```

                                  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, 2010

                                       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.)

       551 FIFTH AVENUE, NEW YORK, NY                           10176
   (Address of principal executive offices)                  (Zip code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (646) 233-1454

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 Interactive Data 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, a non-accelerated filer or a smaller reporting company. 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 [_]                       Smaller Reporting Company [X]
(Do not check if a smaller reporting company)

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, 2010 (the last business day of the Registrant's most
recently completed second fiscal quarter) was $6,260,404.

As of March 28, 2011, the Registrant had outstanding 42,312,088 shares of Common
Stock, par value $0.001 per share.
```

```

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                           ------

PART I

ITEM 1.  BUSINESS.............................................................2

ITEM 1A. RISK FACTORS........................................................11
ITEM 1B. UNRESOLVED STAFF COMMENTS...........................................20
ITEM 2.  PROPERTIES..........................................................20
ITEM 3.  LEGAL PROCEEDINGS...................................................20
ITEM 4.  REMOVED AND RESERVED................................................21

PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
         MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES...................22
ITEM 6.  SELECTED FINANCIAL DATA.............................................22
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS...............................................22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........28
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................29
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE............................................29
ITEM 9A. CONTROLS AND PROCEDURES.............................................29
ITEM 9B. OTHER INFORMATION...................................................29

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE..............30
ITEM 11. EXECUTIVE COMPENSATION..............................................32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS.........................................36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
         INDEPENDENCE........................................................38
ITEM 14. PRINCPAL ACCOUNTING FEES AND SERVICES...............................39
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES..........................41

SIGNATURES...................................................................43

                                       ii
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FORWARD LOOKING STATEMENTS

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, or SEC, 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 (the contents of which are not part of this Annual Report on
Form 10-K), 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 SEC.
```

```

                                     PART I

ITEM 1. BUSINESS.

GENERAL

InkSure Technologies Inc. (together with its subsidiaries, referred to as the
"Company", "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. At the end of 2010, our Board of Directors
decided to discontinue all further research and development of projects which
were not directly related to our core business of anti-counterfeiting and brand
protection solutions, including our Radio Frequency Identification, or RFID,
product, SARCode, and its related technologies.

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. We have been
awarded three patents and applied for an additional two patents related to the
RFID technology, which we ceased to develop at the end of 2010 as part of a
strategic resolution of our Board of Directors. 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 within our
core business, 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.

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.

                                       2
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TRADITIONAL AUTHENTICATION TECHNOLOGIES

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

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

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

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

INKSURE SOLUTIONS

     We believe that our authentication technology can be distinguished from
other authentication solutions, such as visible and invisible ultra-violet
marks, fluorescent taggants, watermarks and fibers, optically variable inks, and
holograms, currently offered by our competitors because our solutions offer a
high level of security and flexibility while remaining cost-effective. 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:

          HIGH LEVEL OF SECURITY. Every security material offered by us has a
     unique "signature" that is comprised of a variety of components, including
     the amounts and the unique properties of the chemicals included in the
     material, the material type, the material 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.

                                       3
```

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          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

     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 (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    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

     Inksure has 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    TAGSURE (TM) -- MACHINE READABLE AUTHENTICATION CODES FOR ADVANCED SECURITY

     Our TagSure (previously known as "SmartInk") codes are secure optical codes
     used in 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 (which involves a
     process of determining the current and past locations and other information
     of the marked item), real-time encoding and debiting applications. TagSure
     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 TagSure 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 readers and the high
     speed SortSure validator (as described below).

o    SIGNASURE (TM) -- ADVANCED AUTHENTICATION READERS

     Our SignaSure reader features advanced technology for fast, on-the-spot
     authentication of sensitive documents and branded products. The SignaSure
     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 TagSure 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. SignaSure can store up to ten codes
     in the memory and can be programed to pair specific TagSure makers with
     identifying names.

                                       5
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o    CARSURE (TM) -- ADVANCED AUTHENTICATION READER

     Our CarSure reader is very similar to SignaSure in the look, feel and
     functionality. What distinguishes CarSure is that the optics have the
     ability to read taggants and by extension documents through a car
     windshield. The CarSure 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 TagSure codes. CarSure is
     intended for use by government regulators and law enforcement bodies.

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

     Our new PocketSure reader represents an important addition to our highly
     regarded SignaSure reader line. PocketSure combines handheld,
     machine-readable detection with forensic-level analysis. At 5.5 inches in
     length and weighing a mere 2.5 ounces, the PocketSure includes single-code
     memory, audio and visual indicators, and the ability to operate on standard
     AAA batteries. PocketSure 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 and
     SignaSure can be combined to create multi-level security programs wherein a
     primary level of inspectors employ PocketSure for detection of a base
     covert code while a secondary level of security specialists employ
     SignaSure in the field to detect a more complex forensic-level code.

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

     MultiSure looks and feels very similar to our PocketSure reader but is much
     more powerful and offers greater functionality. MultiSure can store up to
     five codes in its memory, has a LED display to let the end-user know which
     code they are reading and allows end-users the ability to authenticate
     multiple groups of products with one reader. Our MultiSure can be combined
     to create multi-level security programs wherein a primary level of
     inspectors employ MultiSure for detection of a base covert code while a
     secondary level of security specialists employ SignaSure in the field to
     obtain a higher level of information.

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

     Our SortSure readers provide high-speed authentication and quality control
     for automated systems handling high volumes of prduct. 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 TAGSURE CODES.

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;

                                       6
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     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    Other producers of covert authentication solutions including other
          taggant producers and DNA technology companies.

     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.

     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. There has also been a new movement in many industries
to the use of visible two dimensional 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), one of
our competitor's 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. This competitor 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 through our subsidiary, Inksure Ltd. 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 needed to deploy those products and
product enhancements. Our research and development, net expenses for the year
ended December 31, 2010 were $160,000 compared with $91,000 for the year ended
December 31, 2009. After discontinuing the research and development on our RFID
product in November 2010, we plan to focus all of our research and development
on our core business products. Our RFID discontinued operations research and
development, net expenses for the year ended December 31, 2010 were $1,291,000
compared with $777,000 for the year ended December 31, 2009.

     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.

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 certain global
major suppliers. Some of these chemicals, however, are considered rare, with
high prices of $9,000 per kilogram 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, China 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.

                                       7
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```

     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, 2010, revenues from customers in
Europe and in North and South America amounted to approximately 57% and 32%,
respectively, versus 75% and 15% respectively for the fiscal year ended December
31, 2009. Customers in Asia accounted for approximately 11% of our 2010 revenues
versus 10% for the fiscal year ended December 31, 2009.

     Included in such revenues are sales to one customer which represented 56%
of our total 2010 revenues versus 71% of our total revenues for the fiscal year
ended December 31, 2009.

     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, 2010 and 2009 respectively,
revenues attributed to geographic areas based on the location of our customers
were:

                              REVENUES FOR       REVENUES FOR
                             THE YEAR ENDED     THE YEAR ENDED
                            DECEMBER 31, 2010  DECEMBER 31, 2009
                               ----------        ----------

Europe                         $1,614,000        $2,256,000
North and South America           893,000           456,000
Asia                              305,000           302,000
                               ----------        ----------
TOTAL                          $2,812,000        $3,014,000
                               ----------        ----------

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, which we continued to develop until
November 2010, 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 (, France,
Germany, Switzerland and United Kingdom. Our third patent family has matured
into a patent granted in the United States, France, Germany, Switzerland and
United Kingdom . Regarding our fourth patent family, we have filed National
Phase applications in United States, Europe, Japan and Hong Kong being National
Phase of International Patent Application (PCT). Relating to our fifth patent
family we have filed National Phase applications in United States, Europe, Japan
and Hong Kong being National Phase of International Patent Application (PCT).
Notwithstanding the discontinuance of research and development in connection
with our RFID product, we intend to continue to protect our portfolio of our
RFID intellectual property for the foreseeable future.

     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
are issued, 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).

                                       8
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     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 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.

     Our scanning devices may be required by customers or any other third
parties to comply with the regulations of our customer's respective countries,
which may require certification, verification or registration of the equipment
with the customer's respective authorities. Certification and verification of
new equipment may require testing to ensure the equipment's compliance with the
local government regulations. Further testing or new or enhanced regulation may
extend the period of product development and commercialization and increase the
associated costs

     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. 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.

CLIMATE CHANGE

     Our business is not materially affected by compliance with existing and
pending, local, state, regional, federal or international legal requirements and
agreements related to climate change.

EMPLOYEES

     As of December 31, 2010, we had 13 employees located in Israel. In
addition, as of December 31, 2010, we had two employees located in the United
States (one of which is on a part time basis), substantially involved in
technical support, 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.

                                       9
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     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 14.38% 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.

                                       10
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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 TRACK & TRACE 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 Track & Trace product. 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 Track & Trace product with no material
results. Even if we successfully develop our Track & Trace technology, we may be
unable to successfully market Track & Trace products.

OUR TRACK & TRACE 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 Track & Trace 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 Track & Trace reader products must meet. Our products
are highly technical and designed to be deployed in large and complex Track &
Trace data 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. In addition, users of our Track & Trace products may experience
compatibility or interoperability issues between our products and their
enterprise software systems or networks, or between our products and other Track
& Trace 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.

                                       11
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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. For example, in November 2010 we discontinued the
development of our RFID product and related technologies, after investing in
such research and development efforts many years and approximately $5 million
(net of government grants), because we wanted to focus on our core technology.
In the event that we are unable to develop commercialized products from our
research and development efforts or we are unable or unwilling to allocate
amounts beyond our currently anticipated research and development investment, we
could lose our entire investment in these new products and technologies. Any
failure to translate research and development expenditures into successful new
product introductions could have an adverse effect on our business.

WE 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, 2010 and 2009, sales to two of our
customers in Europe accounted for approximately 66% 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 68% and 85%
of our revenues during 2010 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 for so long as such customer's
orders from us reach a certain level. Although this grant of exclusivity is
limited to customers' countries of origin, 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 MIGHT NEED TO RAISE ADDITIONAL CASH TO SUSTAIN OUR OPERATIONS BEYOND TWELVE
MONTHS AND EXPAND OUR OPERATIONS.

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

                                       12
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     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. However, no assurance can be given that we will be able to
obtain additional capital on terms favorable to us.

     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, 2010, we received a research and
development grant of approximately $1,905,000 from Israel's Office of the Chief
Scientist (at the Ministry of Industry and Trade), or the OCS. Of this amount, a
total of $1,805,000 was received in connection with the research and development
of our RFID product, which we discontinued in November 2010. Following the
submission of our last research and development grant program report to the OCS
(for the period from April 1, 2009 through March 31, 2010), and following an OCS
audit, on January 9, 2011, we received from the OCS a demand for return of a
total amount of $99,000. In its demand, the OCS claims that some of the expenses
included in the last grant were not approved. Subsequently, on February 15,
2011, we filed an objection with the OCS, rejecting these claims and provided
explanations with respect to the said expenses. As of the date of this report,
we have not received a response to our objection from the OCS. The company
accrued this amount in the financial reports as accrued expenses.

     Accordingly, there is no assurance that further grants may be available to
us in the future.

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 $16,055,000 at December 31, 2010. We incurred net loss
from discontinued operations of approximately $1,482,000 for the year ended
December 31, 2010 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. We
had negative cash flow from operating activities of $907,000 in 2010. 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.

                                       13
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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.

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.
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 are also seeking protection under the Patent Cooperation Treaty. We have
several patents granted and pending and 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.

     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.

                                       14
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     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.

