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

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

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009

                                       OR

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

           FOR THE TRANSITION PERIOD FROM __________ TO _____________

                         COMMISSION FILE NUMBER: 0-24431

                           INKSURE TECHNOLOGIES, INC.
               (Exact name of registrant as specified in charter)

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

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

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

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

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

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

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

                               Yes [_]     No [X]

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

                               Yes [_]     No [X]

Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                               Yes [X]     No [_]

Indicate by checkmark whether the registrant submitted electronically and posted
on its corporate Website, if any, every InteractiveDate File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).

                               Yes [_]     No [_]

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

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

Large accelerated filer [_]                       Accelerated filer [_]

Non-accelerated filer [_] (Do not check if a smaller reporting company)

Smaller Reporting Company [X]

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

                               Yes [_]     No [X]

The aggregate market value of the Common Stock held by non-affiliates of the
Registrant computed by reference to the average bid and asked price of such
Common Stock on June 30, 2009 (the last business day of the Registrant's most
recently completed second fiscal quarter) was $1,812,026.

As of February 25, 2010, the Registrant had outstanding 16,472,968 shares of
Common Stock, par value $0.001 per share.
```

```

                               TABLE OF CONTENTS

                                                                            PAGE

PART I

ITEM 1.      BUSINESS                                                          2

ITEM 1A.     RISK FACTORS                                                     10
ITEM 1B.     UNRESOLVED STAFF COMMENTS                                        19
ITEM 2.      PROPERTIES                                                       19
ITEM 3.      LEGAL PROCEEDINGS                                                19
ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS              20

PART II

ITEM 5.      MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
             STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES    21
ITEM 6.      SELECTED FINANCIAL DATA                                          21
ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
             AND RESULTS OF OPERATIONS                                        21
ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK       26
ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                      26
ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
             AND FINANCIAL DISCLOSURE                                         26
ITEM 9A(T).  CONTROLS AND PROCEDURES                                          26
ITEM 9B.     OTHER INFORMATION                                                27

PART III

ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE           28
ITEM 11.     EXECUTIVE COMPENSATION                                           29
ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT AND RELATED STOCKHOLDER MATTERS                       32
ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
             DIRECTOR INDEPENDENCE                                            33
ITEM 14.     PRINCPAL ACCOUNTING FEES AND SERVICES                            34
ITEM 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                       35

SIGNATURES

                                       ii
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```

Certain statements in this Form 10-K constitute forward-looking statements
within the meaning of the securities laws. Forward-looking statements include
all statements that do not relate solely to the historical or current facts, and
can be identified by the use of forward looking words such as "may", "believe",
"will", "expect", "expected", "project", "anticipate", "anticipated estimates",
"plans", "strategy", "target", "prospects" or "continue". These forward looking
statements are based on the current plans and expectations of our management,
such as those related to new products, and are subject to various uncertainties
and risks that could significantly affect our current plans and expectations, as
well as future results of operations and financial condition. The factors
discussed herein, including those risks described in Item 1A. Risk Factors, and
expressed from time to time in our filings with the Securities and Exchange
Commission 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. 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. Except as required by law, we do not assume any obligation to
update these forward-looking statements to reflect actual results, changes in
assumptions, or changes in other factors affecting such forward-looking
statements.

InkSure Technologies, Inc. makes available free of charge on its website at
www.inksure.com its annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, as soon as reasonably practical after
electronically filing or furnishing such material to the Securities and Exchange
Commission (SEC).

                                     PART I

ITEM 1. BUSINESS.

GENERAL

     InkSure Technologies Inc. (together with its subsidiaries, referred to as
"we", "us" and "our") develops, markets and sells customized authentication
solutions designed to enhance the security of documents and branded products, to
meet the growing demand for protection from counterfeiting. In this context,
"counterfeit items" are imitation items that are offered as genuine with the
intent to deceive or defraud. We operate within the "authentication industry,"
an industry that includes a variety of companies providing technologies and
services designed to prevent the counterfeiting and diversion of documents and
products. Additionally, we are developing a unique advanced chipless RFID
solution that we expect to introduce in 2010. This solution will enable
customers to identify their products at item level and may help them to avoid
unauthorized production and distribution of their products.

Our existing products are based on three principal technologies:

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

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

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

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

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

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

                                       2
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CORPORATE HISTORY

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

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

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

MARKET OPPORTUNITY

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

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

TRADITIONAL AUTHENTICATION TECHNOLOGIES

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

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

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

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

INKSURE SOLUTIONS

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

                                       3
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          HIGH LEVEL OF SECURITY. Each security material offered by us has a
     unique "signature" that is comprised of a variety of factors, including the
     amounts and the unique properties of the chemicals included in the
     material, its type, color, the printing method and the substrate. Since the
     reader utilized by our solution reads a "full-spectrum" rather than
     sampling a specific point or points in a signature, a counterfeit item
     would have to replicate an entire unique signature - i.e., every variable
     upon which the signature depends - rather than merely replicating certain
     portions of the signature. In addition, because a coded taggant's unique
     signature is comprised of various factors, with numerous possible
     permutations thereof, our taggants are extremely difficult to reverse
     engineer. We believe that holograms, color changing inks and other more
     common overt security features are more easily replicated than our
     products. In addition, to thwart any counterfeiting attempts that
     successfully replicated a unique signature, we could alter any of the
     variables of which a signature is comprised and create an entirely new
     unique signature without significant expense.

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

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

MARKETING AND BUSINESS STRATEGY

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

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

     o    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    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    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.

                                       4
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     We have focused the bulk of our efforts to date on market segments where we
have already achieved market penetration in actual sales and where we believe
sales potential is highest - tax stamps, packaging, financial documents,
entertainment (i.e., ticketing) and transportation. As a result of this focused
strategy, we have increased awareness of our products in these segments,
established a presence in targeted markets throughout the world, and formed
strategic alliances with companies that provide access to specific markets. See
"Description of Business -- Sales and Marketing."

SALES AND MARKETING

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

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

CURRENT PRODUCTS

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

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

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

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

o    SIGNASURE (TM) -- ADVANCED AUTHENTICATION READERS

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

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

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

                                       5
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o    SORTSURE (TM) -- IN-LINE VERIFICATION FOR HIGH-SPEED PROCESSING, QUALITY
     CONTROL AND AUDIT FUNCTIONS

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

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

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

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

EMERGING TECHNOLOGY - RADIO FREQUENCY INDENTIFICATION - RFID

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

     o    high speed work flow;
     o    item identification;
     o    production floor controls;
     o    supply chain management;
     o    track and trace applications; and
     o    authentication.

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

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

     Our unique Sarcode(TM) RFID technology is in advanced development phase,
and although during 2008-2009, we had to overcome certain development
challenges, our goal is to complete development with a view to launching our
chipless label system by the end of the second quarter of 2010. We aim to
include, without limitation, the following RFID deliverables:

     o    Fixed and hand-held readers;
     o    Specialized conductive inks;
     o    Unique symbology; and
     o    Printer quality control systems.

     If successfully completed, we believe that our technology could eventually
compete successfully with the familiar barcode technology and other electronic
article surveillance solutions that are currently available. We believe that our
chipless RFID technology is unique in that it is the faster, more accurate and
less expensive than other chipless RFID tags currently available while providing
more information options than barcode technology.

                                       6
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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
for. 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 evaluation process involving risk analysis
          and characterization of a comprehensive organizational security
          program;

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

     o    Level of security (e.g., multi-layer or single-layer solution, covert,
          overt);
     o    Ability to support or be integrated with existing production,
          logistical processes and equipment;
     o    Ease of utilization/verification;
     o    Ability to extend the use for various organizational uses (e.g.,
          alteration, simulation, counterfeiting, diversion, supply chain
          management);
     o    Safety and durability (i.e., ability to withstand environmental
          factors such as temperature, humidity, sunlight);
     o    Consistency and integrity of solution;
     o    Need for protection of variable vs. fixed data;
     o    Flexibility of code location (e.g., location on package, on product,
          on different substrates);
     o    In the case of overt features, attractiveness to consumer (i.e., added
          marketing value); and
     o    Conclusiveness (i.e., can the technology provide conclusive evidence
          of counterfeiting).

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

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

RESEARCH AND DEVELOPMENT

     The technology and know-how upon which our products are based are subject
to continued development of materials and processes to meet the demands of new
applications and increased competition. We conduct most of our research and
development activities at our facility in Rehovot, Israel. We believe our future
success depends upon our ability to identify the requirements for future
products and product enhancements, and to define, implement and successfully
develop and introduce the technologies, including, without limitation, our next
generation RFID technology, needed to deploy those products and product
enhancements. Our research and development expenses for the year ended December
31, 2009 were $868,000 compared with $1,747,000 for the year ended December 31,
2008.

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

                                       7
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RAW MATERIALS AND PRINCIPAL SUPPLIERS

     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, 2009, revenues from customers in
Europe and in Asia amounted to approximately 77% and 9%, respectively, of our
2009 revenues versus 68% and 8% respectively for the fiscal year ended December
31, 2008. Included in such revenues are sales to one customer which represented
64% of our total revenues versus 61% of our total revenues for the fiscal year
ended December 31, 2008. Customers in North and South America accounted for
approximately 14% of our revenues versus 24% for the fiscal year ended December
31, 2008.

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

     For the fiscal years ended December 31, 2009 and 2008 respectively,
revenues attributed to geographic areas based on the location of our customers
were (in thousands):

                          REVENUES FOR THE YEAR ENDED    REVENUES FOR THE YEAR ENDED
                               DECEMBER 31, 2009              DECEMBER 31, 2008
-----------------------  ----------------------------     ---------------------------
Europe                                       $  2,577                        $  1,481
-----------------------  ----------------------------     ---------------------------
North and South America                           456                             504
-----------------------  ----------------------------     ---------------------------
Asia                                              302                             173
-----------------------  ----------------------------     ---------------------------
TOTAL                                        $  3,335                        $  2,158
-----------------------  ----------------------------     ---------------------------

PATENTS AND PROPRIETARY TECHNOLOGY

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

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

     With respect to the product-authentication we are developing, we entered
into an assignment agreement by which we have acquired a license for certain of
AuthentiForm Technology LLC's intellectual property portfolio regarding
authentication methods and enhanced product-authentication technology. During
the second quarter of 2009, and due to a change of priorities, we decided not to
pursue the use and the patent prosecution of this intellectual property.

                                       8
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     Our patent position is uncertain and may involve complex legal and factual
issues. Consequently, we do not know whether our pending patent applications
will result in the issuance of any patents, or whether the patents, if issued,
will provide significant proprietary protection or will not be circumvented or
invalidated. Since patent applications are maintained in secrecy until patents
issue, and since publications of discoveries in scientific or patent literature
tend to lag behind actual discoveries by several months, we cannot be certain
that we were the first creator of inventions covered by pending patent
applications or that we were the first to file patent applications for such
inventions. Moreover, we may have to participate in interference proceedings
declared by the United States Patent and Trademark Office or other patent
offices to determine the priority of inventions, which could result in
substantial cost to us. For further information regarding our proprietary
technology, please refer to item 3 (legal proceedings).

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

GOVERNMENT REGULATION

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

CLIMATE CHANGE

     Our business is not affected directly or indirectly in any way by existing
and pending, local, state, regional, federal or international legal requirements
and agreements related to climate change.

EMPLOYEES

     As of December 31, 2009, we had 14 employees (one of which is on a part
time basis) located in Israel, including 10 R&D engineers. The other four
employees work in management, administration, operations and sales. In addition,
as of December 31, 2009, we had one employee located in the United States,
substantially involved in technical support and pre-sale and post-sale technical
activities. We consider our relations with our employees to be satisfactory. We
believe our future will depend in large part on our ability to attract and
retain highly-skilled employees.

