Manuka, Inc. - Quarter Report: 2010 September (Form 10-Q)

NOTE 1:- BASIS OF PRESENTATION

     The accompanying condensed unaudited interim consolidated financial
statements have been prepared by INKSURE TECHNOLOGIES INC., or the Company, in
accordance with accounting principles generally accepted in the United States of
America or US GAAP for interim financial information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. These financial statements reflect
all adjustments, consisting of normal recurring adjustments and accruals, which
are, in the opinion of management, necessary for a fair presentation of the
financial position of the Company as of September 30, 2010 and the results of
operations and cash flows for the interim periods indicated in conformity with
US GAAP applicable to interim periods. Accordingly, certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with US GAAP have been condensed or omitted. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto of the Company for the year ended December 31, 2009 that are
included in the Company's Form 10-K filed with the Securities and Exchange
Commission on February 26, 2010. The results of operations presented are not
necessarily indicative of the results to be expected for future quarters or for
the year ending December 31, 2010.

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

NOTE 2:- PAST PERIOD NEGATIVE CASH FLOWS AND LOSSES

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

NOTE 3:- DEBT RESTRUCTURING AND CLOSING OF PRIVATE PLACEMENT

     On January 19, 2010, 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. In consideration for the $3,000,000
received by the Noteholders ($2,000,000 from the Investors and $1,000,000
advanced by the Company as a bridge), $6,881,000 in Notes were retired and
$2,000,000 in Notes were assigned to the Investors.

     In addition, on March 11, 2010, we closed a private placement financing,
raising an additional amount of $1,125,000 from a group of new 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, the Company
issued 25,000,000 shares of common stock, or the Shares, 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.

NOTE 4:- LEGAL PROCEEDINGS

     On December 12, 1999, Secu-System Ltd. filed a lawsuit with the District
Court in Tel Aviv-Jaffa against Supercom Ltd. (the former owner of the company's
business) and InkSure Ltd. seeking a permanent injunction and damages at an
estimated amount of NIS 500,000 (approximately $ 136,427 at the exchange rate as
of September 30, 2010) asserting that the printing method applied to certain
products that have been developed by InkSure Ltd. constitutes, inter alia: (a)
breach of a confidentiality agreement between the plaintiff and Supercom; (b)
unjust enrichment of Supercom (by virtue of the sale of our shares) and InkSure
Ltd.; (c) a breach of fiduciary duties owed to the plaintiff by Supercom and
InkSure Ltd.; and (d) a tort of misappropriation of trade secret and damage to
plaintiff's property. As part of its complaint, Secu-System sought, among other
things, an injunction and a 50% share of profits from the printing method at
issue. On July 25, 2010, following mediation, the parties entered into a
settlement and release agreement (the "Settlement Agreement").

     Pursuant to the Settlement Agreement, InkSure and SuperCom shall pay to
Secu-System an aggregate amount, which will be between NIS 1,500,000 - NIS
2,000,000 (approximately between $409,277 and $545,703 at the exchange rate of
September 30, 2010), with the exact amount (the "Settlement Amount") to be
determined by the mediator as follows: (i) each of InkSure and SuperCom shall be
responsible, severally but not jointly, to pay 50% of the Settlement Amount;
(ii) within 10 business days after the execution of the Settlement Agreement,
InkSure shall deposit 50% of the Settlement Amount in trust with the Trustee;
(iii) SuperCom shall deposit its 50% of the Settlement Amount with the Trustee
in 10 equal monthly installments, commencing on the first calendar month after
the execution of the Settlement Agreement. SuperCom's payments shall carry an
annual interest at the rate of a 4% per annum; and (iv) should SuperCom fail to
pay any of the monthly installments within 7 days of its due date, its entire
share of the Settlement Amount shall become immediately due. As of September 30,
2010, the Company has accrued an amount of $238,745 to cover its share of the
settlement costs.