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 2010 we only had three dedicated sales people (one in the
US and two 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.

                                       15
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WE DEPEND ON OUR SENIOR MANAGEMENT AND KEY EMPLOYEES, THE LOSS OF WHICH COULD
ADVERSELY AFFECT OUR OPERATIONS.

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

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.

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. Accordingly, political, economic,
security and military conditions in the Middle East in general, and in Israel in
particular, 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.

     In early 2011, riots and popular uprisings in various countries in the
Middle East have led to severe political instability in those countries. This
instability may lead to deterioration of the political and trade relationships
that exist between the State of Israel and these countries. In addition, this
instability may affect the global economy and marketplace. Any armed conflicts
or political instability in the region, including acts of terrorism or any other
hostilities involving or threatening Israel, would likely negatively affect
business conditions and could make it more difficult for us to conduct our
operations in Israel, which could increase our costs and adversely affect our
financial results. Furthermore, several countries still restrict trade with
Israeli companies, which limit 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.

                                       16
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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. In specific cases our competitive position could be greatly harmed if
we could not enforce these agreements.

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

     We incur expenses for our operations in Israel in New Israeli shekels (NIS)
and translate these amounts into United States dollars for purposes of reporting
consolidated results. As a result, fluctuations in foreign currency exchange
rates may adversely affect our expenses and results of operations as well as the
value of our assets and liabilities. Fluctuations may adversely affect the
comparability of period-to-period results. In addition, we hold foreign currency
balances, primarily New 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.

WE ARE EXPOSED TO SPECIAL RISKS IN FOREIGN MARKETS WHICH MAY RESTRICT OUR
ABILITY TO CONVERT LOCAL CURRENCY INTO UNITED STATES DOLLARS OR NEW 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.

                                       17
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UNDER ISRAELI LAW, OUR STOCKHOLDERS MAY FACE DIFFICULTIES IN THE ENFORCEMENT OF
CIVIL LIABILITIES AGAINST OUR SUBSIDIARY INKSURE LTD., ITS OFFICERS, DIRECTORS
OR PROFESSIONAL ADVISORS.

     InkSure Ltd. is incorporated under Israeli law and its principal office,
manufacturing facility and research and development facility are located in
Israel. Certain of the directors and InkSure Ltd.'s professional advisors are
residents of Israel or otherwise reside outside of the United States. All or a
substantial portion of the assets of such persons are or may be located outside
of the United States. It may be difficult to effect service of process within
the United States upon InkSure Ltd. or upon any such directors or professional
advisors or to realize in the United States upon judgments of United States'
courts predicated upon civil liability of InkSure Ltd. or such persons under
United States federal securities laws. InkSure Ltd. has been advised by 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.

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, 9,915,555
shares of our common stock, representing approximately 23.9% of our outstanding
common stock. Such ownership interest gives ICTS and its affiliates substantial
influence over the outcome of all matters submitted to our stockholders,
including the election of directors and the adoption of a merger agreement, and
such influence could make us a less attractive acquisition or investment target.

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

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

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

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

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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, 2010, our common stock traded at prices ranging from $0.08 to
$0.55. 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 41,493,449 shares of common stock that were held by our present
stockholders as of December 31, 2010, at least 11,086,559 shares were available
for public sale by means of ordinary brokerage transactions in the open market
pursuant to Rule 144, promulgated under the 1933 Securities Act, or 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, as long as,
between six and twelve months we are current in our periodic SEC filings.
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 (or more, depending on our the trading volume of our common stock). In
addition, 10,000,000 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 in the open market. In
addition we have 2,183,000 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 situation, 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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ALTHOUGH OUR INTERNAL CONTROL OVER FINANCIAL REPORTING WAS CONSIDERED EFFECTIVE
AS OF DECEMBER 31, 2010, 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 2010 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 is not required to be 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.

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 $6,000 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.

ITEM 3. LEGAL PROCEEDINGS.

On July 25, 2010, InkSure Ltd. entered into a settlement and release agreement,
or the Settlement Agreement, with Vuance Ltd. (previously known as SuperCom
Ltd., and the former owner of InkSure, referred to as SuperCom, and collectively
with InkSure, as the Defendants) and with Secu-System Ltd., an Israeli company,
or Secu-System or Plaintiff) in order to settle all claims and disputes that had
arisen between the parties more than 10 years ago, in connection with certain
claims filed by Secu-System claiming 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 Defendants; (3) a breach of fiduciary duties owed to the
Plaintiff; and (4) a tort of misappropriation of trade secret and damage to
Plaintiff's property.

Pursuant to the Settlement Agreement the Defendants would pay to the Plaintiff
an aggregate amount, which would be between NIS1,500,000 and NIS2,000,000
(approximately between $389,700 and $519,600 at the exchange rate as of July 25,
2010), with the exact amount, or the Settlement Amount, to be determined by a
Mediator, as follows:

     - Each of InkSure and SuperCom shall be responsible, severally but not
jointly, to pay 50% of the Settlement Amount;

     - Within 10 business days after the execution of the Settlement Agreement,
InkSure shall deposit 50% of the Settlement Amount in trust with the Trustee;

     - SuperCom shall deposit its 50% of the Settlement Amount with the Trustee
in 10 equal monthly installments, commencing on the first calendar month after
the execution of the Settlement Agreement. SuperCom's payments shall carry
linkage differentials and an annual interest at the rate of a 4% per annum;

     - Should SuperCom fail to pay any of the monthly installments within 7 days
of its due date, its entire share of the Settlement Amount shall become
immediately due.

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The Settlement Agreement shall become effective, and the parties will notify the
Court so, upon the occurrence of either of the following conditions:

     - After SuperCom shall deposit its entire share of the Settlement Amount
with the Trustee and the Trustee shall transfer the entire Settlement Amount to
Plaintiff's counsel; or

     - At the Plaintff's option, upon a written notice from the Plaintiff to
Defendants, notifying them that Plaintiff decided to regard the Settlement
Agreement as effective (at which case the Trustee shall immediately transfer to
Plaintiff the entire amount held by him at such time. In such case Plaintiff
shall remain entitled to the entire Settlement Amount.)

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

On November 30, 2010, Mr. Goren, the Mediator rendered his decision awarding the
Plaintiff the aggregate Settlement Amount of NIS 1,786,000 (approximately
$484,931 at the official Bank of Israel exchange rate as of November 30, 2010),
of which each of the defendants is required to pay one-half or NIS 893,000
(approximately $242,465 at the official Bank of Israel exchange rate as of
November 30, 2010).

In accordance with the terms of the Settlement Agreement, Inksure Ltd. deposited
on December 30, 2010 its share of the Settlement Amount in trust with the
Trustee.

On March 3, 2011, the Company was served with an action initiated by Tzlil
Peker, its former chief financial officer. The action that was filed with the
Tel Aviv Regional Labor Court, includes various claims regarding alleged events
surrounding the termination of Mr. Peker's employment, as well as a claim for
allegedly due and owing salary and benefits in the total amount of NIS 176,594
(approximately $49,000 in accordance with the applicable NIS/$ exchange rate on
March 3, 2011.) The Company has 30 days from the date of service, to file its
answer with the court.

ITEM 4. REMOVED AND RESERVED

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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 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                                 $   0.55     $   0.11
     2nd Quarter                                 $   0.49     $   0.17
     3rd Quarter                                 $   0.28     $   0.13
     4th Quarter                                 $   0.19     $   0.08

FISCAL YEAR 2011
     1st Quarter (through March 28, 2011)        $   0.18     $   0.09

     As of March 28, 2011 there were approximately 68 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.

     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.

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.

                                       22
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     Our TagSure(TM) solutions (previously known as "SmartInk") 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.

     In November 2010, our Board of Directors decided to discontinue all further
research and development of projects which were not directly related to our core
business of anti-counterfeiting and brand protection solutions, including our
Radio Frequency Identification, or RFID, product, SARCode, and its related
technologies.

REVENUES

     We are currently concentrating on entering into and implementing new
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 2010 and 2009 fiscal years, approximately 68% and 85% 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, 2010. The utilization of these losses and
credits depends on our ability to generate taxable income in the future. Because
of the uncertainty of our generating taxable income, we have recorded a full
valuation allowance with respect to these deferred assets.

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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 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. When and if a
right of return exists, we defer revenues until the right of return expires.

     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.

     ALLOWANCE FOR DOUBTFUL ACCOUNTS. We perform credit evaluations of our
customers' financial condition. We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to make required
payments. We record our bad debt expenses as general and administrative
expenses. When we become aware that a specific customer is unable to meet its
financial obligations to us, we record a specific allowance to reflect the level
of credit risk in the customer's outstanding receivable balance.

     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.

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

                                                      YEAR ENDED DECEMBER 31,
                                                      ----------------------
                                                        2010          2009
                                                      --------      --------

Revenues                                                   100%          100%
Cost of revenues                                            16            12
                                                      --------      --------

Gross profit                                                84            88

Operating expenses:
Research and development                                     6             3
Selling and marketing                                       32            14
General and administrative                                  43            18
                                                      --------      --------
Total operating expenses                                    81            35

Operating profit (loss)                                      3            53
Financial income (expense), net                            227           (82)
Taxes on income                                             (4)            0
                                                      --------      --------
Net profit (loss) from continued operations                226           (29)
                                                      --------      --------
Net profit (loss) from discontinued operations             (53)          (19)
                                                      --------      --------
Net profit (loss)                                          173           (48)
                                                      ========      ========

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YEAR ENDED DECEMBER 31, 2010 COMPARED WITH YEAR ENDED DECEMBER 31, 2009

     REVENUES. Revenues consist of gross sales of products less discounts. We
concentrate on developing 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 and readers, decreased by $202,000, or by 7%, to $2,812,000 in 2010
from $3,014,000 in 2009. This decrease in revenues was mainly due to lower sales
of TagSure product to one of our customers located in Europe. Going forward, we
expect to continue to encounter a number of industry and market structural risks
and uncertainties that will affect our business climate and market visibility,
and consequently, our ability to predict future revenue, profitability and
general financial performance, and that could create quarter over quarter
variability in one or more of our financial measures.

     Revenue from customers outside the Americas represented 68% and 85% of
revenues for the fiscal years ended 2010 and 2009, respectively. Revenues were
assigned to geographic regions based on the customers' shipment locations. We
expect revenue from international customers to continue to be an important part
of our overall revenues and an increasing focus for net revenues growth.

     COST OF REVENUES. Cost of revenues consists of materials, sub-contractors
and compensation costs. Cost of revenues increased by $81,000, or 22%, to
$454,000 in 2010, from $373,000 in 2009. Cost of revenues as a percentage of
revenues was 16% in 2010, compared with 12% in 2009. This increase in cost of
revenues, both in absolute terms and as a percentage of revenues, was primarily
related to: higher TagSure materials expenses $43,000 (due to less profitable
revenues mix in 2010), higher payroll expenses of $27,000 and higher
subcontractor expenses of $11,000

     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, net increased
by $69,000, or 76%, to $160,000 in 2010 from $91,000 in 2009. This increase in
research and development expenses, net was primarily related to higher
subcontractor's expenses of $32,000 in 2010 over 2009, higher travel expenses of
$21,000 in 2010 over 2009 and an increase of $16,000 in non-cash compensation
expenses in 2010 over 2009, related to the impact of ASC Topic 718-10, "Share
based Payment".

     Research and development expenses in 2010 included non-cash share based
compensation expenses of $19,000.

     All research and development expenses have been charged to operating
expenses as incurred.

     SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist
primarily of costs relating to compensation attributable to employees engaged in
sales and marketing activities, promotion, advertising, trade shows and
exhibitions, sales support, travel, commissions and related expenses. Selling
and marketing expenses increased by $460,000, or 107%, to $890,000 in 2010, from
$430,000 in 2009. This increase in selling and marketing expenses was primarily
related to an increase in payroll expenses of $351,000, an increase in non-cash
share based compensation expenses of $147,000, offset by lower other expenses of
$38,000 (mainly travel and advertising) in 2010 over 2009.

                                       25
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     Selling and marketing expenses in 2010 included non-cash share based
compensation expenses of $146,000.

     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 increased by $687,000, or 129%, to
$1,221,000 in 2010, from $534,000 in 2009. This increase in general and
administrative expenses was primarily related to: additional legal expenses of
$234,000 associated with the settlement agreement reached with Secu-Systems (see
"Legal Proceedings" above), higher non-cash share based compensation expenses in
an amount of $263,000, higher payroll expenses in an amount of $101,000, and
higher bad debt allowance in an amount of $44,000 in 2010 over 2009.

     General and administrative expenses in 2010 included non-cash share based
compensation expenses of $297,000.

     FINANCIAL INCOME (EXPENSE), NET. Financial income (expense), net changed by
$8,858,000 to financial income, net of $6,382,000 in 2010 from financial
expenses, net of $2,476,000 in 2009. This change in financial income (expenses),
net was primarily related to a gain on debt restructuring in an amount of
$5,881,000 (described below), a decrease of $2,329,000 in non-cash financial
expenses related to convertible notes and warrants, and a decrease of $533,000
in interest expenses on convertible notes.

     NET LOSS FROM DISCONTINUED OPERATIONS. At the end of 2010, our Board of
Directors decided to discontinue all further research and development of
projects which were not directly related to our core business of
anti-counterfeiting and brand protection solutions, including our Radio
Frequency Identification, or RFID, product, SARCode, and its related
technologies.

     The discontinued operation was mainly consisting of Research and
development expenses. These expenses 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. The
discontinued operation increased by $904,000, or 156%, to $1,482,000 in 2010
from $578,000 in 2009. This increase was primarily related to a decrease of
$637,000 in government research and development grants from 2009 to 2010, in
2009 the company sold one RFID product in the amount of $321,000, an increase of
$114,000 in non-cash compensation expenses in 2010 over 2009, related to the
impact of ASC Topic 718-10, "Share based Payment", offset by lower payroll
expenses of $41,000 and lower subcontractor's expenses of $127,000 in 2010 over
2009.

     The discontinued operations in 2010 included non-cash share based
compensation expenses of $137,000.

     NET PROFIT (LOSS). We had a net profit of $4,887,000 in 2010, compared with
a net loss of $1,468,000 in 2009, which is represents an increase of $6,355,000
in net profit. This increase in net profit (loss) was primarily related to: the
non cash gain on the debt restructuring in an amount of $5,881,000 (see
"Liquidity and Capital Resources" below). Without the non cash gain on the debt
restructuring, we would have had a net loss of $994,000 in 2010.

     LIQUIDITY AND CAPITAL RESOURCES

     We have incurred substantial losses since our inception in April 1997. We
had an accumulated deficit of approximately $16,055,000 as of December 31, 2010,
and had positive working capital (current assets less current liabilities) of
approximately $1,651,000 as of December 31, 2010. Losses may continue in the
foreseeable future.

     Capital expenditures were approximately $13,000 in 2010 and $5,000 in 2009.
These expenditures were principally for computers and research and development
equipment purchases. We do not have any material commitments for capital
expenditures as of December 31, 2010.

                                       26
```

```

     As of December 31, 2010, we had cash, cash equivalents and short-term
deposits of approximately $1,909,000, compared to $1,283,000 in 2009. This
increase is primarily due to the net replenishment in the amount of $1,555,000,
which we received in connection with the private placement financing following
our debt restructuring. We had negative cash flow from operating activities of
approximately $907,000 in 2010 compared to a positive cash flow from operating
activities of $962,000 in 2009. The negative cash flow from operating activities
in 2010 is attributable mainly to the net loss from discontinued operations of
approximately $1,482,000 in 2010, the increase of restricted cash due to the
Secu-System lawsuit settlement of approximately $243,000 less the non-cash
financial expenses related to the share based compensation of approximately
$601,000.

     We generated negative cash flow from investing activities of approximately
$24,000 in 2010 compared to $5,000 in 2009. The negative cash flow from
investing activities in 2010 was primarily due to our purchase of fixed assets
and deposits made in connection with a long term lease for our facility in
Israel.

     We had a positive cash flow from financing activities of approximately
$1,557,000 in 2010 compared to a negative cash flow from financing activities of
approximately $1,500,000 in 2009. The positive cash flow in 2010 is mainly due
to the debt restructuring and the closing of the private placement (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).

     At the end of 2010 we performed a cutting off plan and reduced our expenses
into a breakeven level. We believe that our existing cash resources, together
with cash to be collected from customers and governmental grants, will be
sufficient to support our operations for the next twelve months. However,
continuing product development and enhancement, expected new product launches,
corporate operations and marketing expenses will continue to require additional
capital and our current cash flow from operations is insufficient to cover our
long term business plans.

     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 beared
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.

     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.

                                       27
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     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.

     On January 19, 2010, the Company, together with a group of Investors, paid
a total of $3,000,000 to the Noteholders of our $8,881,080 outstanding Notes. As
a result of the convertible debt extinguishment, the Company recorded a
$5,881,000 gain. An amount of $1,000,000 of the funds was provided by us from
available cash as a bridge, and the balance of $2,000,000 was provided by the
Investors. In consideration for the $2,000,000 paid by the Investors, $6,881,000
in Notes were retired and $2,000,000 in Notes remained outstanding as a secured
senior obligation to the Investors in accordance with the terms of the Notes.

     In addition, as part of the transaction, we and the Noteholders exchanged
mutual releases, all of our Series B-1 and Series B-2 Warrants issued in the
names of the Noteholders, which were exercisable for an aggregate of 15,000,000
shares of our common stock, were cancelled, and our Series A Warrants issued in
the name of one of the Noteholders, which were exercisable for an aggregate of
3,570,337 shares of our common stock at an exercise price of $0.60 per share,
were amended, such that they may be exercised for an aggregate of 2,183,000
shares of our common stock at an exercise price of $0.15 per share.

     On March 11, 2010, we closed a private placement financing, raising a total
amount of $1,125,000 from twenty different accredited investors, (or the "New
Investors"), of which $1,000,000 was used to replenish the $1,000,000 advanced
as a bridge by the Company, and $125,000 was used for legal and other costs in
connection with the private placement and for working capital purposes.

     On the same day, in connection with the private placement, we issued
25,000,000 shares of our common stock, or the Shares, at a purchase price of
$0.125 per share, of which 16,000,000 Shares were issued to the Investors in
settlement of their $2,000,000 in Notes, and 9,000,000 Shares were issued to the
New Investors in consideration for the $1,125,000 invested by them.

     CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     Our contractual obligations and commitments as of December 31, 2010
principally include obligations associated with our offices lease obligations
and the lease of several automobiles which expire on various dates, the latest
of which is in 2013. The future lease payments under non-cancelable office and
car leases as of December 31, 2010, are as follows:

2011               $137,000
2012                 79,000
2013                 21,000
                   --------
                   $237,000
                   --------

     We expect to finance these contractual commitments from cash on hand and
cash generated from operations.

     OFF BALANCE SHEET ARRANGEMENTS

     None.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.

                                       28
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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. CONTROLS AND PROCEDURES.

     Under the direction of our Chief Executive Officer and Chief Financial
Officer, we evaluated our disclosure controls and procedures and internal
control over financial reporting and concluded that: (i) our disclosure controls
and procedures were effective as of December 31, 2010, and (ii) no change in
internal control over financial reporting occurred during the quarter ended
December 31, 2010, that has materially affected, or is reasonably likely to
materially affect, such internal control over financial reporting.

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.

     Our management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. Internal control over
financial reporting is a process to provide reasonable assurance regarding the
reliability of our financial reporting for external purposes in accordance with
accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes maintaining records that in
reasonable detail accurately and fairly reflect our transactions; providing
reasonable assurance that transactions are recorded as necessary for preparation
of our financial statements; providing reasonable assurance that receipts and
expenditures of Company assets are made in accordance with management
authorization; and providing reasonable assurance that unauthorized acquisition,
use, or disposition of Company assets that could have a material effect on our
financial statements would be prevented or detected on a timely basis. Because
of its inherent limitations, internal control over financial reporting is not
intended to provide absolute assurance that a misstatement of our financial
statements would be prevented or detected.

     Our management, including our Chief Executive Officer and Chief Financial
Officer, has conducted an assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2010.

     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, 2010.

ITEM 9B. OTHER INFORMATION.

     None.

                                       29
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PART III

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

The following table sets forth certain information concerning our current
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 March 28, 2011:

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

EXECUTIVE OFFICERS
   Tal Gilat                      39      President and Chief Executive Officer
   David (Dadi) Avner             38      Chief Financial Officer

NON-EMPLOYEE DIRECTORS
   Gadi Peleg                     36      Chairman
   Alon Raich                     35      Director
   David W. Sass                  75      Director and Secretary
   Pierre L. Schoenheimer         77      Director
   Jonathan Bettsak               41      Director

     TAL GILAT joined us in March 2010 as President and Chief Executive Officer.
Between the years 2005-2009: Mr. Gilat headed SanDisk Enterprise Sales (NASDAQ:
SNDK) in North America. Mr. Gilat joined SanDisk through the company's
acquisition of publicly traded M-System (NASDAQ: FLSH), where Mr. Gilat headed
M-System's Global Enterprise Business. Between the years 2000 - 2004: Mr. Gilat
founded and served as CEO of Kavado Inc. (acquired by Protegrity Inc,). Mr.
Gilat holds a B.A. with honors in Economics & Business Administration from the
Hebrew University in Jerusalem and an M.B.A. from Columbia Business School in
New York.

     DAVID (DADI) AVNER C.P.A. joined us in August 2010 as Chief Financial
Officer. Prior to joining InkSure, Mr. Avner served as Chief Financial Officer
of Onset Technology Ltd., a provider of wireless e-mail solutions since 2005.
Prior to joining Onset, Mr. Avner served as a Financial Controller at Gilat
Satcom Ltd. (Tel Aviv Stock Exchange: STKM), a provider of satellite
communications products and services, since 2002. Mr. Avner began his career at
Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, where he served
as an account manager in the high-tech practice since 1999. Mr. Avner holds a
B.A. in Business and Accounting from the Israeli College of Management Academic
Studies, and he is a Certified Public Accountant in Israel since.

     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, an aviation security company listed on over the counter stock
market (OTC: ICTS.OB), 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 and an M.A. in law both from Bar-Ilan
University, Israel.

                                       30
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     DAVID W. SASS joined us in February 2003 as director. Mr. Sass is a
director and officer of other private companies. For the past 50 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., an aviation security company listed on over the counter
stock market (OTC: ICTS.OB), an honorary trustee of Ithaca College and a
Director of Temple University Law Foundation. 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.