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

                                       9
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ITEM 1A. RISK FACTORS

THE FOLLOWING RISK FACTORS, AMONG OTHERS, COULD AFFECT OUR ACTUAL RESULTS OF
OPERATIONS AND COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN FORWARD-LOOKING STATEMENTS MADE BY US. THESE FORWARD-LOOKING
STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND WE ASSUME NO OBLIGATION TO
UPDATE THIS INFORMATION. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW
AND ELSEWHERE IN THIS ANNUAL REPORT BEFORE MAKING AN INVESTMENT DECISION. OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY
ADVERSELY AFFECTED BY ANY OF THESE RISKS. OUR COMMON STOCK IS CONSIDERED
SPECULATIVE AND THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY
OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. THE FOLLOWING
RISK FACTORS ARE NOT THE ONLY RISK FACTORS FACING US. ADDITIONAL RISKS AND
UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY
ALSO AFFECT OUR BUSINESS.

WE ARE FOCUSING ON NEW RFID TECHNOLOGY PRODUCT DEVELOPMENT. IF WE ARE UNABLE TO
DEVELOP OR 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 many efforts at new product development, we are experiencing significant
delays and incurring significant unanticipated expenses. Accordingly, we may
spend significant time, management resources and money on the RFID product with
nothing to show for it. Even if we successfully develop our RFID technology, we
may be unable to successfully market RFID products.

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

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

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

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

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

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

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

                                       10
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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 years ended December 31, 2008 and 2009, sales to two of our
customers in Europe accounted for approximately 68% and 73%, respectively, of
our revenues. The loss of any customer that accounts for a significant portion
of our revenues from time to time, could adversely affect our business,
operating results and financial condition due to the substantial decrease in
revenue such loss would represent.

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

     Sales to customers outside of the United States accounted for 77% and 86%
of our revenues during 2008 and 2009, respectively. We are seeking to continue
to expand our sales in foreign markets, but there can be no assurance that we
will be able to do so or that such markets will be viable. Moreover, a large
percentage of our sales is derived from countries in which the political
situation is unstable. To the extent that a large percentage of our sales
continues to come from customers outside of the U.S., we will continue to be
subject to the risks associated with international sales, including economic and
political instability, shipping delays, customs duties, export quotas and other
trade restrictions, any of which could have a significant impact on our ability
to deliver products on a competitive and timely basis. While we have not
encountered significant difficulties in connection with sales in international
markets to date, future imposition of, or significant increases in, the level of
custom duties, export quotas or other trade restrictions could have an adverse
effect on our business.

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

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

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

     Although we believe that our existing cash, together with cash generated
from operations will be sufficient to support our operations for at least 12
months, continuing product development and enhancement, expected new product
launches, corporate operations and marketing expenses will continue to require
additional capital. Although $6,881,080 of convertible notes have recently
retired, we may not have the funds necessary to service the remaining principal
amount outstanding under our remaining senior secured convertible notes, or the
Convertible Notes, if the holders elect to redeem them. Our current revenues
from operations are insufficient to cover any long term expansion plans.

     Our consolidated financial statements have been presented on the basis that
we will continue as a going concern. However, our ability to continue as a going
concern is dependent upon a number of factors, including our ability to obtain
additional capital. Management's plans also include tight cost control and
increasing the marketing of its current and new products. In addition, we may
need to raise additional capital if we are required to repay the Convertible
Notes. However, no assurance can be given that we will be able to obtain
additional capital on terms favorable to us. 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 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 MAY NOT BE ABLE TO RECEIVE FURTHER RESEARCH AND DEVELOPMENT GRANTS FROM THE
GOVERNMENT OF ISRAEL

     During 2007 and through December 31, 2009, we received a research and
development grant of approximately $1,648,000 from Israel's Office of the Chief
Scientist (at the Ministry of Industry and Trade). There is no assurance that
further grants may be available to us in the future.

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

     While our outstanding debt was reduced substantially with the completion of
our refinancing on January 19, 2010, we still have substantial principal debt
outstanding under the Convertible Notes. The Convertible Notes prohibit us, from
among other things, the incurring debt or liens (subject to limited exceptions)
or pay cash dividends or redeem any capital stock. These restrictions may limit
our ability to obtain additional financing and restrict our ability to operate
our business.

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

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

o    could impair our liquidity;

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

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

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

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

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

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

     We have incurred substantial losses since inception. We had an accumulated
deficit of approximately $20,942,000 at December 31, 2009 and had a negative
working capital (current assets less current liabilities) of approximately
$6,612,000 at December 31, 2009. We incurred losses of approximately $1,468,000
for the year ended December 31, 2009 and we may incur further losses in the
foreseeable future. We expect to spend significant amounts to enhance our
products and services, and fund research and development. As a result, we will
need to generate significant revenue to break even or achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.

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

SINCE INCEPTION, WE HAVE HAD NEGATIVE CASH FLOWS.

     We have incurred substantial negative cash flows since our inception. While
we generated positive cash flow from operating activities of approximately
$972,000 in 2009, we had negative cash flow from operating activities of
$1,755,000 in 2008 and negative cash flow in each of the previous years. To the
extent that we may have negative cash flows in the future, we will continue to
require additional capital to fund our operations. There can be no assurance
that we will achieve positive cash flow from our operations or that we can
secure additional capital.

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

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

                                       12
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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.

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

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

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

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

                                       13
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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.

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.

     Lack of financial, personnel and other resources has adversely affected our
ability to compete. In 2009 we only had two dedicated sales people (one in the
US and one in Asia being responsible for the rest of the world). Western Europe,
Latin America, Africa and much of Asia are effectively lacking proper sales
coverage. The audience that can be reached through print ads, direct mail and
e-mail, trade shows, conferences and trade group memberships is limited by our
limited marketing resources.

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

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

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 especially the services of Mr.
Yaron Meerfeld, our acting CEO, and Mr. Viktor Godlovsky, our Sales Director for
Europe, and upon our ability to identify, hire, and retain additional sales,
marketing, technical and financial personnel. We may be unable to retain our
existing key personnel or attract and retain additional key personnel. We do not
maintain key person life insurance for any of our officers or key employees. We
require our executives and key employees to enter non-competition agreements
with us. Due to our reliance on our senior management and key employees, the
loss of any of our key executives, the use of proprietary or trade secret data
by former employees who compete with us, or the failure to attract, integrate,
motivate, and retain additional key employees could have a material adverse
effect on our business, operating results and financial condition.

WE 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.

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

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

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

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

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

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

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

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

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

     InkSure Ltd. has non-competition agreements with all of its employees.
These agreements prohibit its employees, if they cease working for InkSure Ltd.,
from directly competing with it or working for its competitors, generally, for
up to twelve months. However, we have been advised by Israeli counsel, 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.

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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.

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 Israeli
counsel, that Israeli courts may not (1) 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 (2) 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.

A NEGATIVE OUTCOME FOR US IN OUR SECU-SYSTEMS LAWSUIT COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND OPERATING RESULTS

     On December 12, 1999, Secu-Systems filed a lawsuit with the District Court
in Tel Aviv-Jaffa against us and Supercom Ltd. (the former owner of our
business) 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 us constitutes, inter alia: (1) breach of a confidentiality
agreement between the plaintiff and Supercom; (2) unjust enrichment of Supercom
(by virtue of the sale of our shares) and us; (3) a breach of fiduciary duties
owed to the plaintiff by Supercom and us; and (4) 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. Following an appeal of the original
verdict of the District Court in Tel-Aviv rendered on March 15, 2006 by both
parties, the Israeli Supreme Court ruled in favor of Secu-Systems' appeal on
November 1, 2007 and accepted that we and Supercom breached the confidentiality
agreement with Secu-Systems. The Supreme Court instructed that the case be
returned to the District Court for determining the remedies to which
Secu-Systems was entitled. The case is still pending and a negative outcome for
us in this case could have a material adverse effect on our business, financial
condition, or results of operations.

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, 4,515,555
shares of our common stock, representing approximately 27.4% of our outstanding
common stock. Such ownership interest gives ICTS and its affiliates substantial
influence over the outcome of all matters submitted to our stockholders,
including the election of directors and the adoption of a merger agreement, and
such influence could make us a less attractive acquisition or investment target.

                                       16
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OUR CERTIFICATE OF INCORPORATION CONTAINS ANTI-TAKEOVER PROVISIONS WHICH COULD
ADVERSELY AFFECT THE VOTING POWER OR OTHER RIGHTS OF THE HOLDERS OF OUR COMMON
STOCK.

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

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

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

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

     Our common stock is traded on the over-the-counter market with quotations
published on the OTC Bulletin Board under the symbol "INKS.OB". 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
December, 31, 2009, our common stock traded at prices ranging from $0.07 to
$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 SEC, relating to
"penny stocks," which apply to companies whose shares are not traded on a
national stock exchange or national market systems, trade at less than $5.00 per
share, or who do not meet certain other financial requirements specified by the
SEC. These rules require brokers who sell "penny stocks" to persons other than
established customers and "accredited investors" to complete certain
documentation, make suitability inquiries of investors, and provide investors
with certain information concerning the risks of trading in such penny stocks.
These rules may discourage or restrict the ability of brokers to sell our common
stock and may affect the secondary market for our common stock. These rules
could also hamper our ability to raise funds in the primary market for our
common stock and may affect our stockholders' ability to sell their shares in
the secondary market.

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

     Of the 16,472,968 shares of common stock held by our present stockholders
as of December 31, 2009, at least 10,700,000 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 are not
affiliates of the Company and have satisfied a six month holding period for
stock traded on the Over The Counter Bulletin Board may sell the stock freely
without any restrictions. Affiliates can only sell if they satisfy certain
requirements including: a 6-month holding period, existence of adequate current
information, ordinary brokerage transaction and filing notice of the proposed
sales with the SEC. In addition, affiliates may sell within any three-month
period a number of securities which does not exceed 1% of the then outstanding
shares of common stock. 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. In addition, as
of February 15, 2010, we have 2,363,000 shares subject to outstanding warrants.
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.

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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 $2,000,000 principal amount of our Convertible Notes are currently
convertible into shares of our common stock at an initial conversion rate of
$0.60 per share. Based on this initial conversion price we would issue nearly
3,333,333 shares of common stock upon conversion of the total Convertible Notes.
The exercise price of warrants to purchase 2,183,000 shares of common stock is
currently exercisable at $0.15 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 $0.12, and we were
to issue securities at such a reduced price, the conversion rate of the
Convertible Notes would be automatically adjusted down to $0.12 per share, the
number of shares into which the Convertible Notes would be convertible would
increase from nearly 3,333,333 shares to nearly 16,666,667. Accordingly, if we
trigger the full ratchet anti-dilution provision, our stockholders could suffer
substantial dilution. In addition, because we are required to reserve 130% of
the number of shares issuable upon conversion of the Convertible Notes and
exercise of the warrants; we may not have sufficient authorized shares to issue
a significant number of additional shares, especially if the anti-dilution
provisions and/or default penalties are triggered. Because of the current market
price of our common stock, it is unlikely that we will be able to raise any
additional equity financing without triggering these provisions.

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

     Currently there are 3,333,333 shares underlying the Convertible Notes and
2,363,000 shares underlying our outstanding warrants. The number of shares of
common stock registered for resale upon exercise of our outstanding warrants or
conversion of our outstanding Convertible Notes is significant in relation to
the number of shares of common stock currently outstanding. If those security
holders determine to sell a substantial number of shares into the market at any
given time, there may not be sufficient demand in the market to purchase the
shares without a decline in the market price for our common stock. Moreover,
continuous sales into the market of a number of shares in excess of the typical
trading volume for our common stock, or even the availability of such a large
number of shares, could depress the trading market for our common stock over an
extended period of time.

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

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

ALTHOUGH OUR INTERNAL CONTROL OVER FINANCIAL REPORTING WAS CONSIDERED EFFECTIVE
AS OF DECEMBER 31, 2009, THERE IS NO ASSURANCE THAT OUR INTERNAL CONTROL OVER
FINANCIAL REPORTING WILL CONTINUE TO BE EFFECTIVE IN THE FUTURE, WHICH COULD
RESULT IN OUR FINANCIAL STATEMENTS BEING UNRELIABLE, GOVERNMENT INVESTIGATION OR
LOSS OF INVESTOR CONFIDENCE IN OUR FINANCIAL REPORTS.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to
furnish an annual report by our management assessing the effectiveness of our
internal control over financial reporting. This assessment must include
disclosure of any material weaknesses in our internal control over financial
reporting identified by management. Management's report as of the end of fiscal
year 2009 concluded that our internal control over financial reporting was
effective. There is, however, no assurance that we will be able to maintain such
effective internal control over financial reporting in the future. Ineffective
internal control over financial reporting can result in errors or other problems
in our financial statements. In addition, our internal control over financial
reporting has not yet been audited by our independent registered public
accounting firm. In the future, if we are unable to assert that our internal
controls are effective, our investors could lose confidence in the accuracy and
completeness of our financial reports, which in turn could cause our stock price
to decline. Failure to maintain effective internal control over financial
reporting could also result in investigation or sanctions by regulatory
authorities.