                                       6

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

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

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

     This Quarterly Report on Form 10-Q contains statements that may constitute
"forward-looking statements". Generally, forward-looking statements include
words or phrases such as "anticipates," "believes," "estimates," "expects,"
"intends," "plans," "projects," "could," "may," "might," "should," "will" and
words and phrases of similar import. Such statements are based on management's
current expectations and are subject to a number of risks and uncertainties,
including, but not limited to, the difficulty inherent in operating an
early-stage company in a new and rapidly evolving market, market and economic
conditions, the impact of competitive products, product demand and market
acceptance risks, changes in product mix, our ability to improve our margins,
costs and availability of raw materials, fluctuations in operating results,
delays in development of highly complex products, risks from uncertainties
regarding litigation or mediation, risk of customer contract or sales order
cancellations and other risks detailed from time to time in our filings with the
Securities and Exchange Commission. These risks and uncertainties could cause
our actual results to differ materially from those described in the
forward-looking statements. Any forward-looking statement represents our
expectations or forecasts only as of the date it was made and should not be
relied upon as representing its expectations or forecasts as of any subsequent
date. Except as required by law, we undertake no obligation to correct or update
any forward-looking statement, whether as a result of new information, future
events or otherwise, even if our expectations or forecasts change.

     The following discussion and analysis should be read in conjunction with
the financial statements, related notes and other information included in this
Quarterly Report on Form 10-Q and with the Risk Factors included in Item 1A in
our Annual Report on Form 10-K for the year ended December 31, 2009.

     OVERVIEW

     We specialize in comprehensive security solutions, designed to protect
branded products and documents of value from counterfeiting, fraud, and
diversion. By creating "Smart Protection" systems from proprietary
machine-readable authentication technologies, we help governments, companies and
organizations worldwide regain control over their most valuable assets, their
products, their reputation and their revenues. We employ a team of experts in
the fields of material science, electro-optics and software. We utilize
cross-disciplinary technological innovations to implement customized and cost
efficient security systems for data and asset integrity within the customer's
existing infrastructure and environment.

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

     We are currently developing chipless Radio Frequency Identification, or
RFID, technology that is being designed to enable low-cost tagging of items.
This RFID technology is being designed to permit "no line of sight"
identification and to be suitable for a variety of applications, including
production floor control, authentication, supply chain management, proof of
ownership, and life cycle information.


                                       7

     REVENUES

     We concentrate on developing and implementing large-scale projects. Such
projects involve the use of our generic products and/or products developed for
such projects. These potential projects are subject to a long sales cycle and
the timetable is lengthy for entering and implementing such projects. We
anticipate that these projects would involve high volume sales through
multiple-year sales contracts. In the nine months ended September 30, 2010,
approximately 57% of our revenues were earned from one customer located in
Europe.

     COSTS AND OPERATING EXPENSES

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

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

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

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

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

     We have not recorded any income tax benefit for net losses and credits
incurred for any period from inception to September 30, 2010. The utilization of
these losses and credits depends on our ability to generate taxable income in
the future. Because of the uncertainty of our generating taxable income, we have
recorded a full valuation allowance with respect to these deferred assets.

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

     REVENUES. Revenues consist of gross sales of products less discounts. We
concentrate on developing and implementing large-scale projects. In the three
months ended September 30, 2010, we had revenue of $768,000, compared to
$935,000 in the three months ended September 30, 2009. The decrease in the
revenue is mainly due to lower volume of deliveries to one of our customers
located in Europe.

     COST OF REVENUES. Our cost of revenues consists of materials,
sub-contractors and compensation costs. Cost of revenues was $85,000 in the
three months ended September 30, 2010, compared to $117,000 in the three months
ended September 30, 2009. Cost of revenues as a percentage of sales was 11% in
the three months ended September 30, 2010, compared with 13% in the three months
ended September 30, 2009. The decrease in costs of revenue, both in absolute
terms and as a percentage of sales, in the three months ended September 30, 2010
was mainly due to lower materials and sub-contractors expenses in 2010.

     RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses
consist primarily of compensation costs attributable to employees engaged in
ongoing research and development activities, development-related raw materials
and sub-contractors, and other related costs. Research and development expenses,
net increased by $101,000, or 43%, to $337,000 in the three months ended
September 30, 2010 from $236,000 in the three months ended September 30, 2009.
This increase in research and development expenses is primarily related to lower
subcontractor's expenses $69,000 and lower governmental research and development
grants $170,000 in 2009.

     Research and development expenses in the three months ended September 30,
2010 included non-cash expenses of $11,000 regarding stock based compensation
related to the impact of ASC718-10.