     JONATHAN BETTSAK joined us as a director in May 2010. In 1992 he joined his
family's third generation family business. He was involved as founder in the
establishment and sale of Sinfonet, the largest internet company in Panama.
Jonathan's family enterprise currently owns the leading technology and computer
retailer in Panama, Multimax as well as Multitek a business systems integrator
company with offices in Panama, Colombia and Chile. Both companies have a
combined labor force of over 500 employees. In real estate, the Bettsak family
has been involved in land development and property leasing for many years. They
are currently constructing apartment complexes as well as office centers, office
buildings, hotel resorts and shopping malls. In 2008 Mr. Bettsak joined the
board of Digicel Panama, a leading cellular operator. He received his B.A. in
Finance from the American University in Washington D.C. in 1991 and completed
the Harvard Business School Owner, President, Manager Program in 2011.

     COMPLIANCE WITH SECTION 16 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, 2010, 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, 2010, we had 6
meetings of our Audit Committee. The Audit Committee currently has three
members: Messrs. Alon Raich (Chairman), David W. Saas and Pierre L.
Schoenheimer. The Audit Committee recommends the Company's Board of directors to
retain or terminate the services of 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 Pierre L. Schoenheimer are
"audit committee financial experts" as the SEC has defined that term in Item 407
of Regulation S-K. The Audit Committee written charter is available upon request
from the Company's Chief Financial Officer.

                                       31
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     COMPENSATION COMMITTEE The role of the Compensation Committee is to advise
and make recommendations to the Board of Directors relating to the compensation
of the Company's executive officers, administration of all plans of the Company
under which Company securities may be acquired by directors, executive officers,
employees and consultants and to produce the report on executive compensation in
the Company's annual proxy statement in accordance with applicable rules and
regulations. The current members of our Compensation Committee are Messrs. Gadi
Peleg, David W. Sass and Jonathan Bettsak, all of whom are independent
directors. The Committee will report to the Board of Directors which will have
the final decisions with respect to all such matters. The Compensation Committee
written charter is available upon request from the Company's Chief Financial
Officer.

     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 551 Fifth Avenue, New York, NY 10176 , 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. These officers are
refereed to as our named executive officers.

                                                                               OPTION         ALL OTHER
                                                                 BONUS         AWARDS       COMPENSATION
NAME AND PRINCIPAL POSITION          YEAR       SALARY ($)       ($)(5)         ($)(1)         ($)(2)        TOTAL ($)
---------------------------          ----        -------         ------         ------         ------        -------

Tal Gilat,
PRESIDENT AND CHIEF EXECUTIVE
   OFFICER                           2009              -              -              -              -              -
                                     2010        163,662         50,000         97,141         15,260        326,063

Yaron Meerfeld,
CHIEF OPERATING OFFICER (3)          2009        172,445         30,000         23,537         17,047        243,029
                                     2010        232,840              -        120,053         20,449        380,787

Viktor Godlovsky
DIRECTOR OF SALES & BUSINESS
   DEVELOPMENT                       2009        104,522              -            710         11,407        116,639
                                     2010        120,278              -         32,561         12,615        165,598

Ehud Zorea
R&D MANAGER                          2009        108,043              -          4,257         12,679        124,979
                                     2010        134,490              -         47,191         17,579        199,260

David (Dadi) Avner
CHIEF FINANCIAL OFFICER (4)          2009              -              -              -              -              -
                                     2010         41,233              -          6,791          6,934         54,958

(1) Options awards costs are measured according to the grant date fair market
value in accordance with ASC Topic 718-10, "Share-Based Payment". For a
disclosure of the assumptions made in the valuation of the options awards please
refer to Note 2 of the Notes in our Consolidated Financial Statements under Item
15 of this Annual Report on Form 10-K.

(2) For use of company car.

(3) Mr. Meerfeld also served as our Acting Chief Executive Officer until
February 2010.

(4) Mr. Avner joined us as Controller on August 15, 2010. On September 21, 2010,
Mr. Avner was appointed as our Chief Financial Officer.

(5) MBO criteria consist of specific revenues, new customers and new channel
partners milestones.

                                       32
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EMPLOYMENT AGREEMENTS

On March 2, 2010, the Board of Directors appointed Mr. Tal Gilat as President
and Chief Executive Officer of the Company commencing immediately. Under his
employment agreement, Mr. Gilat is entitled to a base salary of NIS 50,000 per
month. In addition, Mr. Gilat is entitled to targeted 2010 Management By
Objectives, or MBO, gross bonus of up to NIS 480,000 (at 100% achievement, in
accordance with the MBO targets set by the Company's Board of Directors. The MBO
criteria consist of specific revenues, new customers and new channel partners
milestones). Furthermore, the Company pays an additional sum of up to 15.83% of
the base salary towards a manager's insurance policy, and an amount equal to
7.5% of the base salary for an advanced study fund, both in the name of Mr.
Gilat. Mr. Gilat is also entitled to a company car and cell phone in accordance
with the Company's policy. Mr Gilat is also entitled to paid annual vacation
time and such other benefits as the Company may grant from time to time to its
executive employees. Finally, in connection with his appointment, the Company
granted to Mr. Gilat options to purchase up to 700,000 shares of the Company's
common stock according and subject to the provisions of the Company's 2002
Employee, Director and Consultant Stock Option Plan. The options are exercisable
at $0.38 per share and vest as follows: 58,333 options were vested on September
2, 2010 and the rest in ten equal quarterly installments up until March 2, 2013.

On September 21, 2010, the Board of Directors appointed Mr. David (Dadi) Avner,
the former controller of the Company's subsidiary, InkSure Ltd., as Chief
Financial Officer of the Company commencing immediately. Mr. Avner continued to
be an employee of InkSure Ltd. Under his employment agreement with InkSure Ltd.,
Mr. Avner is entitled to a base salary of NIS 22,500 per month. In addition, Mr.
Avner is entitled to an additional monthly gross amount of NIS 7,500 as global
compensation for overtime hours. Furthermore, InkSure Ltd. pays him an amount of
up to 13.83% of the salary towards his manager's insurance fund, and an
additional amount equal to 7.5% of the salary for his advanced study fund. Mr.
Avner is also entitled to a company car, cell phone and laptop computer in
accordance with InkSure Ltd.'s policies. Mr. Avner is also entitled to paid
annual vacation time and such other benefits as the Company may grant from time
to time to its executive employees. Finally, in connection with his appointment,
Mr. Avner was granted stock options to purchase up to 400,000 shares of the
Company's common stock according and subject to the provisions of the Company's
2002 Employee, Director and Consultant Stock Option Plan. The options are
exercisable at $0.16 per share and vest in four equal annual installments , the
last of which on October 14, 2014.

                                       33
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     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 14.38% 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.

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, 2010 for each of our named executive
officers.

                                                         NUMBER OF
                                      NUMBER             SECURITIES
                                        OF               UNDERLYING
                                    SECURITIES          UNEXERCISED
                                   UNDERLYING             OPTIONS
                               UNEXERCISED OPTIONS          (#)                              OPTION
                                       (#)             UNEXERCISABLE     OPTION EXERCISE   EXPIRATION
            NAME                 EXERCISABLE (1)          (1) (2)           PRICE ($)         DATE
--------------------------- ------------------------ ------------------- --------------- --------------
        Tal Gilat (3)                 122,499              577,501              0.38        03/02/2015
--------------------------- ------------------------ ------------------- --------------- --------------
    Yaron Meerfeld (4)(5)           1,450,000                   --              0.125       11/30/2011
--------------------------- ------------------------ ------------------- --------------- --------------
     Ehud Zorea (6) (7)               400,000                   --              0.125        4/30/2011
--------------------------- ------------------------ ------------------- --------------- --------------
    Viktor Godlovsky (8)              100,000              300,000              0.125       01/19/2015
--------------------------- ------------------------ ------------------- --------------- --------------
   David (Dadi) Avner (9)                  --              400,000              0.16        10/11/2015
--------------------------- ------------------------ ------------------- --------------- --------------

(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)  On March 2, 2010 Mr. Gilat was granted stock options to purchase 700,000
     shares of common stock. The options are exercisable at $0.38 per share and
     vest as follows: 58,333 options were vested on September 2, 2010 and the
     rest in ten equal quarterly installments up until March 2, 2013.

     Stock option to purchase an additional 64,166 shares will vest on March 2,
     2011, and the rest in equal quarterly installments up until March 2, 2013.

(4)  On January 19, 2010, all of Mr. Meerfeld's then 280,000 existing stock
     options were cancelled and replaced with new stock options to purchase an
     additional 1,450,000 shares, with an exercise price of $0.125 per share.

(5)  On December 1, 2010, the Company terminated the employment agreement of Mr.
     Meerfeld, which termination triggered an acceleration of exercisability of
     all outstanding stock options of Mr. Meerfeld, all of which are now
     exercisable.

(6)  On January 19, 2010, all of Mr. Zorea's then 50,000 existing stock options
     were cancelled and replaced with new stock options to purchase an
     additional 400,000 shares, with an exercise price of $0.125 per share.

                                       34
```

```

(7)  On December 31, 2010, the Company terminated the employment agreement of
     Mr. Zorea, which triggered an acceleration of exercisability of all
     outstanding stock options of Mr. Zorea, all of which are now exercisable

(8)  On January 19, 2010, all of Mr. Godlovsky's then 56,000 existing stock
     options were cancelled and replaced with new stock options to purchase an
     additional 400,000 shares, with exercise price of $0.125 per share. Stock
     options to purchase 100,000 shares of common stock were immediately vested
     on the date of grant and stock options to purchase the remaining 300,000
     shares will vest in three equal annual installments, the last of which on
     January 19, 2013.

(9)  On October 14, 2010 Mr. Avner was granted stock options to purchase 400,
     000 shares of common stock. The options are exercisable at $0.16 per share
     and vest in four equal annual installments commencing October 14, 2011, and
     the last of which is on October 14, 2014

     During 2010, we granted to our employees, directors and officers new stock
options to purchase up to 6,320,000 shares of our common stock, cancelling and
replacing substantially all of their then existing stock option grants.

                            DIRECTOR COMPENSATION (3)

                                FEES EARNED OR       STOCK        OPTION
                                 PAID IN CASH       AWARDS         AWARDS           TOTAL
            NAME                    ($)(2)          ($)(3)         ($)(1)            ($)
-----------------------------   ---------------  -------------  --------------  --------------

Gadi Peleg (4)                  $      150,000  $      50,000  $      168,750   $     368,750
Alon Raich                      $        3,750  $      11,250  $       42,500   $      57,500
David W. Sass                   $        3,750  $      11,250  $       45,000   $      60,000
Pierre L. Schoenheimer          $        3,750  $      11,250  $       45,000   $      60,000
Randy F. Rock (5)               $       15,000  $           -  $       45,000   $      60,000
Jonathan Bettsak (6)            $            -  $       8,750  $           --   $       8,750

(1)  Options awards costs are measured according to the grant date fair market
     value in accordance with ASC TOPIC 718-10, "Share-Based Payment". For a
     disclosure of the assumptions made in the valuation of the options awards
     please refer to Note 2 of the Notes in our Consolidated Financial
     Statements under Item 15 of this Annual Report on Form 10-K.

(2)  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.

(3)  On February 7, 2011 the Company's Board of Directors unanimously approved
     that the officers of the Company be and they hereby are authorized and
     directed to pay to the outside directors the accrued but unpaid
     compensation for year 2010 by the issuance of shares of the Company's
     common stock at the fair market value of the shares at the date of
     issuance, which shares upon issuance shall be fully paid and non-assessable
     shares of common stock of this corporation and shall bear the appropriate
     SEC restricted legend. The shares were actually issued on March 3, 2011.
     The share price on the date of grant was $0.18. For awards of stock, the
     aggregate grant date fair value computed in accordance with FASB ASC Topic
     718

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

(5)  On October 7, 2010, Randy F. Rock resigned his position as a Director of
     the Company. Mr. Rock received $15,000. Additionally, on October 8, 2010,
     the Board of Directors approved a grant to Mr. Rock of 40,000 shares of our
     common stock. These shares were actually granted on February 1, 2011. Mr.
     Rock's options, which were never exercised, expired on January 7, 2011,
     ninety days after his resignation from the Board of Directors.