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ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 2. PROPERTIES.

     We maintain our research and development facilities in Rehovot, Israel. The
facilities we lease in Israel are approximately 3,800 square feet pursuant to a
lease expiring in September 2011. Monthly lease payments for such facility are
approximately $4,600 per month. We believe that the space available in our
current facilities is adequate to meet our current needs, although future growth
may require that we occupy additional space. Our only other lease was for our
Florida office which was closed in May 2009.

ITEM 3. LEGAL PROCEEDINGS.

     On December 12, 1999, Secu-Systems filed a lawsuit with the District Court
in Tel Aviv-Jaffa against Supercom Ltd. (the former owner of our business) and
InkSure Ltd. seeking a permanent injunction and damages at an estimated amount
of NIS 500,000 (approximately $ 132,400 at the exchange rate as of December 31,
2009). The plaintiff asserted in its suit that the printing method applied to
certain products that have been developed by InkSure Ltd. constitutes, inter
alia: (1) breach of a confidentiality agreement between the plaintiff and
Supercom; (2) unjust enrichment of Supercom (by virtue of the sale of our
shares) and InkSure Ltd.; (3) a breach of fiduciary duties owed to the plaintiff
by Supercom and InkSure Ltd.; and (4) a tort of misappropriation of trade secret
and damage to plaintiff's property. As part of its complaint, Secu-Systems
sought, among other things, an injunction and a 50% share of profits from the
printing method at issue.

     On March 15, 2006, the court rendered a decision (i) denying the claim for
breach of contract; (ii) finding that there was a misappropriation of trade
secret, but not assessing any damages with respect thereto; (iii) requiring the
defendants to cease all activities involving the use of any confidential
information; and (iv) awarding the plaintiff reimbursement of the costs of the
litigation in the amount of NIS 130,000 (about $34,400 at the exchange rate as
of December 31, 2009), plus interest and VAT, which the defendants intend to
split equally. InkSure recorded in its 2006 financial statements a provision of
NIS 65,000 (about $17,200 at the exchange rate as of December 31, 2009).

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

     On November 1, 2007, the Israeli 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 be returned to the District Court for determining the remedies to which
Secu-Systems was entitled.

     On February 18, 2008, Secu-Systems filed a petition with the district court
to amend the amount for which it has sued to NIS 25,000,000 (approximately $
6,622,000 at the exchange rate as of December 31, 2009).

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

     a.   In light of the costs analysis, SuperCom had no economic profit from
          the sale of Inksure's shares.
     b.   The consideration received from the sale of InkSure's shares in 2002
          incorporates the value of the cash flow of InkSure following the sale.
          Therefore, a calculation based upon both the sale price and the future
          cash flow of InkSure is not accurate and does not agree with customary
          accounting 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, shows 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.

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     On September 8, 2009, the District Court denied Secu-System's request to
amend the sum for which it has sued. The only evidence that the court allowed
Secu-System to submit in order to prove damages is evidence which can show that
the reports which previously submitted by InkSure are incorrect. The court
ordered Secu-System to submit its evidence within 45 days. InkSure will be
entitled to submit its evidence within 45 days thereafter. In December 2009,
both parties filed their response to the court order.

     In light of the above, provided that the Inksure's reports are accepted by
the court, we believe that no material amounts will be awarded to Secu-System in
these proceedings.

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

     No matters were submitted to a vote of our security holders during the
fourth quarter of the year ended December 31, 2009.

                                       20
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                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
        PURCHASES OF EQUITY SECURITIES.

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

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

FISCAL YEAR 2009
         1st Quarter                                $   0.30   $   0.10
         2nd Quarter                                $   0.15   $   0.10
         3rd Quarter                                $   0.13   $   0.07
         4th Quarter                                $   0.13   $   0.07

FISCAL YEAR 2010
         1st Quarter (through February 15, 2010)    $   0.75   $   0.11

     As of February 15, 2010 there were approximately 50 holders of record of
our common stock.

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

ITEM 6. SELECTED FINANCIAL DATA.

     Not applicable.

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

OVERVIEW

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

     Our 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.

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

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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 2008-2009 fiscal years, approximately 77% and 86% of our revenues,
respectively, were earned from customers located outside the United States

COSTS AND OPERATING EXPENSES

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

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

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

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

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

     We have not recorded any income tax benefit for net losses incurred for any
period from inception to December 31, 2009. The utilization of these losses and
credits depends on our ability to generate taxable income in the future. Because
of the uncertainty of our generating taxable income, we have recorded a full
valuation allowance with respect to these deferred assets.

CRITICAL ACCOUNTING POLICIES

     Our financial statements are prepared in accordance with United States
Generally Accepted Accounting Principles, or 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 (ASC 985-605), "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 and if a
right of return exists, we defer revenues until the right of return expires.

     CONVERTIBLE NOTES AND WARRANTS TO ISSUE SHARES, Financial Accounting
Standards No. 157, "Fair Value Measurements" or FAS 157 (ASC820-10) defines fair
value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. The Company has applied FAS 157 prospectively as
of the beginning of the year. FAS 157 defines fair value as the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. FAS 157 also
establishes a fair value hierarchy that emphasizes use of observable inputs and
minimizes use of unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities.

                                       22
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     Estimating fair values require subjective judgments and are approximate. We
are required to estimate the fair value of our warrants that have been
reclassified from equity upon initial adoption of EITF 07-5 (ASC815-40-15).
Valuation of options requires the use of assumptions among which are volatility,
interest rate and the underlying share price. Our estimates of fair value are
not necessarily representative of amounts that could be realized in actual
market transactions, nor of our underlying value. Changes in the assumptions
could significantly affect the estimated fair value.

     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 we have a history of losses, it is likely that the deferred tax will not be
realized.

RESULTS OF OPERATIONS

     The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the related notes located elsewhere in this Annual Report on Form
10-K. The financial statements have been prepared in accordance with US 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,

                                   2009      2008
                                   ----      ----

Revenues                            100%      100%
Cost of revenues                     11        23
                                   ----      ----
Gross profit                         89        77

Operating expenses:
Research and development             26        81
Selling and marketing                13        42
General and administrative           20        42
Amortization of goodwill              0        13
                                   ----      ----
Total operating expenses             59       178

Operating profit (loss)              30      (101)
Financial income (expense), net     (74)      (62)
Taxes on income
                                   ----      ----
Net loss                            (44)     (163)
                                   ====      ====

YEAR ENDED DECEMBER 31, 2009 COMPARED WITH YEAR ENDED DECEMBER 31, 2008

     REVENUES. Revenues consist of gross sales of products. We are concentrating
on entering and implementing large-scale projects. These potential contracts are
subject to a long sales cycle and the timetable for entering and implementing
such projects fluctuates. Our revenues, mostly derived by the sales of taggants,
increased by $1,177,000, or by 55%, to $3,335,000 in 2009 from $2,158,000 in
2008. This increase in revenues is mainly due to new deliveries to customers,
primarily for one customer located in Europe.

     COST OF REVENUES. Cost of revenues consists of materials, sub-contractors
and compensation costs. Cost of revenues decreased by $131,000, or 26%, to
$373,000 in 2009, from $504,000 in 2008. The decrease in cost of revenues is
mainly due to the delivery and use of certain SmartInk(TM) materials cheaper in
2009 versus 2008. Cost of revenues as a percentage of sales was 11% in 2009,
compared with 23% in 2008. The decrease in cost of revenues as a percentage of
sales is mainly due to more profitable sales mix in 2009.

                                       23
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     RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses,
net, consist primarily of compensation costs attributable to employees engaged
in ongoing research and development activities, development-related raw
materials and fees of sub-contractors and other related costs such as rental of
research and development tools. Research and development expenses decreased by
$879,000, or 50%, to $868,000 in 2009 from $1,747,000 in 2008. This decrease in
research and development expenses is primarily related to the decrease in labor,
subcontractors expenses and increase of grants from the Office of the Chief
Scientist of the Israeli Ministry of Industry & Trade, or OCS. Research and
development expenses for 2009 were reduced due to the receipt of grants in the
amount of $905,000 from the OCS and from the European Commission versus a grant
in the amount of $402,000 from OCS in 2008

     SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist
primarily of costs relating to compensation attributable to employees engaged in
sales and marketing activities, promotion, advertising, trade shows and
exhibitions, sales support, travel, commissions and related expenses. Selling
and marketing expenses decreased by $482,000, or 53%, to $430,000 in 2009, from
$912,000 in 2008. This decrease in selling and marketing expenses was primarily
due to a decrease in our sales force labor headcount and related costs,
including shutting down our sales office in Florida, in May 2009.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of compensation costs for administrative, finance and general
management personnel, insurance, legal, accounting and administrative costs.
General and administrative expenses decreased by $252,000, or 28%, to $656,000
in 2009, from $908,000 in 2008. This decrease was primarily due to reduced
non-cash share based payments under Statement of Financial Accounting Standard
or SFAS No. 123(R) (ASC718-10) of $46,000 in 2009 compared to $155,000 in 2008
and a decrease of $143,000 in legal, insurance and other G&A expenses.

     FINANCIAL EXPENSE, NET. Financial expense, net, amounted to $2,476,000 in
2009, versus financial expense of $1,344,000 in 2008. The increase in financial
expense for 2009 was primarily due to non-cash adjustment due to the outstanding
principal of convertible notes and financial expense as a result of changes in
the fair market value of the Convertible Notes calculated under SFAS No. 133
(ASC 815-10), totaled $1,914,000, compared to non-cash financial expense of
$882,000 in 2008; and interest expenses, net of $562,000 in 2009 compared to
only $462,000 in 2008 due to higher debt principal and higher interest rates.

     NET LOSS. We had a net loss of $1,468,000 in 2009, compared with a net loss
of $3,528,000 in 2008, which is a decrease of $2,060,000, or 58%. The decrease
in net loss in 2009 in comparison with 2008 is due to an increase of $1,308,000
in our gross margin and a decrease of $1,884,000 in our operating expenses which
is offset by increase of $1,132,000 in our financial expenses, net.

     LIQUIDITY AND CAPITAL RESOURCES

     We have incurred substantial losses since our inception in April 1997. We
had an accumulated deficit of approximately $20,942,000 as of December 31, 2009,
and had negative working capital (current assets less current liabilities) of
approximately $6,612,000 as of December 31, 2009. Losses may continue in the
foreseeable future.

     Capital expenditures were approximately $15,000 in 2009 and $22,000 in
2008. These expenditures were principally for computers and research and
development equipment purchases. We do not have any material commitments for
capital expenditures as of December 31, 2009.

     As of December 31, 2009, we had cash, cash equivalents and short-term
deposits of approximately $1,283,000, compared to $1,826,000 in 2008. This
decrease is primarily due to payment on account of redemption of a portion of
our convertible notes partially offset by $972,000 cash provided by operating
activities.

     We generated positive cash flow from operating activities of approximately
$972,000 in 2009 compared to negative cash flow of $1,755,000 in 2008. The
positive cash flow from operating activities in 2009 was primarily attributable
to 2009 operating profit of $1,008,000 compared to a loss of $2,184,000 in 2008.

     We generated negative cash flow from investing activities of approximately
$15,000 in 2009 compared to $14,000 in 2008. The negative cash flow from
investing activities in 2009 was primarily due to purchase of fixed assets for
our facility in Israel.

