and 2006:

                         2 0 0 7                    2 0 0 6
                    -------------------       -------------------
                    TOTAL      LONG-LIVED     TOTAL      LONG-LIVED
                   REVENUES      ASSETS      REVENUES      ASSETS
                    ------       ------       ------       ------

United States       $1,244       $  281       $1,273       $  293
Export:
   Israel               34       $  342            8          324
   Turkey              698            -          514            -
   Other               914            -          207            -
                    ------       ------       ------       ------

                    $2,890       $  623       $2,002       $  617
                    ======       ======       ======       ======

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

                                          YEAR ENDED DECEMBER 31,
                                         -------------------------
                                         2 0 0 7           2 0 0 6
                                         -------           -------

     Customer A                            25%               41%
     Customer B                             6%               19%
     Customer C                            13%               17%
     Customer D                            11%               10%
     Customer E                            19%                -

                                     F - 21

NOTE 13 - SUBSEQUENT EVENT (UNAUDITED)

     ISSUANCE OF CONVERTIBLE NOTES

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

     Pursuant to the agreements, the investors were issued $3,000,000 principal
amount of new notes and exchanged their $6,000,000 principal amount of existing
notes (see note 7) for the same principal amount of amended and restated senior
secured convertible notes (together with the $3,000,000 principal amount of new
notes, referred to as the "new notes") each of which is convertible into shares
of common stock at a conversion price is $0.60, subject to adjustment. The new
notes are secured by the Company's assets and the assets of the Company's
subsidiaries and are guaranteed by each of our subsidiaries. In addition, all of
the shares of each of our subsidiaries are pledged as collateral to secure the
Company's obligations under the new notes, the security agreements and related
documents. The investors may require the Company to redeem all or any portion of
the outstanding principal amount of the new notes in cash plus accrued but
unpaid interest on or after September 30, 2009. The Company may require the
investors to convert all or any portion of the new notes into shares of common
stock upon the occurrence of certain conditions relating to the trading of teh
Company's common stock. Upon any such conversion, the investors will be entitled
to receive a pro rata amount of the cash remaining on deposit in the collateral
account which the Company have established to secure interest payments under the
new notes based on the principal amount of the new notes that we require to be
converted. The Company may also redeem the new notes at any time by paying the
buyers a premium of 5%-25% of the outstanding principal amount of the notes
(based upon the time of redemption) plus interest and the amounts in the
collateral account; at the time of such redemption the Company will also issue
to the buyers warrants to purchase common stock, expiring September 30, 2010, at
an exercise price of $0.60. If the Company sell or license all or substantially
all of the assets in our ink business, the Company may be required to redeem the
new notes at 100% of their outstanding principal amount up to the net proceeds
of such sale or licensing transaction. If the Company consummate a transaction
that results in a change of control or other merger or reorganization or
recapitalization, the Company may be required to redeem the new notes at 125% of
their outstanding principal amount. The new notes are due on September 31, 2010,
unless they are redeemed or converted earlier.

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

                                     F - 22

                                 SIGNATURE PAGE

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on our behalf by the undersigned, thereunto duly
authorized.

INKSURE TECHNOLOGIES INC.

          SIGNATURE                        TITLE                            DATE

/s/ Elie Housman                  Chief Executive Officer,               April 9, 2008
--------------------------        Chairman and Director
Elie Housman                      (Principal Executive Officer)

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

          SIGNATURE                        TITLE                            DATE

/s/ Elie Housman                  Chief Executive Officer,              April 9, 2008
--------------------------        Chairman and Director
Elie Housman                      (Principal Executive Officer)

/s/ Mickey Brandt                 Chief Financial Officer (Principal    April 9, 2008
--------------------------        Financial and Accounting Officer)
Mickey Brandt

/s/ Yaron Meerfeld                Chief Operations Officer and          April 9, 2008
--------------------------        Director
Yaron Meerfeld

/s/ Philip M. Getter              Director                              April 9, 2008
--------------------------
Philip M. Getter

                                  Director                              April 9, 2008
--------------------------
Randy F. Rock

                                  Director                              April 9, 2008
--------------------------
Albert Attias

/s/ David W. Sass                 Director                              April 9, 2008
--------------------------
David W. Sass

/s/ Pierre L. Schoenheimer        Director                              April 9, 2008
--------------------------
Pierre L. Schoenheimer

/s/ Samuel N. Seidman             Director                              April 9, 2008
--------------------------
Samuel N. Seidman

                                       31
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