(6)  Mr. Bettsak joined our Board of Directors on May 27, 2010.

                                       35
```

```

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

     The following table sets forth certain information as of March 28, 2011,
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 March 28, 2011, we had 42,312,088 shares of common stock outstanding.

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

DIRECTORS AND EXECUTIVE OFFICERS**

Yaron Meerfeld (2)                                      2,735,594            6.04%
Alon Raich (3)                                            332,500               *
Jonathan Bettsak                                           48,611               *
Pierre L. Schoenheimer (4)                              2,361,000            5.21%
David W. Sass (5)                                         199,853               *
Gadi Peleg (6)                                          4,227,778            9.33%
Viktor Godlovsky (7)                                      200,000               *
Ehud Zorea (8)                                            400,000               *
Tal Gilat (9)                                             186,665               *
David (Dadi) Avner                                              -               *
Executive officers and directors as a group (10
persons)                                               10,692,001           23.59%

5% STOCKHOLDERS

ICTS International N.V. and affiliates (10)             9,915,555           21.88%

*    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., 551 Fifth Avenue, New York, NY 10176.

(1)  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 March 28, 2011. 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 stock options to purchase up to 1,450,000 shares of common stock,
     which are currently exercisable or exercisable within 60 days of March 28,
     2011.

                                       36
```

```

(3)  Includes stock options to purchase up to 70,000 shares of common stock,
     which are currently exercisable or exercisable within 60 days of March 28,
     2011.

(4)  Includes stock options to purchase up to 130,000 shares of common stock,
     which are currently exercisable or exercisable within 60 days of March 28,
     2011.

(5)  Includes stock options to purchase up to 130,000 shares of common stock,
     which are currently exercisable or exercisable within 60 days of March 28,
     2011.

(6)  Includes stock options to purchase up to 750,000 shares of common stock,
     which are currently exercisable or exercisable within 60 days of March 28,
     2011.

(7)  Includes stock options to purchase up to 200,000 shares of common stock,
     which are currently exercisable or exercisable within 60 days of March 28,
     2011.

(8)  Includes stock options to purchase up to [400,000?] shares of common stock,
     which are currently exercisable or exercisable within 60 days of March 28,
     2011.

(9)  Includes stock options to purchase up to 186,665 shares of common stock,
     which are currently exercisable or exercisable within 60 days of March 28,
     2011.

(10) Includes 544,118 shares of common stock beneficially owned by ICTS-USA,
     Inc., a wholly owned subsidiary of ICTS International, N.V.; 3,075,676
     shares of common stock beneficially owned by ICTS Information Systems,
     B.V., a wholly owned subsidiary of ICTS International, N.V..; and 6,295,761
     shares of common stock owned by ICTS International N.V. ICTS-USA, Inc.'s, ,
     ICTS Information Systems, B.V.'s and ICTS International N.V.'s address is
     Biesboch 225, 1181 JC Amstelveen, Netherlands. This information is based
     solely on information provided by the shareholders on a Schedule 13D filed
     with the SEC.

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, 2010. 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.

                                       37
```

```

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

Equity compensation plans
   approved by security
   holders                                   6,069,519       $       0.18                      3,930,481
Equity compensation plans
   not approved by security
   holders(1)                                  180,000       $       1.58                              0
                                             ---------                                         ---------
   TOTAL                                     6,249,519                                         3,930,481

(1) see NOTE 9 - STOCK CAPITAL, in the attached Financial Statements.

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. As described below there had been one transaction during the
fiscal year 2010 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 by the SEC. On January 19, 2010, the Company, together with a group
of investors, or the Investors, paid to our note holders, or the Noteholders, a
total of $3,000,000 in order to settle the entire $8,881,000 in convertible
notes, or the Notes, that were outstanding at the time.

     As a result of the convertible debt extinguishment, the Company recorded a
$5,881,000 gain. An amount of $1,000,000 of the funds was provided by us from
available cash as a bridge, and the balance of $2,000,000 was provided by the
Investors. In consideration for the $2,000,000 paid by the Investors, $6,881,000
in Notes were retired and $2,000,000 in Notes remained outstanding as a secured
senior obligation to the Investors in accordance with the terms of the Notes.

     In addition, as part of the transaction, we and the Noteholders exchanged
mutual releases, all of our Series B-1 and Series B-2 Warrants issued in the
names of the Noteholders, which were exercisable for an aggregate of 15,000,000
shares of our common stock, were cancelled, and our Series A Warrants issued in
the name of one of the Noteholders, which were exercisable for an aggregate of
3,570,337 shares of our common stock at an exercise price of $0.60 per share,
were amended, such that they may be exercised for an aggregate of 2,183,000
shares of our common stock at an exercise price of $0.15 per share.

     On March 11, 2010, we closed a private placement financing, raising a total
amount of $1,125,000 from twenty different accredited investors, or the New
Investors, of which $1,000,000 was used to replenish the $1,000,000 advanced as
a bridge by the Company, and $125,000 was used for legal and other costs in
connection with the private placement and for working capital purposes. On the
same day, in connection with the private placement, we issued 25,000,000 shares
of our common stock, or the Shares, at a purchase price of $0.125 per share, of
which 16,000,000 Shares were issued to the Investors in settlement of their
$2,000,000 in Notes, and 9,000,000 Shares were issued to the New Investors in
consideration for the $1,125,000 invested by them.

     The group of the Investors includes: Sinfo Holdings BVI, Peleg Investment
Management LLC, Pierre L. Schoenheimer, Yaron Meerfeld, T&M Trusteeship and
Management Services, Yusuf Taragano and Leonard Lichter. Peleg Investment
Management LLC is controlled by Mr. Gadi Peleg, the Chairman of the Board of
Directors of the Company, Mr. Pierre Schoenheimer is a director of the Company,
Mr. Yaron Meerfeld is a director and Chief Operating Officer of the Company and
Mr. Leonard Lichter is a partner with Lichter Gliedman Offenkrantz PC, a law
firm that provided legal services to the Company in connection with the private
placement.

     The group of New Investors includes, among others, ICTS International, N.V.
and Alon Raich, in his individual capacity. Mr. David Sass, a director of the
Company, is also a director of ICTS International, N.V. Mr. Alon Raich, who is a
director of the Company, also serves as Chief Financial Officer of ICTS
International, N.V.

                                       38
```

```

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 five directors currently serving on the board of directors, we believe
that David W. Sass, Pierre L Schoenheimer, Alon Raich and Jonathan Bettsak are
independent directors within the meaning of NASDAQ Rule 5605(a)(2).

ITEM 14. PRINCIPAL ACCOUNTANT 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, 2010 and December 31, 2009 and fees billed for other services
rendered by BAC during the same periods.

                              FISCAL YEAR ENDED         FISCAL YEAR ENDED
                              DECEMBER 31, 2010         DECEMBER 31, 2009
                           -----------------------   ------------------------

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

(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 recommends the Company's Board of directors 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.

                                       39
```

```

     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.

                                       40
```

```

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

EXHIBIT NO.                           DESCRIPTION
-----------         ------------------------------------------------------------

3.1                 Articles of Incorporation of the Company, as amended
                    (previously filed as exhibit 3.1 to our Form 10-SB filed
                    with the SEC on June 10, 1998; exhibits 3.1 and 3.2 to our
                    Current Report on Form 8-K filed with the SEC on November 8,
                    2002; exhibit 4 to our Current Report on Form 8-K filed with
                    the SEC on July 22, 2003; and exhibit 3.1 to our Current
                    Report on Form 8-K filed with the SEC on September 24,
                    2010).

3.2                 By-Laws, as amended (previously filed as exhibit 3.2 to our
                    Form 10-SB on June 10, 1998; exhibit 3.4 to our Quarterly
                    Report on Form 10-QSB on November 14, 2002; exhibit 5 to our
                    Current Report on Form 8-K on July 22, 2003; and 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).

4.6                 Assignment Agreement of Senior Secured Convertible
                    Promissory Note, Security Agreement and Guarantee
                    (previously filed as exhibit 10.2 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*               Amendment No.1 to InkSure Technologies Inc. 2002 Employee,
                    Director and Consultant Stock Option Plan. (previously filed
                    as exhibit 10.2 to Form 8-K filed on September 24, 2010).

10.3*               Amendment No.2 to InkSure Technologies Inc. 2002 Employee,
                    Director and Consultant Stock Option Plan. (previously filed
                    as exhibit 10.3 to Form 8-K filed on September 24, 2010).

10.4                An English translation of the Settlement and Release
                    Agreement dated as of July 25, 2010, by and among InkSure
                    Ltd., Vouance Ltd. and Secu-System Ltd. (previously filed as
                    exhibit 10.1 to our Current Report on Form 8-K on July 26,
                    2010).

10.5*               Employment Agreement and Stock Option Agreement of Tal Gilat
                    (previously filed as Exhibits 10.1 and 10.2 to our Current
                    Report on Form 8-K on March 8, 2010).

10.6*               Amendment No. 1 to Employment Agreement of Tal Gilat.**

                                       41
```

```

10.7                Employment Agreement of David (Dadi) Avner (previously filed
                    as Exhibit 10.1 to our Current Report on Form 8-K on
                    September 24, 2010).

10.8                Purchase Agreement between the Company and each of the
                    Senior Secured Convertible Note holders (previously filed as
                    exhibit 10.1 to our Current Report filed on Form 8-K on
                    January 21, 2010).

10.9                Subscription Agreement for Private Placement (previously
                    filed as exhibit 10.1 to our Current Report filed on Form
                    8-K on March 16, 2010).

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 Chief Executive Officer. **

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

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

*    Management contract or compensatory plan or arrangement.