     We generated negative cash flow from financing activities of approximately
$1,500,000 in 2009 compared to positive cash flow of $2,775,000 in 2008, the
latter of which was due to the issuance of our convertible notes. The negative
cash flow from financing activities in 2009 was attributable to the payment on
account of redemption of a portion of our convertible notes.

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

                                       24
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     THE CONVERTIBLE NOTES

     On September 30, 2005, we completed a private placement of convertible
notes, in the aggregate principal amount of $6,000,000. The notes were
interest-only, with interest payments due quarterly at the rate of 4% per year.
The convertible notes were unsecured and 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 in connection with
the issuance of an additional new $3,000,000 in convertible 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. 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 was convertible into shares of
common stock at a conversion price of $0.60, subject to adjustment. The New
Notes were secured by our assets and the assets of our subsidiaries and were
guaranteed by each of our subsidiaries. In addition, all of the shares of each
of our subsidiaries were pledged as collateral to secure our obligations under
the New Notes, the security agreements and related documents. The investors had
the right to 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 had the right to 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 were 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 also had
the right to 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 also had the right to issue to the buyers warrants to
purchase common stock, expiring September 30, 2010, at an exercise price of
$0.60. If we were to sell or license all or substantially all of the assets in
our ink business, we were 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 were to consummate a transaction that results in a change of
control or other merger or reorganization or recapitalization, we were required
to redeem the New Notes at 125% of their outstanding principal amount. The New
Notes were due on September 30, 2010, unless they are redeemed or converted
earlier.

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

     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 was 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.

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

     PAST PERIOD NEGATIVE CASH FLOWS AND LOSSES

     During past periods we have incurred substantial losses and negative cash
flows from operating activities. In addition, we received nearly $9,000,000 in
convertible notes, which if would have been matured, would have required us to
obtain additional capital. Accordingly, our previous consolidated financial
statements (including those filed with our Annual Report on Form 10-K for the
year ended December 31, 2008 and our Quarterly Reports on Form 10-Q for the
3-month periods ended March 31, 2009, June 30, 2009 and September 30, 2009) have
been presented on the basis that we will continue as a going concern. On January
19, 2010, group of investors paid, together with us an amount of $3,000,000 to
our note holders and as a result $6,881,080 of our New Notes were retired. In
addition, during 2009 we have generated $972,000 from operating activities. We
therefore believe that our existing resources, together with further cash
generated from operating activities will be sufficient to support our operations
for at least 12 months.

                                       25
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     CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     Our contractual obligations and commitments as of December 31, 2009
principally include obligations associated with our offices lease obligations
and the lease of several automobiles. As of December 31, 2009, our future
obligations totaled $96,000. See Note 8 to the Consolidated Financial
Statements. We expect to finance these contractual commitments from cash on hand
and cash generated from operations.

     OFF BALANCE SHEET ARRANGEMENTS

     None.

     RECENT ACCOUNTING PRONOUNCEMENTS

     ASU 2009-13

     In October 2009, the FASB issued "Accounting Standards Update, or ASU
2009-13, "Multiple Deliverable Revenue Arrangements a consensus of EITF"
(formerly Topic 08-1) an amendment to ASC 605-25. The update provides amendments
to the criteria in Subtopic 605-25 for separating consideration in
multiple-deliverable arrangements. The amendments in this update establish a
selling price hierarchy for determining the selling price of a deliverable. The
selling price used for each deliverable will be based on vendor-specific
objective evidence if available, third-party evidence if vendor-specific
objective evidence is not available, or estimated selling price if neither
vendor-specific objective evidence nor third-party evidence is available. The
amendments in this update will also replace the term "fair value" in the revenue
allocation guidance with the term "selling price" in order to clarify that the
allocation of revenue is based on entity-specific assumptions rather than
assumptions of a marketplace participant.

     The amendments will also eliminate the residual method of allocation and
require that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price method. The
relative selling price method allocates any discount in the arrangement
proportionally to each deliverable on the basis of each deliverable's selling
price.

     The update will be effective for revenue arrangements entered into or
modified in fiscal years beginning on or after June 15, 2010 with earlier
adoption permitted. The adoption of this update is not expected to have material
impact on our consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

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

     None.

ITEM 9A(T). CONTROLS AND PROCEDURES.

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

     (b) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING. 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.

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     (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:

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

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

          Provide reasonable assurance regarding prevention or timely detection
     of unauthorized acquisition, use or disposition of our 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 Acting 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, 2009.

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

     Our assessment was conducted in accordance with criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
INTERNAL CONTROL-INTEGRATED FRAMEWORK. Based on that assessment under those
criteria, management has concluded that our internal control over financial
reporting was effective as of December 31, 2009.

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

ITEM 9B. OTHER INFORMATION.

     None.

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                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

The following table sets forth certain information concerning our executive
officers and directors, their ages, their offices with us, if any, their
principal occupations or employment for the past five years, their education and
the names of other public companies in which such persons hold directorships as
of February 15, 2010:

NAME                           AGE      POSITION
----                           ---      --------

EXECUTIVE OFFICERS
 Yaron Meerfeld                50       Acting Chief Executive Officer and
                                        Director
 Tzlil Peker                   43       Chief Financial Officer, Vice President,
                                        Secretary and Treasurer
NON-EMPLOYEE DIRECTORS
 Gadi Peleg                    35       Chairman
 Alon Raich                    34       Director
 David W. Sass                 74       Director
 Pierre L. Schoenheimer        76       Director
 Randy F. Rock                 58       Director

     YARON MEERFELD joined us in November 2001 as chief executive officer and as
a director. On May 2005, he resigned as the chief executive officer and was
appointed as our chief operating officer and currently serves as our acting
chief executive officer since June 16, 2008. Prior to joining us, Mr. Meerfeld
developed expertise in authentication and multi-layered security systems for
documents, passports, ID cards and smart cards as managing director of Kromotek,
Inc. and as the Vice President for Sales and Marketing at SuperCom Ltd. Mr.
Meerfeld holds a B.Sc. in Economics and Business from Bar Ilan University and an
M.B.A. from Tel Aviv University in Israel.

     TZLIL PEKER C.P.A. joined us in April 2008 as vice president, chief
financial officer, secretary and treasurer. From January 2001 and on a
continuing basis, Mr. Peker has provided CFO/finance services to high tech
start-up companies operating in the telecommunications, cellular and IT global
markets. Since November 2004, Mr. Peker has been Director of Finance for Alin
Mossad Abrahams, a non-profit organization. Mr. Peker is a Certified Public
Accountant (Israel) and holds a B.A. in Accounting and Economics from Tel Aviv
University and an M.B.A. degree from Herriot-Watt University for Business
Management.

     GADI PELEG joined us in August 2008 as a director. On February 3, 2010, Mr.
Peleg was appointed as our Chairman of the Board. Since May 2003, Mr. Peleg has
been the president of Cape Investment Advisors, Inc., a private investment firm.
Mr. Peleg also serves on the board of directors of Atelier 4, Inc., a logistics
firm specializing in the care and transport of fine art and antiquities, which
he joined in November 2005. Mr. Peleg received his BS from Columbia School of
Engineering and Applied Science in 1997 and completed the Harvard Owner,
President, Manager Program in 2008.

     ALON RAICH joined us in December 2009. Mr. Raich is a Certified Public
Accountant admitted to practice in Israel since 2004. In 2005 he joined ICTS
International NV, a Dutch company, as a Controller, and since 2008 acts as its
Chief Financial Officer. Between the years 2001 - 2005 Mr. Raich worked in the
accounting firm, Kesselman & Kesselman, PriceWaterhouseCoopers (PwC). Mr. Raich
holds a B.A. in economics and accounting from Bar Ilan University, Israel and an
M.A. in law from Bar-Ilan University, Israel.

     DAVID W. SASS joined us in February 2003 as director. Mr. Sass is a
director and officer of other private companies. For the past 49 years, Mr. Sass
has been a practicing attorney in New York City and is currently a senior
partner in the law firm of McLaughlin & Stern, LLP, a director of ICTS
International N.V., a prominent aviation security company listed on The Nasdaq
Stock Market (NASDAQ: ICTS), and an honorary trustee of Ithaca College. Mr. Sass
holds a B.A. from Ithaca College, a J.D. from Temple University School of Law
and an LL.M. in taxation from New York University School of Law.

     PIERRE L. SCHOENHEIMER has been one of our directors since August 2006. Mr.
Schoenhiemer is the managing director of Radix Organization, Inc., a private
investment banking firm, which he founded in 1970. He is a director of Atelier
4, a logistics firm specializing in the care and transport of fine art and
antiquities, which he joined in November 2005. From January 1998 until December
2005, Mr. Schoenheimer was a principal of Radix Capital Management, LLC, a
General Partner in the Austin Capital & Radix Sterling Fund, Ltd., a Fund of
Hedge Funds, which he also co-founded. Mr. Schoenheimer holds a B.A. from the
New England College B.A., a M.S. in Business from Columbia University and
participated in the Owner/President Management Program (OPM) at Harvard
University.

     RANDY F. ROCK has been one of our directors since February 2007. He serves
as a partner at G.C. Andersen Partners, LLC, an independent merchant bank that
advises and invests in emerging growth and middle market companies. Mr. Rock has
over 25 years of investment experience in capital-raising, complex restructuring
and advisory services for a broad range of companies, both in size and industry.
Before joining G.C. Andersen Partners in 2004, Mr. Rock was a managing director
at Ryan Beck & Co. for five years where he co-founded the Middle-Market
Investment Banking Group. Mr. Rock also served as a member of the firm's
Commitment, Fairness Opinion, and Private Placement Committees. Mr. Rock
received his B.A., CUM LAUDE, from Columbia College and his J.D. from Columbia
University School of Law.

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COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and officers, and persons who own more than 10% of our common
stock, to file with the SEC initial reports of beneficial ownership and reports
of changes in beneficial ownership of our common stock and our other equity
securities. Officers, directors and greater than 10% beneficial owners are
required by SEC regulation to furnish us with copies of all Section 16(a) forms
they file.

     To our knowledge, based solely on review of the copies of such reports
furnished to us and written representations that no other reports were required,
during the fiscal year ended December 31, 2009, all Section 16(a) filing
requirements applicable to our officers, directors and greater than 10%
beneficial owners were filed on a timely basis

CODE OF ETHICS

     We have adopted a code of conduct and ethics that applies to all of our
employees, including our Chief Executive Officer and Chief Financial and
Accounting Officers. The text of the code of conduct and ethics is available on
our website, www.inksure.com. Disclosure regarding any amendments to, or waivers
from, provisions of the code of conduct and ethics that apply to our directors,
principal executive and financial officers will be included in a Current Report
on Form 8-K within four business days following the date of any such amendment
or waiver.

CORPORATE GOVERNANCE

     AUDIT COMMITTEE. During the fiscal year ended December 31, 2009, we had 4
meetings of our Audit Committee. The Audit Committee currently has two members:
Messrs. Alon Raich (Chairman), Randy F. Rock. The Audit Committee has the
authority to retain and terminate the services of the our independent
accountants, reviews annual financial statements, considers matters relating to
accounting policy and internal controls and reviews the scope of annual audits.
All members of the Audit Committee satisfy the current independence standard
promulgated by the SEC, as such standards apply specifically to members of audit
committees. The board of directors has determined that Alon Raich and Randy F.
Rock are "audit committee financial experts" as the SEC has defined that term in
Item 407 of Regulation S-K of the Securities Act.

     We do not have a standing nominating committee. The board of directors has
not established a nominating committee primarily because the current composition
and size of the board of directors permits candid and open discussion regarding
potential new members of the board of directors. The entire board of directors
currently operates as the nominating committee for us. There is no formal
process or policy that governs the manner in which we identify potential
candidates for the board of directors. Historically, however, the board of
directors has considered several factors in evaluating candidates for nomination
to the board of directors, including the candidate's knowledge of the company
and its business, the candidate's business experience and credentials, and
whether the candidate would represent the interests of all the company's
stockholders as opposed to a specific group of stockholders. We do not have a
formal policy with respect to our consideration of board of directors nominees
recommended by our stockholders. However, the board of directors will consider
candidates recommended by stockholders on a case-by-case basis. A stockholder
who desires to recommend a candidate for nomination to the board of directors
should do so in writing to us at P.O. Box 7006, Audubon, Pennsylvania, Attn:
Chief Financial Officer.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth, for the last two completed fiscal years, all
compensation paid, distributed or accrued, including salary and bonus amounts,
for services rendered to us by (i) all individuals serving as our principal
executive officer or acting in a similar capacity during the last completed
fiscal year, regardless of compensation level; (ii) our two most highly
compensated executive officers other than the principal executive officer who
were serving as executive officers at the end of the last completed fiscal year
and had annual total compensation greater than $100,000; and (iii) up to two
additional individuals for whom disclosure would have been provided pursuant to
(ii) above but for the fact that the individual was not serving as our executive
officer at the end of the last completed fiscal year.