**   Filed herewith.

***  Furnished herewith.

                                       42
```

```

                 INKSURE TECHNOLOGIES INC. AND ITS SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2010

                            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 - 21

                                     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, 2010,
and 2009 and the related consolidated statements of operations, stockholders'
capital equity and cash flows for each of the two years in the period ended
December 31, 2010. 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, 2010, and 2009 and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 2010, 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
March 29, 2011

                                     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,
                                                                                   2010              2009
                                                                                  --------         --------
                                                                                  AUDITED           AUDITED
                                                                                  --------         --------

         ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                                         $  1,909         $  1,283
Restricted Cash (note 9C)                                                              266            1,513
Trade receivables                                                                      219              278
Other accounts receivable and prepaid expenses (note 3)                                 43               43
Inventories (note 4)                                                                   229              193
Assets related to discontinued operations (note 5)                                      93              269
                                                                                  --------         --------

TOTAL CURRENT ASSETS                                                                 2,759            3,579

PROPERTY AND EQUIPMENT, NET (NOTE 6)                                                    67               83
LONG TERM DEPOSIT                                                                       11                -
                                                                                  --------         --------

TOTAL ASSETS                                                                      $  2,837         $  3,662
                                                                                  ========         ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Trade payables                                                                    $    147         $    116
Employees and payroll accruals                                                         131               87
Accrued expenses and other payables                                                    653              475
Convertible notes, net (note 8)                                                          -            8,881
Liabilities related to discontinued operations (note 5)                                177              504
                                                                                  --------         --------

TOTAL CURRENT LIABILITIES                                                            1,108           10,063

Warrants to issue shares                                                               183              598
Commitments and other contingent liabilities (note 9)                                    -                -
                                                                                  --------         --------

TOTAL LIABILITIES                                                                    1,291           10,661
                                                                                  ========         ========

STOCKHOLDERS' EQUITY (DEFICIENCY):
Capital Stock (note 10):
Preferred stock of $0.01 par value - Authorized: 10,000,000 shares; Issued
   and outstanding: 0 shares as of December 31, 2010 and as of December
   31, 2009)                                                                             -                -
Common stock of $0.01 par value - Authorized: 75,000,000 as of December
  31, 2010 (50,000,000 shares as of December 31, 2009); Issued and
  outstanding: 41,493,449 shares as of December 31, 2010 (16,472,968
  shares as of December 31, 2009)                                                      415              164
Additional paid-in capital                                                          17,068           13,661
Accumulated other comprehensive income                                                 118              118
Accumulated deficit                                                                (16,055)         (20,942)
                                                                                  --------         --------

TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)                                              1,546           (6,999)
                                                                                  --------         --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIENCY)                            $  2,837         $  3,662
                                                                                  ========         ========

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,
                                                                 --------------------------
                                                                    2010            2009
                                                                 ----------      ----------

Revenues (Note 13)                                               $    2,812      $    3,014
Cost of revenues                                                        454             373
                                                                 ----------      ----------

Gross profit                                                          2,358           2,641
                                                                 ----------      ----------

Operating expenses:
   Research and development, net                                        160              91
   Selling and marketing                                                890             430
   General and administrative                                         1,221             534
                                                                 ----------      ----------
   Total operating expenses                                           2,271           1,055
                                                                 ----------      ----------

Operating profit (loss)                                                  87           1,586
                                                                 ----------      ----------

Gain from extinguishment of convertible debt                          5,881               -
Financial income (expense), net                                          86            (562)
Financial income (expenses) related to convertible notes
   and warrants, net                                                    415          (1,914)
                                                                 ----------      ----------
Total financial income (expenses), net (Note 12)                      6,382          (2,476)
                                                                 ----------      ----------

Net profit (loss) before taxes                                        6,469            (890)
Taxes on income                                                         100               -
                                                                 ----------      ----------

Net profit (loss) from continued operations                           6,369            (890)
                                                                 ----------      ----------

Net loss from discontinued operations (Note 5)                        1,482             578
                                                                 ----------      ----------

Net profit (loss)                                                $    4,887      $   (1,468)
                                                                 ==========      ==========

Net profit (loss) per share from continuing operations:
Basic                                                            $     0.17      $    (0.05)
                                                                 ==========      ==========

Diluted                                                          $     0.16      $    (0.05)
                                                                 ==========      ==========

Net loss per share from discontinued operations:
Basic                                                            $    (0.04)     $    (0.04)
                                                                 ==========      ==========

Net profit (loss) per share:
Basic                                                            $     0.13      $    (0.09)
                                                                 ==========      ==========

Diluted                                                          $     0.12      $    (0.09)
                                                                 ==========      ==========

Weighted average number of common stock used in computing
   basic net profit (loss) per share                             36,752,484      16,472,968
                                                                 ==========      ==========

Weighted average number of common stock used in computing
   diluted net profit (loss) per share                           39,770,077      16,472,968
                                                                 ==========      ==========

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

BALANCE AS OF JANUARY 1, 2008                     $    161    $ 14,279           -      $    118        $(18,177)   $ (3,619)
                                                  ========    ========    ========      ========        ========    ========

Stock based compensation                                 -         159           -             -               -         159
Issuance of 179,696 shares of common stock
   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)
                                                  ========    ========    ========      ========        ========    ========

Stock based compensation                                 -         601           -             -               -         601
Conversion of convertible notes                        160       1,840           -             -               -       2,000
Private placement, net                                  90         965           -             -               -       1,055
Exercise of 20,481 options into 20,481
   shares of common stock                                1           1           -             -               -           2
NET PROFIT                                               -           -           -             -           4,887       4,887
                                                  --------    --------    --------      --------        --------    --------

BALANCE AS OF DECEMBER 31, 2010                   $    415    $ 17,068           -      $    118        $(16,055)   $  1,546
                                                  ========    ========    ========      ========        ========    ========

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

                                                                               YEAR ENDED DECEMBER 31,
                                                                                --------------------
                                                                                  2010        2009
                                                                                -------      -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss)                                                               $ 4,887      $(1,468)
Adjustments required to reconcile net loss to net cash used in operating
   activities:
Depreciation and amortization                                                        29          434
Decrease (increase) in restricted cash balances                                    (253)         352
Decrease (increase) in trade receivables                                             59         (174)
Non cash financial expenses related to convertible notes, net                         -        1,794
Gain from extinguishment of convertible debt                                     (5,881)           -
Increase in other accounts receivable and prepaid expenses                            -          (12)
Decrease (increase) in inventories                                                  (36)         129
Decrease (increase) in Assets related to discontinued operations                    176          (51)
Increase in trade payables                                                           31           16
Increase in employees and payroll accruals                                           44           15
Changes in warrants to issue shares                                                (415)        (279)
Share based compensation                                                            601           61
Increase in accrued expenses and other payables                                     178           90
Increase (decrease) in liabilities related to discontinued operations              (327)          55
                                                                                -------      -------

NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES                                (907)         962
                                                                                =======      =======

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                                                  (13)          (5)
Long-term lease deposits made                                                       (11)           -
                                                                                -------      -------

NET CASH USED BY INVESTING ACTIVITIES                                               (24)          (5)
                                                                                =======      =======

CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in restricted cash                                                          500       (1,500)
Proceeds from options exercise, net                                                   2            -
Proceeds from private placement, net                                              1,055            -
                                                                                -------      -------

NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES                               1,557       (1,500)
                                                                                =======      =======

Increase (decrease) in cash and cash equivalents                                    626         (543)
Cash and cash equivalents at the beginning of the year                            1,283        1,826

Cash and cash equivalents at the end of the year                                $ 1,909      $ 1,283
                                                                                =======      =======

NON-CASH TRANSACTIONS
Conversion of debt to shares                                                    $ 2,000      $     -
                                                                                =======      =======
Repayment as part of debt restructuring from restricted cash                    $ 1,000      $     -
                                                                                =======      =======

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

                                     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 on 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 2010, 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, 2010, 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, 2010, InkSure RF Inc. is inactive).

     B.   On January 19, 2010, the Company, together with a group of investors,
          (or the "Investors"), paid to our note holders, (or the
          "Noteholders"), a total of $3,000 in order to settle the entire $8,881
          in convertible notes, (or the" Notes"), that were outstanding at the
          time.

          As a result of the convertible debt extinguishment, the Company
          recorded a $5,881gain. An amount of $1,000 of the funds was provided
          by the Company from available cash as a bridge, and the balance of
          $2,000 was provided by the Investors. In consideration for the $2,000
          paid by the Investors, $6,881 in Notes were retired and $2,000 in
          Notes remained outstanding as a secured senior obligation to the
          Investors in accordance with the terms of the Notes.

          In addition, as part of the transaction, we and the Noteholders
          exchanged mutual releases, all of our Series B-1 and Series B-2
          Warrants issued in the names of the Noteholders, which were
          exercisable for an aggregate of 15,000,000 shares of our common stock,
          were cancelled, and our Series A Warrants issued in the name of one of
          the Noteholders, which were exercisable for an aggregate of 3,570,337
          shares of our common stock at an exercise price of $0.60 per share,
          were amended, such that they may be exercised for an aggregate of
          2,183,000 shares of our common stock at an exercise price of $0.15 per
          share.

          On March 11, 2010, the Company closed a private placement financing,
          raising a total amount of $1,125 from twenty different accredited
          investors, (or the "New Investors"), of which $1,000 was used to
          replenish the $1,000 advanced as a bridge by the Company, and $125 was
          used for legal and other costs in connection with the private
          placement and for working capital purposes.

          In connection with the private placement, the Company issued
          25,000,000 shares of its common stock, (or the "Shares"), at a
          purchase price of $0.125 per share, of which 16,000,000 Shares were
          issued to the Investors in settlement of their $2,000 in Notes, and
          9,000,000 Shares were issued to the New Investors in consideration for
          the $1,125 invested by them.

                                     F - 7
```

```

     C.   At the end of 2010, our Board of Directors decided to discontinue all
          further research and development of projects which were not directly
          related to our core business of anti-counterfeiting and brand
          protection solutions, including our Radio Frequency Identification, or
          RFID, product, SARCode, and its related technologies. Accordingly, the
          Company will no longer continue development of SARCode. The Company
          will use its available resources to grow the current business of
          anti-counterfeiting.

          The Company will continue to protect its portfolio of Intellectual
          Property and continue to seek strategic partners who have the
          experience, the know-how and financial ability to bring SARCode and
          its related technologies to market. The Company will also continue to
          support its current SARCode portfolio. Please refer to note 5.

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.

     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 - 8
```

```

     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.   IMPAIRMENT OF LONG-LIVED ASSETS

          The Company's long-lived assets and certain identified intangibles are
          reviewed for impairment in accordance with ASC Topic 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.

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

     I.   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
          TagSure 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.

     J.   RESEARCH AND DEVELOPMENT COSTS:

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

     K.   BASIC AND DILUTED NET PROFIT (LOSS) PER SHARE:

          Basic and diluted net profit (loss) per share is presented in
          accordance with ASC Topic 260 "Earnings Per Share" for all periods
          presented. Basic and diluted net profit (loss) per share of common
          stock was determined by dividing net profit (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 year 2009 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 year 2009 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 19,734,420 for the year ended December 31, 2009.

          The total number of shares related to the outstanding options excluded
          from the calculations of diluted net loss per share was 1,280,000 for
          the year ended December 31, 2010.

                                     F - 9
```

```

     L.   INCOME TAXES:

          The Company accounts for income taxes in accordance with ASC Topic 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.

     M.   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.

     N.   FAIR VALUE OF 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.

     O.   SHARE-BASED COMPENSATION:

          The Company applies ASC Topic 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 ASC
          Topic 718 which were $601 and $61 during 2010 and 2009, respectively.

          The fair market value of each option grant in 2010 was estimated on
          the date of grant using the Black-Scholes Merton option pricing" model
          with the following weighted-average assumptions: (1) expected life of
          2.5 - 3.5 years; (2) dividend yield of 0% (3) expected volatility of
          184% - 225% and (4) risk-free interest rate of 0.54% - 1.6%.

                                     F - 10
```

```

     P.   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. ASC Topic 820 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.

     Q.   RECENTLY ISSUED ACCOUNTING STANDARDS

          In January 2010, the FASB issued ASU No. 2010-06, "Fair Value
          Measurements and Disclosures", that requires reporting entities to
          make new disclosures about recurring or nonrecurring fair-value
          measurements including significant transfers into and out of Level 1
          and Level 2 fair-value measurements and information on purchases,
          sales, issuances, and settlements on a gross basis in the
          reconciliation of Level 3 fair-value measurements. The FASB also
          clarified existing fair-value measurement disclosure guidance about
          the level of disaggregation, inputs, and valuation techniques. The new
          and revised disclosures are required to be implemented in interim or
          annual periods beginning after December 15, 2009, except for the gross
          presentation of the Level 3 rollforward, which is required for annual
          reporting periods beginning after December 15, 2010. The adoption of
          this update did not have material impact on the Company's consolidated
          financial statements.