The following table shows the compensation paid or accrued during the fiscal
years ended December 31, 2009 and 2008 to our Acting Chief Executive Officer and
to two most highly compensated employees

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                                                                                        OPTION
                                                                                        AWARDS       ALL OTHER
NAME AND PRINCIPAL POSITION                              YEAR    SALARY ($)  BONUS ($)  ($)(1)    COMPENSATION ($)  TOTAL ($)
---------------------------------------------------    -------    -------    -------    -------       -------       -------

Yaron Meerfeld,
ACTING CHIEF EXECUTIVE OFFICER                            2008    185,000     30,000     47,405        17,000(2)    281,405
                                                          2009    172,445     30,000     23,537        17,047(2)    243,029

Viktor Godlovsky
SALES DIRECTOR FOR EUROPE                                 2008     48,956          -        803        12,768(2)     62,527
                                                          2009    104,522          -        710        11,407(2)    116,639

Ehud Zorea
R&D MANAGER                                               2008    124,844          -      9,464        15,554(2)    149,862
                                                          2009    108,043          -      4,257        12,679(2)    124,979

(1) Options awards costs are measured according to SFAS No. 123 (revised 2004)
(ASC718-10), "Share-Based Payment" (SFAS No. 123R). For a disclosure of the
assumptions made in the valuation of the options awards please refer to the
Notes in our Consolidated Financial Statements under Item 15 of this Annual
Report on Form 10-K.

(2) For use of company car.

EMPLOYMENT AGREEMENTS

     On July 1, 2008, our board of directors appointed Yaron Meerfeld to the
position of acting chief executive officer. Mr. Meerfeld remains one of our
directors. Mr. Meerfeld has an employment agreement with us. The agreement
provides for an annual base salary of $142,000, plus customary payments that are
made to employees in Israel and the use of a company automobile and coverage of
automobile taxation. Mr. Meerfeld may terminate the agreement on 180 days' prior
written notice and we may terminate the agreement on 270 days' prior written
notice, provided that we may terminate the agreement without prior notice upon
the occurrence of certain events constituting justifiable cause. The agreement
also contains customary provisions with respect to benefits, reimbursement of
expenses and confidentiality.

     On April 23, 2008, we entered into an employment agreement with Tzlil
Peker, our chief financial officer, secretary and treasurer. The agreement for
half-time position provides for an annual salary of $63,000, plus customary
payments that are made to employees in Israel. Mr. Peker may terminate the
agreement on 60 days' prior written notice and we may terminate the agreement on
60 days prior written notice, provided that we may terminate the agreement
without prior notice upon the occurrence of certain events constituting
justifiable cause. The agreement also contains customary provisions with respect
to benefits, contribution for pension funds, reimbursement of expenses and
confidentiality.

     Our officers, like our employees, 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 officer. 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 officer. Each officer pays a monthly amount to such fund equal
to 2.5% of such employee's salary.

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                  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

     The following table shows stock option awards outstanding on the last day
of the fiscal year ended December 31, 2009 for each of our named executive
officers.

                                Number              Number of
                                  of                Securities
                              Securities            Underlying
                              Underlying       Unexercised Options
                         Unexercised Options           (#)                                    Option
                                 (#)              Unexercisable         Option Exercise     Expiration
        Name                 Exercisable               (2)                 Price ($)           Date
---------------------      ---------------       ---------------         ---------------   ---------------
         (a)                     (b)                   (c)                    (e)               (f)

Yaron Meerfeld (1)(5)           80,000                                       2.56            1/12/2011
                                66,667              33,333 (3)               1.72            7/26/2012
                                50,000              50,000 (4)               0.30             7/1/2013

Ehud Zorea (7)                  20,000                                       2.00            1/30/2012
                                15,000              15,000 (6)               0.30             7/3/2013

Viktor Godlovsky (8)             6,000                                       2.56            1/12/2011
                                20,000                                       0.89            11/4/2012
                                15,000              15,000 (6)               0.30             7/3/2013

(1)  The options were granted pursuant to our 2002 Employee, Director and
     Consultant Stock Option Plan.

(2)  The outstanding option agreements issued under our 2002 Employee, Director
     and Consultant Stock Option Plan provide for acceleration of the vesting of
     the options granted upon or in connection with a change in control.

(3)  Will vest on July 26, 2010.

(4)  Will vest on July 1, 2010.

(5)  On January 22, 2010, all of Mr. Meerfeld's options were cancelled and
     replaced by 1,450,000 new stock options at exercise price of $0.125.

(6)  Will vest on July 3, 2010.

(7)  On January 22, 2010, all of Mr. Zorea's options were cancelled and replaced
     by 400,000 new stock options at exercise price of $0.125.

(8)  On January 22, 2010, all of Mr. Godlovsky's options were cancelled and
     replaced by 400,000 new stock options at exercise price of $0.125.

                          DIRECTOR COMPENSATION (1)(4)

                             Fees Earned or       Option
                              Paid in Cash         Awards          Total
           Name                   ($)               ($)             ($)
            (a)                   (b)               (c)             (f)
----------------------        -----------       -----------      -----------
      Gadi Peleg              $100,000(2)            -           $100,000
      Alon Raich                   -                 -               -
     David W. Sass                 -                 -               -
Pierre L. Schoenheimer             -                 -               -
     Randy F. Rock                 -                 -               -
   Phillip M. Getter          $ 50,020(3)            -           $ 50,020
     Elie Housman                  -                 -               -

(1)  Mr. Meerfeld's compensation is included in the Summary Compensation Table
     above.

(2)  On February 4, 2010, the board of directors approved $100,000 fees to be
     paid to Mr. Peleg per annum. Additionally the board approved $100,000 fees
     to be paid retroactively for his service as Acting Chairman of the Board in
     2009.

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(3)  On June 16, 2008, our board of directors appointed Philip M. Getter, one of
     our directors, to the position of Chairman of the Board (non-executive).
     Mr. Getter received $10,000 on a monthly basis plus reasonable
     out-of-pocket expenses for his service as chairman of the board.
     Additionally, on June 16, 2008, Mr. Getter was granted an option to
     purchase 305,000 shares of our common stock, which options expire five
     years from the date of grant and are exercisable at a price per share of
     $0.30. Mr. Getter served as a chairman of the board until June 22, 2009.
     Mr. Getter's options, which were never exercised, expired ninety days after
     his retirement as a chairman of the board.

(4)  On February 4, 2010, the board of directors approved $15,000 fees to be
     paid to each non-employee director of the company (to be paid quarterly) in
     connection with their service in 2010.

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

     The following table sets forth certain information as of February 15, 2010,
concerning the beneficial ownership of voting securities of (i) each current
member of the board of directors, (ii) the executive officers included in the
Summary Compensation Table above, (iii) all of our directors and executive
officers as a group, and (iv) each beneficial owner of more than 5% of the
outstanding shares of any class of our voting securities relying solely upon the
amounts and percentages disclosed in their public filings.

     As of February 15, 2010, we had 16,472,968 shares of common stock
outstanding.

                                                       AMOUNT OF SHARES       PERCENTAGE
                                                     BENEFICIALLY OWNED(1)       OWNED
                                                        -------------       -------------

DIRECTORS AND EXECUTIVE OFFICERS**

Yaron Meerfeld (2)                                           848,094             5.0%
Alon Raich                                                         -                *
Pierre L. Schoenheimer (4)                                   282,500             1.7%
Randy F. Rock (5)                                             40,000                *
David W. Sass (3)                                             47,353                *
Gadi Peleg (6)                                               500,000             3.0%
 Viktor Godlovsky (7)                                        100,000                *
Ehud Zorea (7)                                               100,000                *
Executive officers and directors as a group (9 persons)    1,967,947            10.7%

5% STOCKHOLDERS

ICTS International N.V. and affiliates (8)                 4,515,555            27.4%
James E. Lineberger and affiliates (9)                     1,075,386             6.5%

---------------------------------
*    Represents beneficial ownership of less than 1% of the outstanding shares
     of our common stock.
**   Except as otherwise indicated, the address of each beneficial owner is c/o
     InkSure Technologies Inc., P.O. Box 7006, Audubon, Pennsylvania, 19407.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities.
Beneficial ownership also includes shares of stock subject to options and
warrants currently exercisable or convertible, or exercisable or convertible
within sixty (60) days of February 15, 2010. Except as indicated by footnote, to
our knowledge, all persons named in the table above have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned.
(2) Includes 362,500 shares of common stock underlying options and warrants
which are currently exercisable or exercisable within 60 days of February 15,
2010.
(3) Includes 40,000 shares of common stock underlying options and warrants which
are currently exercisable or exercisable within 60 days of February 15, 2010.
(4) Consists of 242,500 shares of common stock held by Plampton Ltd., of which
Mr. Schoenheimer is a majority shareholder and 40,000 shares of common stock
underlying options and warrants which are currently exercisable or exercisable
within 60 days of February 15, 2010.
(5) Consists of 40,000 shares of common stock underlying options and warrants
which are currently exercisable or exercisable within 60 days of February 15,
2010.
(6) Consists of 500,000 shares of common stock underlying options and warrants
which are currently exercisable or exercisable within 60 days of February 15,
2010.
(7) Consists of 100,000 shares of common stock underlying options and warrants
which are currently exercisable or exercisable within 60 days of February 15,
2010.
(8) Includes 544,118 shares of Common Stock beneficially owned by ICTS-USA,
Inc., a wholly owned subsidiary of ICTS International, N.V.; 3,095,218 shares of
Common Stock beneficially owned by ICTS Information Systems, B.V., a wholly
owned subsidiary of ICTS International, Inc.; and 876,219 shares of Common Stock
owned by ICTS International N.V. ICTS Information Systems, B.V. and ICTS
International N.V.'s address is Biesboch 225, 1181 JC Amstelveen, Netherlands.
(9) Includes 569,930 shares of Common Stock held by Irrevocable Trust of James
E. Lineberger u/a 12/17/98, 320,456 shares of Common Stock held by L & Co.,
LLC and 185,000 shares of Common Stock held by James E Lineberger, as originally
disclosed on that Schedule 13D/A filed on February 11, 2010.

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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, 2009. Our stockholder approved
equity compensation plan consists of the 2002 Employee, Director and Consultant
Stock Option Plan. Under this plan, we grant options in order to attract and
retain employees, directors, officers and certain consultants. Such options
become exercisable under vesting schemes as approved by the board or by the
compensation committee, if delegated by the board. Normally, the options are
vested ratably as long as the optionee still serves with the Company and expire
after five years from the grant date. We have a number of options and warrants
which were granted pursuant to equity compensation plans not approved by
security holders and such securities are aggregated in the table below.

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

Equity compensation plans
   approved by security holders                1,014,083                 $    1.05                        2,433,355
Equity compensation plans not
   approved by security holders                  180,000                 $    1.58                                0
                                        ----------------                                           ----------------
   TOTAL                                       1,194,083                                                  2,433,355

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

TRANSACTIONS WITH RELATED PERSONS

     Our Audit Committee reviews and approves in advance all related-person
transactions. There have been no transactions during fiscal year 2009 with our
directors and officers and beneficial owners of more than five percent of our
voting securities and their affiliates or with any "related person" as the SEC
has defined that term in Item 404 of Regulation S-K promulgated under the
Securities Act.

     On January 19, 2010, we, together with a group of seven different
investors, or the Investors, paid a total of $3,000,000 to all of the holders,
or the Noteholders of our $8,881,080 Senior Secured Convertible Notes, or the
Notes. An amount of $1,000,000 of the funds was provided by us from available
cash, and the balance of $2,000,000 was provided by the Investors. As a result
of the transaction, $6,881,080 of the Notes were retired. The balance of
$2,000,000 remains outstanding in accordance with the terms of the Notes. In
addition, as part of the transaction, we and the Noteholders exchanged mutual
releases, all of the Company's Series B-1 and Series B-2 Warrants issued in the
names of the Noteholders, which were exercisable for an aggregate of 15,000,000
shares of our common stock, were cancelled, and our Series A Warrants issued in
the name of one of the Noteholders, which were exercisable for an aggregate of
3,570,337 shares of our common stock at an exercise price of $0.60 per share,
were amended, such that they may be exercised for an aggregate of 2,183,000
shares of our common stock at an exercise price of $0.15 per share. Yaron
Meerfeld, Acting Chief Executive Officer and Director, Pierre Schoenheimer,
Director, Peleg Investment Management LLC (in which Gadi Peleg is a majority
shareholder) were each part of the group of Investors, contributing $175,000,
$500,000, and $500,000, respectively. Each of the aforementioned parties were
also assignees, for the amounts each paid to the Noteholders, of a $3,000,000
Senior Secured Convertible Note from us to Smithfield Fiduciary LLC and Guaranty
from us to Smithfield Fiduciary LLC. In addition, Leonard Lichter who was part
of the Investors, contributing $25,000, also provided legal services to us in
connection of this transaction. As of December 31, 2009, we accrued $40,000 in
legal fees for this service of which we prepaid $20,000 by December 31, 2009. In
addition, the Irrevocable Trust of James E. Lineberger u/a 12/17/98, which is
controlled by James Lineberger and affiliates, a 5% stockholder in the Company,
held $300,000 worth of the Notes, 500,000 Series B-1 Warrants, and was allocated
$101,339 of the purchase price.

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DIRECTOR INDEPENDENCE

     As our common stock is currently traded on the OTC Bulletin Board, we are
not subject to the rules of any national securities exchange which require that
a majority of a listed Company's directors and specified committees of the board
of directors meet independence standards prescribed by such rules. Nonetheless,
of the six directors currently serving on the board of directors, we believe
that David W. Sass, Pierre L Schoenheimer, Randy F. Rock and Alon Raich are
independent directors within the meaning of NASDAQ Rule 5605(a)(2).

ITEM 14. PRINCIPLE ACCOUNTING FEES AND SERVICES.

The following table presents fees for professional audit services rendered by
Brightman Almagor & Co., CPA, a member firm of Deloitte Touche Tohmatsu, or
BAC for the audit of our annual financial statements for the years ended
December 31, 2009 and December 31, 2008 and fees billed for other services
rendered by BAC during the same period. The following table also reflects fees
for certain services related to tax compliance in Israel and reporting rendered
by BAC during the fiscal years ended December 31, 2009 and December 31, 2008.

                   FISCAL YEAR ENDED  FISCAL YEAR ENDED
                   DECEMBER 31, 2009  DECEMBER 31, 2008
                   -----------------  ----------------

Audit fees(1)             $28,000         $30,000
Audit related fees        $     0         $     0
Tax fees                  $     0         $     0
All other fees            $     0         $     0
                          =======         =======
Total                     $28,000         $30,000

----------

(1) Audit fees consisted of audit work performed in the preparation of financial
statements, as well as work generally only the independent auditor can
reasonably be expected to provide, such as statutory audits.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS

     Consistent with SEC policies regarding auditor independence, our Audit
Committee has responsibility for appointing, setting compensation and overseeing
the work of the independent registered public accounting firm. In recognition of
this responsibility, the Audit Committee has established a policy to pre-approve
all audit and permissible non-audit services provided by the independent
registered public accounting firm.

     Prior to engagement of the independent registered public accounting firm
for the next year's audit, management will submit an estimate of fees for the
services expected to be rendered during that year for each of four categories of
services to the Audit Committee for approval.

     1.   AUDIT services include audit work performed in the preparation of
          financial statements, as well as work that generally only the
          independent registered public accounting firm can reasonably be
          expected to provide, including comfort letters, statutory audits, and
          attest services and consultation regarding financial accounting and/or
          reporting standards.

     2.   AUDIT-RELATED services are for assurance and related services that are
          traditionally performed by the independent registered public
          accounting firm, including due diligence related to mergers and
          acquisitions, employee benefit plan audits and special procedures
          required to meet certain regulatory requirements.

     3.   TAX services include services related to tax compliance, tax planning
          and tax advice.

     4.   OTHER FEES are those associated with services not captured in the
          other categories.

     Prior to engagement, the Audit Committee pre-approves these services by
category of service. The fees are budgeted and the Audit Committee requires the
independent registered public accounting firm and management to report actual
fees versus the budget periodically throughout the year by category of service.
During the year, circumstances may arise when it may become necessary to engage
the independent registered public accounting firm for additional services not
contemplated in the original pre-approval. In those instances, the Audit
Committee requires specific pre-approval before engaging the independent
registered public accounting firm.

     The Audit Committee may delegate pre-approval authority to one or more of
its members. The member to whom such authority is delegated must report, for
informational purposes only, any pre-approval decisions to the Audit Committee
at its next scheduled meeting. The Audit Committee pre-approved all the above
listed fees in accordance with its policy.

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                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

EXHIBIT NO.    DESCRIPTION

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

3.2            Certificate of Amendment of Articles of Incorporation (previously
               filed as exhibit 3.2 to our Current Report on Form 8-K on
               November 8, 2002).

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

3.4            By-Laws (previously filed as exhibit 3.2 to our General Form of
               Registrants of Securities of Small Business Issuers on Form 10-SB
               on June 10, 1998).

3.5            Amendment to By-Laws (previously filed as exhibit 3.4 to our
               Quarterly Report on Form 10-QSB on November 14, 2002).

3.6            Amendment to the By-Laws (previously filed as exhibit 3.1 to our
               Current Report on Form 8-K on April 4, 2008).

4.1            Form of Amended and Restated Senior Secured Convertible Note
               (previously filed as exhibit 4.1 to our Current Report on Form
               8-K on April 9, 2008)

4.2            Form of Senior Secured Convertible Note (previously filed as
               exhibit 4.2 to our Current Report on Form 8-K on April 9, 2008)

4.3            Form of Series A, Series B-1 and Series B-2 Warrant (previously
               filed as exhibit 4.3 to our Current Report on Form 8-K on April
               9, 2008)

4.4            Assignment of Senior Secured Convertible Note (previously filed
               as exhibit 10.2 to our Current Report on Form 8-K on January
               21, 2010).

4.5            First Amendment to Series A Warrant (previously filed as exhibit
               4.1 to our Current Report filed on Form 8-K on January 21, 2010).

10.1*          2002 Employee, Director and Consultant Stock Option Plan
               (previously filed as exhibit 10.1 to our Quarterly Report on Form
               10-QSB filed on November 14, 2002).

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

10.3           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 our Current Report on Form
               8-K on October 30, 2005).

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

10.5           Form of Amendment, Exchange and Purchase Agreement, dated April
               8, 2008 (previously filed as exhibit 10.1 to our Current Report
               on Form 8-K on April 9, 2008)

                                       35
```

```

10.6          Security Agreement, dated April 8, 2008 (previously filed as
              exhibit 10.2 to our Current Report filed on Form 8-K on April 9,
              2008)

10.7          Form of Lock-up Agreement, dated April 8, 2008 (previously filed
              as exhibit 10.3 to our Current Report filed on Form 8-K on April
              9, 2008)

10.8          Employment Agreement, effective as of July 1, 2008, between the
              Company and Yaron Meerfeld (previously filed as exhibit 10.1 to
              our Current Report on Form 8-K on August 21, 2008).

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

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

31.1          Rule 13-14(a) Certification of Acting Chief Executive Officer.**

31.2          Rule 13-14(a) Certification of Chief Financial Officer **

32.1          Section 1350 Certifications of Acting Chief Executive and Chief
              Financial Officers.* **

* Management contract or compensatory plan or arrangement

** Filed herewith.

*** Furnished herewith.

                                       36
```

```

                 INKSURE TECHNOLOGIES INC. AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2009

                            U.S. DOLLARS IN THOUSANDS

                                      INDEX

                                                                        PAGE
                                                                        -----

Report of Independent Registered Public Accounting Firm                  F-2

Consolidated Balance Sheets                                              F-3

Consolidated Statements of Operations                                    F-4

Statements of Changes in Stockholders' deficiency                        F-5

Consolidated Statements of Cash Flows                                    F-6

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

                                       F-1
```

```

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

We have audited the accompanying consolidated balance sheets of InkSure
Technologies Inc. ("the Company") and its subsidiaries as of December 31, 2009,
and 2008 and the related consolidated statements of operations, stockholders'
capital Deficiency and cash flows for each of the two years in the period ended
December 31, 2009. 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, such consolidated financial statements, present fairly, in all
material respects, the financial position of the Company and its subsidiaries as
of December 31, 2009, and 2008 and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 2009, in
conformity with accounting principles generally accepted in the United states of
America

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

Tel-Aviv, Israel
February 26, 2010

                                      F-2
```

```

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

                                                                                              DEC 31,      DEC.31,
                                                                                               2009         2008
                                                                                             --------     --------
                                                                                              AUDITED     AUDITED
                                                                                             --------     --------
       ASSETS

CURRENT ASSETS:
     Cash and cash equivalents                                                               $  1,283     $  1,826
     Restricted Cash                                                                            1,513          365
     Trade receivables                                                                            371          104
     Other accounts receivable and prepaid expenses (note 3)                                       91           73
     Deferred charges                                                                               -          400
     Inventories (note 4)                                                                         193          322
                                                                                             --------     --------

TOTAL CURRENT ASSETS                                                                            3,451        3,090

PROPERTY AND EQUIPMENT, NET (NOTE5)                                                               211          279
LONG TERM DEPOSIT                                                                                   -            9
                                                                                             --------     --------

TOTAL ASSETS                                                                                 $  3,662     $  3,378
                                                                                             ========     ========

       LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
     Trade payables                                                                          $    248     $    225
     Employees and payroll accruals                                                               164          133
     Accrued expenses and other payables                                                          770          648
     Convertible notes, net (note 7)                                                            8,881        7,087
                                                                                             --------     --------

TOTAL CURRENT LIABILITIES                                                                      10,063        8,093

Warrants to issue shares                                                                          598            -
Commitments and other contingent liabilities (note 8)                                               -            -

TOTAL LIABILITIES                                                                              10,661        8,093
                                                                                             --------     --------

STOCKHOLDERS' DEFICIENCY:
Capital Stock (note 9):
    Preferred stock of $0.01 par value  - Authorized: 10,000,000 shares; Issued and
    outstanding: 0 shares as of December 31, 2009 (0 shares as of December 31, 2008)                -            -
    Common stock of $ 0.01 par value - Authorized: 50,000,000; Issued and outstanding:
    16,472,968 shares as of December 31, 2009 (16,472,968 shares as of December 31, 2008)         164          164
   Additional paid-in capital                                                                  13,661       16,708
   Accumulated other comprehensive income                                                         118          118
   Accumulated deficit                                                                        (20,942)     (21,705)
                                                                                             --------     --------

TOTAL STOCKHOLDERS' DEFICIENCY                                                                 (6,999)      (4,715)
                                                                                             --------     --------

TOTAL LIABILITIES AND  STOCKHOLDERS' DEFICIENCY                                              $  3,662     $  3,378
                                                                                             ========     ========

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 9          2 0 0 8
                                                                    ------------     ------------

Revenues (Note 12)                                                  $      3,335     $      2,158
Cost of revenues                                                             373              504
                                                                    ------------     ------------

GROSS PROFIT                                                               2,962            1,654
                                                                    ------------     ------------

Operating expenses:
  Research and development, net                                              868            1,747
  Selling and marketing                                                      430              912
  General and administrative                                                 656              908
  Impairment of Goodwill                                                       -              271
                                                                    ------------     ------------
Total operating expenses                                                   1,954            3,838
                                                                    ============     ============