          On February 24, 2010, the FASB issued ASU 2010-09, which amends ASC
          855 to address certain implementation issues related to an entity's
          requirement to perform and disclose subsequent-events procedures. The
          ASU adds a definition of the term "SEC filer" to the ASC Master
          Glossary and requires (1) SEC filers and (2) conduit debt obligors for
          conduit debt securities that are traded in a public market to
          "evaluate subsequent events through the date the financial statements
          are issued." All other entities are required to "evaluate subsequent
          events through the date the financial statements are available to be
          issued." In addition the ASU exempts SEC filers from disclosing the
          date through which subsequent events have been evaluated, removes the
          definition of "public entity" from the ASC 855 Glossary and adds a
          definition of the term "revised financial statements" to the ASC
          Master Glossary. all of the amendments in this Update are effective
          immediately and shall be applied prospectively. The adoption of this
          update did not have material impact on the Company's consolidated
          financial statements.

                                     F - 11
```

```

          In April 2010, the FASB issued ASU 2010-13 - Compensation-Stock
          Compensation (Topic 718): Effect of Denominating the Exercise Price of
          a Share-Based Payment Award in the Currency of the Market in Which the
          Underlying Equity Security Trades to clarify the classification of an
          employee share-based payment award with an exercise price denominated
          in the currency of a market in which the underlying equity security
          trades. This update provides amendments to Topic 718 to clarify that
          employee share-based payment awards with an exercise price denominated
          in the currency of a market in which a substantial portion of the
          entity's equity securities trades should also be classified as an
          equity award. The update is effective for periods beginning after
          December 15, 2010. The adoption of this update is not expected to have
          a material impact on the company's consolidated financial position,
          results of operations or cash flows.

          In April 2010, the FASB issued Revenue Recognition-Milestone Method
          (Topic 605): Milestone Method of Revenue Recognition (a consensus of
          the FASB Emerging Issues Task Force). The amendments in this update
          provide guidance on the criteria that should be met for determining
          whether the milestone method of revenue recognition is appropriate. A
          vendor can recognize consideration that is contingent upon achievement
          of a milestone in its entirety as revenue in the period in which the
          milestone is achieved only if the milestone meets all criteria to be
          considered substantive as defined in the ASU. A vendor's decision to
          use the milestone method of revenue recognition for transactions
          within the scope of the amendments in this update is a policy
          election. Other proportional revenue recognition methods also may be
          applied as long as the application of those other methods does not
          result in the recognition of consideration in its entirety in the
          period the milestone is achieved. The update is effective on a
          prospective basis for milestones achieved in fiscal years, and interim
          periods within those years, beginning on or after June 15, 2010. The
          adoption of this update is not expected to have a material impact on
          the Company's consolidated financial statements.

          On July 21, 2010, the FASB issued ASU 2010-20 - Receivables (Topic
          310): Disclosures about the Credit Quality of Financing Receivables
          and the Allowance for Credit Losses, which amends ASC 310 by requiring
          more robust and disaggregated disclosures about the credit quality of
          an entity's financing receivables and its allowance for credit losses.
          The objective of enhancing these disclosures is to improve financial
          statement users' understanding of (1) the nature of an entity's credit
          risk associated with its financing receivables and (2) the entity's
          assessment of that risk in estimating its allowance for credit losses
          as well as changes in the allowance and the reasons for those changes.
          The amendments in this update are effective for interim and annual
          reporting periods ending on or after December 15, 2010. The adoption
          of this update is not expected to have material impact on the
          Company's consolidated financial statements.

          The Company does not expect the adoption of the above recently issued
          accounting standards to have a material effect on the financial
          position of the company at December 31, 2010.

NOTE 3 - OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

                               AS OF DECEMBER 31,
                              ------------------
                               2010        2009
                              -------    -------

Government authorities        $    17    $    13
Prepaid expenses                   26         20
Other                               -         10
                              -------    -------
                              $    43    $    43
                              =======    =======

                                     F - 12
```

```

NOTE 4 - INVENTORIES

                                          AS OF DECEMBER 31,
                                         -------------------
                                          2010         2009
                                         -------     -------

Raw materials, parts and supplies        $   211     $   156
Finished products                             18          37
                                         -------     -------
                                         $   229     $   193
                                         =======     =======

NOTE 5 - DISCONTINUED OPERATIONS

At the end of 2010, our Board of Directors decided to discontinue all further
research and development of projects which were not directly related to our core
business of anti-counterfeiting and brand protection solutions, including our
Radio Frequency Identification, or RFID, product, SARCode, and its related
technologies. Accordingly, the Company will no longer continue development of
SARCode. The Company will use its available resources to grow the current
business of anti-counterfeiting.

                                                        AS OF DECEMBER 31,
                                                       -------------------
                                                         2010       2009
                                                       -------     -------

Trade receivables                                      $     -     $    93
Other accounts receivable and prepaid expenses               -          48
Property and equipment, net                                 89         128
Long term deposit                                            4           -
                                                       -------     -------
Total assets related to discontinued operations        $    93     $   269
                                                       =======     =======

                                                        AS OF DECEMBER 31,
                                                       -------------------
                                                        2010         2009
                                                       -------     -------

Trade payables                                         $    17     $   132
Employees and payroll accruals                              55          77
Accrued expenses and other payables                        105         295
                                                       -------     -------
Total liabilities related to discontinued
operations                                             $   177     $   504
                                                       =======     =======

                                             YEAR ENDED DECEMBER 31,
                                             ---------------------
                                              2010           2009
                                             -------       -------

Revenues                                     $     -       $   321
Cost of revenues                                   -             -
                                             -------       -------

GROSS PROFIT                                       -           321
                                             -------       -------

Operating expenses:
   Research and development, net               1,291           777
   General and administrative                    191           122
                                             -------       -------
   Total operating expenses                    1,482           899
                                             -------       -------

Net loss from discontinued operations        $ 1,482       $   578
                                             =======       =======

                                     F - 13
```

```

NOTE 6 - PROPERTY AND EQUIPMENT, NET

                                              AS OF DECEMBER 31,
                                             -------------------
                                              2010        2009
                                             -------     -------

Cost:
   Computers and peripheral equipment        $   452     $   439
   Office furniture and equipment                128         128
   Leasehold improvements                        126         126
                                             -------     -------
                                                 706         693
                                             -------     -------

Accumulated depreciation:
   Computers and peripheral equipment        $   406     $   382
   Office furniture and equipment                107         102
   Leasehold improvements                        126         126
                                             -------     -------
                                                 639         610
                                             =======     =======

Net book value                               $    67     $    83
                                             =======     =======

     Depreciation expenses for the years ended December 31, 2010 and 2009,
     amounted to $29 and $34, respectively.

NOTE 7 - 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 December 31, 2009 and
     2010, the Company made full contributions towards its severance pay
     obligation for its employees.

NOTE 8 - CONVERTIBLE NOTES

     ISSUANCE OF CONVERTIBLE NOTES

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

     The 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 was 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 in these Convertible Notes had the right to participate up to
     one-third with any subsequent equity or equity-linked capital raising by
     the Company.

     In accordance with the issuing of the Convertible Notes, the Company
     accrued issuance charges in the amount of $696 which 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.

                                     F - 14
```

```

     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
     pursuant to amendment, exchange and purchase agreements. The private
     placement resulted in gross proceeds of $3,000, of which $750 was placed in
     a cash collateral account to secure interest payments under the notes.
     Pursuant to the agreements, the investors were issued $3,000 principal
     amount of new notes and exchanged their $6,000 principal amount of the
     Convertible Notes for the same principal amount of Senior Secured
     Convertible Notes, each of which is convertible into shares of common stock
     at a conversion price is $0.60, subject to adjustment. The new Senior
     Secured Convertible Notes were secured by assets of the Company and its
     subsidiaries and were guaranteed by each of the Company's subsidiaries. In
     addition, all of the shares of each of the Company's subsidiaries were
     pledged as collateral to secure the obligations under the new Senior
     Secured Convertible Notes, the security agreements and related documents.
     The investors had the option to require the Company to redeem all or any
     portion of the outstanding principal amount of the new Senior Secured
     Convertible Notes in cash plus accrued but unpaid interest on or after
     September 30, 2009.

     The Company had the option to require the investors to convert all or any
     portion of the new Senior Secured Convertible Notes into shares of common
     stock upon the occurrence of certain conditions relating to the trading
     price of its 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 the Company has established to secure interest
     payments under the new Senior Secured Convertible Notes based on the
     principal amount of the new Senior Secured Convertible Notes that would
     have been required to be converted. The Company had the option to also
     redeem the new notes at any time by paying the investors a premium of
     5%-25% of the outstanding principal amount of the Senior Secured
     Convertible 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 would have had to also issue to the investors
     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 its
     assets in the ink business, it might have been required to redeem the
     Senior Secured Convertible 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 Senior Secured Convertible Notes at 125%
     of their outstanding principal amount. The Senior Secured Convertible Notes
     were due on September 30, 2010, unless they were redeemed or converted
     earlier. In addition, the Company issued to the investors warrants to
     acquire 3,570,337 shares at an exercise price of $0.60. These warrants had
     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 $119 of Senior
     Secured Convertible Notes into an aggregate of 198,200 shares of the
     Company's 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 December 31, 2009, 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, the Company, together with the Investors, paid to the
     Noteholders, a total of $3,000 in order to settle the entire $8,881 Notes,
     that were outstanding at the time.

     As a result of the convertible debt extinguishment, the Company recorded a
     $5,881gain. An amount of $1,000 of the funds was provided by us from
     available cash as a bridge, and the balance of $2,000 was provided by the
     Investors. In consideration for the $2,000 paid by the Investors, $6,881 in
     Notes were retired and $2,000in Notes remained outstanding as a secured
     senior obligation to the Investors in accordance with the terms of the
     Notes.

                                     F - 15
```

```

     In addition, as part of the transaction, we and the Noteholders exchanged
     mutual releases, all of our Series B-1 and Series B-2 Warrants issued in
     the names of the Noteholders, which were exercisable for an aggregate of
     15,000,000 shares of our common stock, were cancelled, and our Series A
     Warrants issued in the name of one of the Noteholders, which were
     exercisable for an aggregate of 3,570,337 shares of our common stock at an
     exercise price of $0.60 per share, were amended, such that they may be
     exercised for an aggregate of 2,183,000 shares of our common stock at an
     exercise price of $0.15 per share.

     On March 11, 2010, the Company closed a private placement financing,
     raising a total amount of $1,125from the New Investors, of which $1,000 was
     used to replenish the $1,000 advanced as a bridge by the Company, and
     $125was used for legal and other costs in connection with the private
     placement and for working capital purposes.

     In connection with the private placement, the Company issued 25,000,000
     Shares at a purchase price of $0.125 per share, of which 16,000,000 Shares
     were issued to the Investors in settlement of their $2,000 in Senior
     Secured Convertible Notes, and 9,000,000 Shares were issued to the New
     Investors in consideration for the $1,125 invested by them.

                                                       AS OF JANUARY 1,
                                                   -----------------------
                                                    2010            2009
                                                   -------         -------

Convertible note                                   $ 8,881         $ 8,881
Gain from extinguishment of convertible Debt        (5,881)             --
Consideration to convertible noteholders *          (3,000)             --
                                                   -------         -------
As of December 31                                  $    --         $ 8,881
                                                   =======         =======

* Include $1,000 which was paid in cash by the Company and $2,000 were paid
directly by Investors who later converted the notes to shares.

NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES

     A.   LEASE COMMITMENTS:

          As of December 31, 2010, 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 2013. The future lease
          payments under non-cancelable office and car leases as of December 31,
          2010, are as follows:

          2011                         $        137
          2012                                   79
          2013                                   21
                                       ------------
                                       $        237
                                       ------------

     B.   CHARGES AND GUARANTEES:

          The Company provided bank guarantees in the amount of $15 to secure
          its lease commitments.

                                     F - 16
```

```

     C.   LEGAL PROCEEDINGS:

          On July 25, 2010, InkSure Ltd. entered into a settlement and release
          agreement, or the Settlement Agreement, with Vuance Ltd. (previously
          known as SuperCom Ltd., and the former owner of InkSure, referred to
          as SuperCom, and collectively with InkSure, as the Defendants) and
          with Secu-System Ltd., an Israeli company, or Secu-System or
          Plaintiff) in order to settle all claims and disputes that had arisen
          between the parties more than 10 years ago, in connection with certain
          claims filed by Secu-System claiming 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
          Defendants; (3) a breach of fiduciary duties owed to the Plaintiff;
          and (4) a tort of misappropriation of trade secret and damage to
          Plaintiff's property.

          Pursuant to the Settlement Agreement the Defendants would pay to the
          Plaintiff an aggregate amount, which would be between NIS1,500 and
          NIS2,000 (approximately between $390 and $520 at the exchange rate as
          of July 25, 2010), with the exact amount, or the Settlement Amount, to
          be determined by a Mediatoras follows:

               - Each of InkSure and SuperCom shall be responsible, severally
          but not jointly, to pay 50% of the Settlement Amount;

               - Within 10 business days after the execution of the Settlement
          Agreement, InkSure shall deposit 50% of the Settlement Amount in trust
          with a trustee, ;

               - SuperCom shall deposit its 50% of the Settlement Amount with
          the Trustee in 10 equal monthly installments, commencing on the first
          calendar month after the execution of the Settlement Agreement.
          SuperCom's payments shall carry linkage differentials and an annual
          interest at the rate of a 4% per annum;

               - Should SuperCom fail to pay any of the monthly installments
          within 7 days of its due date, its entire share of the Settlement
          Amount shall become immediately due.

          The Settlement Agreement shall become effective, and the parties will
          notify the Court so, upon the occurrence of either of the following
          conditions:

               - After SuperCom shall deposit its entire share of the Settlement
          Amount with the Trustee and the Trustee shall transfer the entire
          Settlement Amount to Plaintiff's counsel; or

               - At the Plaintff's option, upon a written notice from the
          Plaintiff to Defendants, notifying them that Plaintiff decided to
          regard the Settlement Agreement as effective (at which case the
          Trustee shall immediately transfer to Plaintiff the entire amount held
          by him at such time. In such case Plaintiff shall remain entitled to
          the entire Settlement Amount.)

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

          On November 30, 2010, the Mediator rendered his decision awarding the
          Plaintiff the aggregate Settlement Amount of NIS 1,786 (approximately
          $485 at the official Bank of Israel exchange rate as of November 30,
          2010), of which each of the defendants is required to pay one-half or
          NIS 893 (approximately $242 at the official Bank of Israel exchange
          rate as of November 30, 2010).

          In accordance with the terms of the Settlement Agreement, Inksure Ltd.
          deposited on December 30, 2010 its share of the Settlement Amount in
          trust with the trustee.

     D.   R&D GRANTS:

          From June 2005 through December 2010, the Company has received
          non-royalty-bearing grants aggregating $240 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. From
          2007 through December 31, 2010, the Company received a governmental
          research and development grants of approximately $1,905 (2007 - $394,
          2008 - $402, 2009 - $745, 2010 - $364) 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
          grants partially cover 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.

                                     F - 17
```

```

          Following the submission of the last research and development grant
          program report (for the period starting April 1, 2009 through March
          31, 2010) and the following OCS audit, on January 9, 2011, the Company
          received from the OCS a demand for return of $99 due to unapproved
          expenses. The company filed an objection with the OCS rejecting this
          claim and provided explanations for such expenses. As of the date of
          this report the Company did not receive from the OCS any response to
          its objection. The company accrued this amount in the financial
          reports as accrued expenses.

NOTE 10 - 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:

          At the annual meeting of stockholders the Company held on September
          21, 2010 (the "Annual Meeting"), the Company's stockholders approved
          and ratified amendments to the Company's 2002 Employee, Director and
          Consultant Stock Option Plan (the "2002 Plan") to increase the number
          of shares of Common Stock which can be issued to employees, directors
          and consultants of the Company under the 2002 Plan from 3,500,000
          shares to 10,000,000 shares.

          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, 2010, an aggregate of 3,930,481 options are still
          available for future grant under the Plan.

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

                                                   YEAR ENDED DECEMBER 31,
                                    --------------------------------------------------------
                                               2010                        2009
                                    --------------------------    -------------------------
                                                      WEIGHTED                     WEIGHTED
                                                      AVERAGE                       AVERAGE
                                    AMOUNT OF        EXERCISE     AMOUNT OF        EXERCISE
                                    OPTIONS            PRICE       OPTIONS           PRICE
                                    ---------        ---------    ---------        ---------

Outstanding at beginning of year    1,014,083        $    1.05    3,230,450        $    1.12
Granted                             6,320,000        $    0.17            -        $       -
Exercised                              20,481        $    0.19            -        $       -
Forfeited                           1,244,083        $    0.88    2,216,367        $    1.60
                                    ---------        ---------    ---------        ---------
Outstanding at end of year          6,069,519        $    0.18    1,014,083        $    1.05
                                    =========        =========    =========        =========
Exercisable at end of year          3,052,018        $    0.22      760,916        $    1.22
                                    =========        =========    =========        =========

                                     F - 18
```

```

     o    The Company recognized compensation expenses of $601 and $61 for the
          years ended December 31, 2010 and 2009, respectively.

     o    The weighted average fair value of the granted options in 2010 was $
          0.18.

     C.   STOCK WARRANTS*:

          The Company has issued warrants, as follows:

                           OUTSTANDING                               EXERCISABLE
                              AS OF                                     AS OF
  ISSUANCE DATE           DECEMBER 31 2010     EXERCISE PRICE     DECEMBER 31, 2010     EXERCISABLE 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 (NOTE 8)

          (1) Issued to a consultant of the company.

          (2) Issued to a consultant of the company.

          (3) Issued to a consultant of the company.

NOTE 11 - TAXES ON INCOME

     A.   TAX RATES APPLICABLE TO THE INCOME OF THE COMPANY: Taxable income of
          an Israeli company is subject to tax at the rate of 25% in 2010.

          In July 2009 an amendment to the Israeli tax law was approved by the
          Israeli parliament, which reduces the tax rates imposed on Israeli
          companies. This amendment states that the corporate tax rate will be
          further reduced in subsequent tax years as follows: in 2011 - 24%, in
          2012 - 23%, in 2013 - 22%, 2014 - 21% , 2015 - 20% and thereafter 18%.
          This change did not have a material effect on the Company's financial
          statements.

     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,
                                               -----------------------
                                                2010            2009
                                               -------         -------

Net loss carry-forward                         $ 4,014         $ 3,938
Other deductions for tax purposes                 (101)             58
                                               -------         -------

Net deferred tax asset before valuation
allowance                                        3,913           3,996
Valuation allowance                             (3,913)         (3,996)
                                               -------         -------

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.

                                     F - 19
```

```

          Net profit (loss) was incurred as following:

                      YEAR ENDED DECEMBER 31,
                     -----------------------
                      2010            2009
                     -------         -------

United States        $ 5,025         $(2,727)
Israel                  (138)          1,259
                     -------         -------
                     $ 4,887         $(1,468)
                     =======         =======

     C.   TAX LOSS CARRY-FORWARDS:

          Net operating loss carry-forwards as of December 31, 2010 are as
          follows:

          Israel                    $        8,320
          United States *                    7,735
                                    --------------

                                    $       16,055
                                    ==============

          Net operating losses in Israel may be carried forward indefinitely.
          Net operating losses in the U.S. are available through 2027.

          *    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.

     D.   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. The most significant component of the Company's deferred tax
          assets is the accumulated net operating losses carry-forward among the
          two subsidiaries due to the uncertainty of the realization of such tax
          benefits.

NOTE 12 - FINANCIAL INCOME (EXPENSES), NET

                                                                   YEAR ENDED DECEMBER 31,
                                                                    -------------------
                                                                     2010         2009
                                                                    -------     -------

Gain on debt restructuring                                          $ 5,881     $     -
Interest, bank charges and fees, net                                    107        (554)
Foreign currency translation differences                                (21)         (8)
Non cash income (expenses) related to convertible notes, net            415      (1,914)
                                                                    -------     -------
                                                                    $ 6,382     $(2,476)
                                                                    =======     =======

                                     F - 20
```

```

NOTE 13 - 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, 2010 and 2009, based on the customer's location and long-lived
          assets as of December 31, 2010 and 2009:

                                  2010                        2009
                          --------------------        --------------------
                          TOTAL       LONG-LIVED      TOTAL       LONG-LIVED
                         REVENUES     ASSETS. NET    REVENUES     ASSETS, NET
                          ------        ------        ------        ------

United States             $  893        $    -        $  456        $    -

   Asia and Europe         1,919                       2,558
   Israel                                   67                          83
                          ------        ------        ------        ------

                          $2,812        $   67        $3,014        $   83
                          ======        ======        ======        ======

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

                                         YEAR ENDED DECEMBER 31,
                                      ------------------------------
                                          2010            2009
                                      -------------   --------------

Customer A                                 56%              71%
Customer B                                 21%              11%
Customer C                                 10%              10%

NOTE 14 - SUBSEQUENT EVENTS

     A.   On February 7, 2011 the Company's Board of Directors unanimously
          approved that the officers of the Company be and they hereby are
          authorized and directed to pay to the outside directors the accrued
          but unpaid compensation for year 2010 by the issuance of shares of the
          Company's common stock at the fair market value of the shares at the
          date of issuance, which shares upon issuance shall be fully paid and
          non-assessable shares of common stock of this corporation and shall
          bear the appropriate SEC restricted legend. The shares were actually
          issued on March 3, 2011.

     B.   On March 3, 2011, the Company was served with an action initiated by
          Tzlil Peker, its former chief financial officer. The action that was
          filed with the Tel Aviv Regional Labor Court, includes various claims
          regarding alleged events surrounding the termination of Mr. Peker's
          employment, as well as a claims for allegedly due and owing salary and
          benefits in the total amount of NIS 177 (approximately $49 in
          accordance with the applicable NIS/$ exchange rate on March 3, 2011.)
          The Company has 30 days from the date of service, to file its answer
          with the court.

                                     F - 21
```

```

                                 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/ Tal Gilat                    Chief Executive Officer                        March 29, 2011
------------------------------
Tal Gilat

     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/ Tal Gilat                   Chief Executive Officer                         March 29, 2011
------------------------------
Tal Gilat

/s/ Gadi Peleg                  Chairman of the Board                           March 29, 2011
------------------------------
Gadi Peleg

/s/ Dadi Avner                  Chief Financial Officer                         March 29, 2011
------------------------------  (Principal Financial and Accounting Officer)
Dadi Avner

/s/ Alon Raich                  Director                                        March 29, 2011
------------------------------
Alon Raich

/s/ David W. Sass               Director                                        March 29, 2011
------------------------------
David W. Sass

/s/ Pierre L. Schoenheimer      Director                                        March 29, 2011
------------------------------
Pierre L. Schoenheimer

/s/ Jonathan Bettsak            Director                                        March 29, 2011
------------------------------
Jonathan Bettsak

                                       43
```