Operating profit (loss)                                                    1,008           (2,184)
                                                                    ------------     ------------

Financial expense, net                                                      (562)            (462)
Financial  expenses related to convertible notes                          (1,914)            (882)
                                                                    ------------     ------------
Total financial expenses, net (Note 11)                                   (2,476)          (1,344)
                                                                    ------------     ------------

Net loss before taxes                                                     (1,468)          (3,528)
Taxes on income                                                                -                -
                                                                    ------------     ------------

Net loss                                                            $     (1,468)    $     (3,528)
                                                                    ------------     ------------

Basic and diluted net loss per share                                $      (0.09)    $      (0.21)
                                                                    ============     ============

Weighted average number of Common stocks used in computing basic
and diluted net loss per share                                        16,472,968       16,383,487
                                                                    ============     ============

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

                                       F-4
```

```

                 INKSURE TECHNOLOGIES INC. AND ITS SUBSIDIARIES
                     STATEMENTS OF STOCKHOLDERS' DEFICIENCY
           U.S. DOLLARS IN THOUSANDS (EXCEPT SHARE AND PER SHARE DATA)
                                                                                                 ACCUMULATED
                                                                        ADDITIONAL    DEFERRED      OTHER                     TOTAL
                                                               SHARE     PAID-IN     STOCK-BASED COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
                                                              CAPITAL    CAPITAL    COMPENSATION    INCOME      DEFICIT     DEFICIENCY
                                                             --------    --------     --------     --------    --------     --------

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

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

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

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

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

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

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

Stock based compensation                                            -          61            -            -           -           61
initial adoption of ASC815-40-15 warrants to issue shares           -      (3,108)           -            -       2,231         (877)
Net loss                                                            -           -            -            -      (1,468)      (1,468)
                                                             --------    --------     --------     --------    --------     --------

BALANCE AS OF DECEMBER 31, 2009                              $    164    $ 13,661            -     $    118    $(20,942)    $ (6,999)
                                                             ========    ========     ========     ========    ========     ========

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 9     2 0 0 8
                                                                                         -------     -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                                 $(1,468)    $(3,528)
Adjustments required to reconcile net loss to net cash used in operating activities:
Depreciation and amortization                                                                483         305
Decrease (increase) in restricted cash balances                                              352        (365)
Decrease (increase) in trade receivables                                                    (267)        350
Non cash financial expenses related to convertible notes, net                              1,794         670
Decrease (increase) in other accounts receivable and prepaid expenses                         (9)        152
Decrease in inventories                                                                      129          77
Increase (decrease) in trade payables                                                         23         (59)
Increase (decrease) in employees and payroll accruals                                         31         (72)
Non cash financial expenses related to warrants to issue shares                             (279)          -
Non cash financial expenses related to implementation of SFAS No. 123 (R) (Topic 718)         61         159
Amortization of Goodwill                                                                       -         271
Increase in accrued expenses and other payables                                              122         286
                                                                                         -------     -------
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES                                          972      (1,755)
                                                                                         -------     -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                                                           (15)        (22)
Proceeds from short-term bank deposits                                                         -           8
                                                                                         -------     -------
NET CASH USED BY INVESTING ACTIVITIES                                                        (15)        (14)
                                                                                         -------     -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on account of redemption of convertible notes                                     (1,500)          -
Issuance of convertible notes, net                                                             -       2,775
                                                                                         -------     -------
NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES                                       (1,500)      2,775
                                                                                         =======     =======

Increase (decrease) in cash and cash equivalents                                            (543)      1,006
Cash and cash equivalents at the beginning of the year                                     1,826         820
                                                                                         -------     -------
Cash and cash equivalents at the end of the year                                         $ 1,283     $ 1,826
                                                                                         =======     =======

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

                                      F-6
```

```

NOTE 1 - GENERAL

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

          The Company specializes in comprehensive security solutions, designed
          to protect branded products and documents of value from
          counterfeiting, fraud and diversion. During 2009, 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, 2009, 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, 2009, InkSure RF Inc. is inactive).

     B.   As reflected in the accompanying financial statements, the Company's
          operations for the year ended December 31, 2009, resulted in a net
          loss of $1,468,000 and an increase in net stockholders' deficit to
          $6,999,000. The Company had a negative working capital (current assets
          less current liabilities) of approximately $6,612,000.

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements are prepared in accordance with
     United States generally accepted accounting principles, or U.S. GAAP.

     A.   USE OF ESTIMATES:

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

     B.   FINANCIAL STATEMENTS IN U.S. DOLLARS:

          A majority of the U.S. subsidiary's sales is made in U.S. dollars. 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, or NIS; however, most of
          the expenses are denominated and determined in U.S. dollars. The
          Company's management believes that the dollar is the currency of the
          primary economic environment in which the Company and its subsidiaries
          operate. Thus, the functional and reporting currency of the Company
          and its subsidiaries is the dollar.

          Accordingly, monetary accounts maintained in currencies other than the
          dollar are re-measured into U.S. dollars in accordance with ASC Topic
          830 "Foreign Currency Matters".. All transaction gains and losses of
          the re-measurement of monetary balance sheet items are reflected in
          the statements of operations as financial income or expenses, as
          appropriate.

                                      F-7
```

```

     C.   PRINCIPLES OF CONSOLIDATION:

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

     D.   CASH EQUIVALENTS:

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

     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. ASC 350-20 "Goodwill", goodwill
          acquired in a business combination on or after July 1, 2001, was
          written off during the fourth quarter of 2008.

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

     H.   IMPAIRMENT OF LONG-LIVED ASSETS

          The Company's long-lived assets and certain identified intangibles are
          reviewed for impairment in accordance with ASC 360-10 "Property,
          Plant, and Equipment" 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.

     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 ASC
          Topic 605 "Revenue Recognition", 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 ASC 605-25 "Multiple-Element Arrangements", relating to the
          separation of multiple deliverables into individual accounting units
          with determinable fair value.

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

                                      F-8
```

```

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)

     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
          ASC Topic 260 "Earnings Per Share" for all periods presented. Basic
          and diluted net loss per share of common stock was determined by
          dividing net loss attributable to common stock holders by weighted
          average number of shares of common stock outstanding during the
          period. Diluted net loss per share of common stock is the same as
          basic net loss per share of common stock for all periods presented as
          the effect of the Company's potential additional shares of common
          stock were anti-dilutive.

          All outstanding stock options and warrants have been excluded from the
          calculation of the diluted net loss per share of common stock because
          all such securities are anti-dilutive for the periods presented. The
          total number of shares related to the outstanding options, warrants
          and convertible debt excluded from the calculations of diluted net
          loss per share was 23,294,082 and 19,734,420 for the years ended
          December 31, 2008 and 2009, respectively.

     M.   INCOME TAXES:

          The Company accounts for income taxes in accordance with ASC 740
          "Income Taxes", which requires 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 stable, and, accordingly,
          minimal credit risk exists with respect to these investments.

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

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

     O.   FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

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

                                      F-9
```

```

     P.   ACCOUNTING FOR STOCK-BASED COMPENSATION:

          The Company applies ASC 718 "Compensation--Stock Compensation"
          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's 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 (Topic 718) which were $61,000 in 2009 ($159,000 in 2008).

          The fair market value of each option grant was estimated on 2008 on
          the date of grant using the Black-Scholes Merton option pricing" model
          with the following weighted-average assumptions:(1) expected life of 3
          years (2007 - 3.25); (2) dividend yield of 0% (3) expected volatility
          of 125% (2007 - 95%) and (4) risk-free interest rate of 2.82% (2007 -
          4.8%). During 2009, there were no option grants under the company's
          stock option plan.

     Q.   FAIR VALUE MEASUREMENTS:

          ASC Topic 820 "Fair Value Measurements and Disclosures" defines fair
          value, establishes a framework for measuring fair value and expands
          disclosures about fair value measurements. The Topic defines fair
          value as the price that would be received to sell an asset or paid to
          transfer a liability in an orderly transaction between market
          participants at the measurement date. FAS 157 also establishes a fair
          value hierarchy that emphasizes use of observable inputs and minimizes
          use of unobservable inputs when measuring fair value. The standard
          describes three levels of inputs that may be used to measure fair
          value:

          Level 1: Quoted prices in active markets for identical assets or
          liabilities.

          Level 2: Observable inputs other than Level 1 prices, such as quoted
          prices for similar assets or liabilities; quoted prices in markets
          that are not active; or other inputs that are observable or can be
          corroborated by observable market data for substantially the full term
          of the assets or liabilities.

          Level 3: Unobservable inputs that are supported by little or no market
          activity and that are significant to the fair value of the assets or
          liabilities.

          As of the balance sheet date, the Company recognized the convertible
          debt in its par value as the Company could have been required to
          redeem the Notes immediately.

     R.   INITIAL ADOPTION OF NEW STANDARDS:

          In October 2008, the Financial Accounting Standards Board or FASB
          issued Staff Position No. 157-3 as codified into ASC 820, "Determining
          the Fair Value of a Financial Asset When the Market for That Asset Is
          Not Active." The update amends Topic 820 by incorporating "an example
          to illustrate key considerations in determining the fair value of a
          financial asset" in an inactive market. The FSP is effective upon
          issuance and should be applied to prior periods for which financial
          statements have not been issued.

          The update illustrative example and associated guidance clarifies
          various application issues raised by preparers of financial
          statements. With regard to the measurement principles of ASC 820, the
          update emphasizes the following:

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

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

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

                                      F-10
```

```

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

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

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

     S.   RECENTLY ISSUED ACCOUNTING STANDARDS

          ASU 2009-13

          In October 2009, the FASB issued "Accounting Standards Update ("ASU")
          2009-13, Multiple Deliverable Revenue Arrangements a consensus of
          EITF" (formerly Topic 08-1) an amendment to ASC 605-25. The update
          provides amendments to the criteria in Subtopic 605-25 for separating
          consideration in multiple-deliverable arrangements. The amendments in
          this update establish a selling price hierarchy for determining the
          selling price of a deliverable. The selling price used for each
          deliverable will be based on vendor-specific objective evidence if
          available, third-party evidence if vendor-specific objective evidence
          is not available, or estimated selling price if neither
          vendor-specific objective evidence nor third-party evidence is
          available. The amendments in this update will also replace the term
          "fair value" in the revenue allocation guidance with the term "selling
          price" in order to clarify that the allocation of revenue is based on
          entity-specific assumptions rather than assumptions of a marketplace
          participant.

          The amendments will also eliminate the residual method of allocation
          and require that arrangement consideration be allocated at the
          inception of the arrangement to all deliverables using the relative
          selling price method. The relative selling price method allocates any
          discount in the arrangement proportionally to each deliverable on the
          basis of each deliverable's selling price.

          The update will be effective for revenue arrangements entered into or
          modified in fiscal years beginning on or after June 15, 2010 with
          earlier adoption permitted. The adoption of this update is not
          expected to have material impact on our consolidated financial
          statements.

NOTE 3 - OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

                          AS OF DECEMBER 31,
                          ----------------
                         2 0 0 9    2 0 0 8
                          ------    ------

Government authorities    $   13    $   11
Prepaid expenses              68        58
Other                         10         4
                          ------    ------
                              91        73
                          ======    ======

NOTE 4 - INVENTORIES

                                    AS OF DECEMBER 31,
                                     ----------------
                                    2 0 0 9    2 0 0 8
                                     ------    ------

Raw materials, parts and supplies    $  156    $  252
Finished products                        37        70
                                     ------    ------
                                        193       322
                                     ======    ======

                                      F-11
```

```

NOTE 5 - PROPERTY AND EQUIPMENT, NET

                                       AS OF DECEMBER 31,
                                        ----------------
                                       2 0 0 9    2 0 0 8
                                        ------    ------

Cost:
  Computers and peripheral equipment    $  736    $  721
  Office furniture and equipment           128       128
  Leasehold improvements                   126       126
                                        ------    ------
                                           990       975
                                        ------    ------

Accumulated depreciation:
  Computers and peripheral equipment    $  551    $  490
  Office furniture and equipment           102        85
  Leasehold improvements                   126       121
                                        ------    ------
                                           779       696
                                        ======    ======

Net book value                          $  211    $  279
                                        ======    ======

     Depreciation expenses for the years ended December 31, 2009 and 2008,
     amounted to $ 83 and $ 95, respectively.

NOTE 6 - ACCRUED SEVERANCE PAY

     Under Israeli law and labor agreements, the Company is required to make
     severance payments to its dismissed employees and employees leaving its
     employment in certain other circumstances. As of the balance sheet date,
     the Company made full contributions towards its severance pay obligation
     for its employees.

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 $6,000,000 pursuant to the Securities Purchase Agreement as of such date
     between the Company and certain investors ("the Investors").

     The Convertible Notes were unsecured and were 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 $696,000 which was amortized in
     full by December 31, 2009.

     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.

     ISSUANCE OF SENIOR SECURED CONVERTIBLE NOTES

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

                                      F-12
```

```

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

     If the Company would have sold or licensed all or substantially all of the
     assets in our ink business, it might have been 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 would have
     consummated a transaction that results in a change of control or other
     merger or reorganization or recapitalization, it might have been required
     to redeem the new notes at 125% of their outstanding principal amount. The
     new notes were due on September 30, 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.

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

     As of the balance sheet date, the Company recognized the convertible debt
     in its par value as the Company could have been required to redeem the
     Notes immediately.

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

                       AS OF DECEMBER 31,
                       ------------------
                       2 0 0 9    2 0 0 8
                       -------    -------
Convertible note       $ 8,881    $ 8,881
Discount                     -     (1,990)
Bifurcated embedded          -        196
                         8,881      7,087
                       =======    =======

                                      F-13
```

```

NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES

     A.   LEASE COMMITMENTS:

     As of December 31, 2009, the Company leases its facilities and certain
     motor vehicles under various operating lease agreements, which expire on
     various dates, the latest of which is in 2011. The future lease payments
     under non-cancelable office and car leases as of December 31, 2009, are as
     follows:

     2010-2011    $96
                  ---
                  $96
                  ===

     B.   CHARGES AND GUARANTEES:

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

     C.   LEGAL PROCEEDINGS:

     On December 12, 1999, Secu-Systems filed a lawsuit with the District Court
     in Tel Aviv-Jaffa against Supercom Ltd. (the former owner of the company's
     business) and InkSure Ltd. seeking a permanent injunction and damages at an
     estimated amount of NIS 500,000 (approximately $ 132,400 at the exchange
     rate as of December 31, 2009). The plaintiff asserted in its suit that the
     printing method applied to certain products that have been developed by
     InkSure Ltd. constitutes, inter alia: (a) breach of a confidentiality
     agreement between the plaintiff and Supercom; (b) unjust enrichment of
     Supercom (by virtue of the sale of our shares) and InkSure Ltd.; (c) a
     breach of fiduciary duties owed to the plaintiff by Supercom and InkSure
     Ltd.; and (d) a tort of misappropriation of trade secret and damage to
     plaintiff's property. As part of its complaint, Secu-Systems sought, among
     other things, an injunction and a 50% share of profits from the printing
     method at issue.

     On March 15, 2006, the court rendered a decision (i) denying the claim for
     breach of contract; (ii) finding that there was a misappropriation of trade
     secret, but not assessing any damages with respect thereto; (iii) requiring
     the defendants to cease all activities involving the use of any
     confidential information; and (iv) awarding the plaintiff reimbursement of
     the costs of the litigation in the amount of NIS 130,000 (about $34,400 at
     the exchange rate as of December 31, 2009), plus interest and VAT, which
     the defendants intend to split equally. InkSure recorded in its 2006
     financial statements a provision of NIS 65,000 (about $17,200 at the
     exchange rate as of December 31, 2009).

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

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

     On February 18, 2008, Secu-Systems filed a petition with the district court
     to amend the amount for which it has sued to NIS 25,000,000 (approximately
     $ 6,622,000 at the exchange rate as of December 31, 2009).

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

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

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

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

     On September 8, 2009, the court denied Secu-System's request to amend the
     sum for which it has sued. The only evidence that the court allowed
     Secu-System to submit in order to prove damages is evidence which can show
     that the reports which previously submitted by Inksure are incorrect. The
     court ordered Secu-System to submit its evidence within 45 days. Inksure
     will be entitled to submit its evidence within 45 days thereafter. On
     December 2009, both parties have filed their response to the court order.

     In light of the above, provided that the Inksure's reports are accepted by
     the court, we believe that no material amounts will be awarded to
     Secu-System in these proceedings.

                                      F-14
```

```

     D.   R&D GRANTS:

     Since June 2005 and thru December 2009, the Company has received
     non-royalty-bearing grants amounting $240,000 from the European commission.
     These grants are recognized at the time the Company was entitled to such
     grants on the basis of the costs incurred and included as a reduction in
     research and development expenses.

     During 2007 and through December 31, 2009, the Company received a
     governmental research and development grant of approximately $1,541,000
     (2007 - $394,000, 2008 - $402,000, 2009 - $745,000) from the Office of the
     Chief Scientist, or OCS at the Ministry of Trade and Industry of the
     Government of Israel. This royalties-bearing research and development grant
     partially covers the Company' RFID research and development project
     expenses. Royalties would become due to OCS only if the RFID research and
     development project funded by the grant is successfully commercialized and
     results in sales revenues. The royalty rate is 3%-4% of the sales revenues
     based on the RFID research and development project funded by the grant, and
     is capped at the grant amount received from the OCS plus interest.

     E.   OTHER CONTINGENT LIABILITIES:

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

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

NOTE 9 - STOCK CAPITAL

     A.   STOCKHOLDERS' RIGHTS:

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

     B.   STOCK OPTIONS:

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

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

          As of December 31, 2009, an aggregate of 960,017 options are still
          available for future grant under the Company's stock option plans.

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

                                                 YEAR ENDED DECEMBER 31,
                                    ------------------------------------------------
                                           2 0 0 9                   2 0 0 8
                                    ----------------------    ----------------------
                                                 WEIGHTED                   WEIGHTED
                                     AMOUNT      AVERAGE        AMOUNT       AVERAGE
                                   OF OPTIONS EXERCISE PRICE  OF OPTIONS  EXERCISE PRICE
                                    ---------    ---------    ---------    ---------

Outstanding at beginning of year    3,230,450    $    1.12    2,594,367    $    1.47
Granted                                     -            -    1,042,083    $    0.30
Exercised                                   -            -            -            -
Forfeited                           2,216,367    $    1.60      406,000    $    1.60
                                    ---------    ---------    ---------    ---------
Outstanding at end of year          1,014,083    $    1.05    3,230,450    $    1.12
                                    =========    =========    =========    =========
Exercisable at end of year            760,916    $    1.22    2,291,471    $    1.26
                                    =========    =========    =========    =========

          The Company recognized compensation expenses of $61 and $159 for the
          years ended December 31, 2009 and 2008, respectively.

                                      F-15
```

```

     C.   STOCK WARRANTS*:

          The Company has issued warrants, as follows:

               OUTSTANDING AS OF                   EXERCISABLE AS OF   EXERCISABLE
ISSUANCE DATE   DECEMBER 31 2009   EXERCISE PRICE  DECEMBER 31, 2009     THROUGH
-------------- ------------------ --------------- ------------------- ------------
March 2005 (1)        50,000         $  1.40          50,000           March 2015
June 2006 (2)        100,000         $  1.60         100,000           June 2011
June 2007 (3)         30,000         $  1.83          30,000           June 2012

          (*)  EXCLUDING WARRANTS WITH RESPECT TO THE CONVERTIBLE NOTES

          (1)  Issued to a consultant of the company.
          (2)  Issued to a consultant of the company.
          (3)  Issued to a consultant of the company.

     D.   DIVIDENDS:

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

NOTE 10 - TAXES ON INCOME

     A.   MEASUREMENT OF TAXABLE INCOME UNDER THE ISRAELI 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 ASC 740-10, 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 9     2 0 0 8
                                                     -------     -------

Net loss carry-forward                               $ 3,938     $ 2,042
Other deductions for tax purposes                         58         161
                                                     -------     -------

Net deferred tax asset before valuation allowance      3,996       2,203
Valuation allowance                                   (3,996)     (2,203)
                                                     -------     -------

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

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

          Net profit (loss) consists of the following:

           YEAR ENDED DECEMBER 31,
            -------------------
            2 0 0 9     2 0 0 8
            -------     -------

Domestic    $(2,727)    $(2,262)
Foreign       1,259      (1,266)
            -------     -------
            $(1,468)    $(3,528)
            =======     =======

                                      F-16
```

```

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

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

     D.   TAX LOSS CARRY-FORWARDS:

          Net operating loss carry-forwards as of December 31, 2009 are as
          follows:

Israel              10,145
United States *)    10,797
                    ------

                    20,942
                    ======

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

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

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

     F.   REDUCTION IN CORPORATE TAX RATE:

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

NOTE 11 - FINANCIAL INCOME (EXPENSES), NET

                                                      YEAR ENDED DECEMBER 31,
                                                       -------------------
                                                       2 0 0 9     2 0 0 8
                                                       -------     -------

Interest, bank charges and fees, net                   $  (554)    $  (449)
Foreign currency translation differences                    (8)        (13)
Non cash expenses related to convertible notes, net     (1,914)       (882)
                                                       -------     -------
                                                       $(2,476)    $(1,344)
                                                       =======     =======

NOTE 12 - MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

     The Company manages its business on a basis of one reported operating
     segment. Total revenues are attributed to geographic areas based on the
     location of the end customers. This data is presented in accordance with
     ASC Topic 280 "Segment reporting".

     The following data presents total revenue for the years ended December 31,
     2009 and 2008, based on the customer's location and long-lived assets as of
     December 31, 2009 and 2008:

                                      F-17
```

```

                               2 0 0 9                   2 0 0 8
                      ------------------------    ------------------------
                         TOTAL      LONG-LIVED       TOTAL     LONG-LIVED
                       REVENUES    ASSETS. NET     REVENUES    ASSETS, NET
                      ----------    ----------    ----------    ----------

United States         $      456             -    $      504    $        3
Export:
   Israel                      -    $      211             3    $      276
   Asia and Europe         2,879             -         1,651             -
                      ----------    ----------    ----------    ----------

                      $    3,335    $      211    $    2,158    $      279
                      ==========    ==========    ==========    ==========

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

              YEAR ENDED DECEMBER 31,
               -------------------
               2 0 0 9     2 0 0 8
               -------     -------
Customer A         64%         61%
Customer B         11%          0%
Customer C          9%          7%
Customer D          8%          0%

NOTE 13 -SUBSEQUENT EVENTS

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

     During January 2010, the company granted to its employees, directors and
     officers options to purchase a total of 4,520,000 shares of the company's
     common stock. The options were granted in cancellation and replacement of
     substantially all of the previously granted and outstanding stock options
     held by such employees, officers and directors.

                                      F-18
```

```

                                 SIGNATURE PAGE

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

INKSURE TECHNOLOGIES INC.

   SIGNATURE                          TITLE                          DATE

/s/ Yaron Meerfeld         Acting Chief Executive Officer      February 26, 2010
------------------
Yaron Meerfeld

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

   SIGNATURE                             TITLE                          DATE

/s/ Yaron Meerfeld            Acting Chief Executive Officer      February 26, 2010
--------------------------
Yaron Meerfeld

/s/ Gadi Peleg                Chairman of the Board               February 26, 2010
--------------------------
Gadi Peleg

/s/ Tzlil Peker               Chief Financial Officer             February 26, 2010
--------------------------    (Principal Financial and
Tzlil Peker                   Accounting Officer)

/s/ Alon Raich                Director                            February 26, 2010
--------------------------
Alon Raich

/s/ Randy F. Rock             Director                            February 26, 2010
--------------------------
Randy F. Rock

/s/ David W. Sass             Director                            February 26, 2010
--------------------------
David W. Sass

/s/ Pierre L. Schoenheimer    Director                            February 26, 2010
--------------------------
Pierre L. Schoenheimer
```