     To date, all research and development expenses have been charged to
operating expenses as incurred.

     SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist
primarily of costs relating to compensation attributable to employees engaged in
sales and marketing activities, promotion, advertising, trade shows and
exhibitions, sales support, travel, commissions and related expenses. Selling
and marketing expenses increased by $133,000, or 132%, to $234,000 in the three
months ended September 30, 2010 from $101,000 in the three months ended
September 30, 2009. This increase in selling and marketing expenses is primarily
related to the increase in payroll expenses $101,000 and non-cash expenses
$32,000 related to the impact of ASC718-10.

     Selling and marketing expenses in the three months ended September 30, 2010
included non-cash expenses of $33,000 regarding stock based compensation related
to the impact of ASC718-10.


                                       8

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of compensation costs for administration, finance and general
management personnel, insurance, legal, accounting and administrative costs.
General and administrative expenses increased by $173,000, or 124%, to $312,000
in the three months ended September 30, 2010 from $139,000 in the three months
ended September 30, 2009. This increase in general and administrative expenses
is mainly due to the increase of non-cash expenses related to the implementation
of ASC718-10 in an amount of $50,000, increase in accrued board fees and
expenses $40,000 and increase in payroll expenses $60,000.

     General and administrative expenses in the three months ended September 30,
2010 included non-cash expenses of $57,000 regarding stock based compensation
related to the impact of ASC718-10.

     OPERATING PROFIT (LOSS). As a result of the foregoing, the Company had an
operating loss of $200,000 in the three months ended September 30, 2010 compared
to an operating profit of $342,000 in the three months ended September 30, 2009.

     FINANCIAL INCOME (EXPENSES), NET. Financial income, net changed by
$1,044,000 to financial income, net of $9,000 in the nine months ended September
30, 2010 from financial expenses, net of $1,035,000 in the three months ended
September 30, 2009. This change in financial income (expenses), net was
primarily due to decrease of $878,000 in non-cash financial expenses related to
warrants to issue shares and due to decrease of $134,000 in interest expenses on
Convertible notes.

     NET LOSS. We had a net loss of $191,000 in the three months ended September
30, 2010, compared with a net loss of $693,000 in the three months ended
September 30, 2009. The change in the net loss in the three months ended
September 30, 2010 compared to the net loss in the three months ended September
30, 2009 is attributable mainly to the change by $1,044,000 in the financial
income (expenses), net which was offset by the increase in the operating loss
$542,000.

NINE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2009

     REVENUES. In the nine months ended September 30, 2010, we had revenue of
$2,136,000, compared to $2,300,000 in the nine months ended September 30, 2009.
The decrease in the revenue is mainly due to lower volume of deliveries to one
of our customers located in Europe .

     COST OF REVENUES. Cost of revenues was $302,000 in the nine months ended
September 30, 2010, compared to $239,000 in the nine months ended September 30,
2009. Cost of revenues as a percentage of sales was 14% in the nine months ended
September 30, 2010, compared with 10% in the nine months ended September 30,
2009. The increase in costs of revenue, both in absolute terms and as a
percentage of sales, in the nine months ended September 30, 2010 was mainly due
to approximately $27,000 increase in provision for inventory write-offs in the
nine months ended September 30, 2010 and due to more profitable sales mix of
certain SmartInkTM products in 2009.

     RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses
increased by $367,000, or 49%, to $1,109,000 in the nine months ended September
30, 2010 from $742,000 in the nine months ended September 30, 2009. This
increase in research and development expenses is primarily related to the
decrease in governmental research and development grants $116,000, increase in
subcontractors expenses $142,000, increase in payroll expenses $67,000, increase
of non-cash expenses $49,000 related to the impact of ASC718-10 and decrease in
depreciation expenses $7,000.

     Research and development expenses in the nine months ended September 30,
2010 included non-cash expenses of $63,000 regarding stock based compensation
related to the impact of ASC718-10.

     To date, all research and development expenses have been charged to
operating expenses as incurred.

     SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased by
$257,000, or 67%, to $642,000 in the nine months ended September 30, 2010 from
$385,000 in the nine months ended September 30, 2009. This increase in selling
and marketing expenses was primarily due to increase of non-cash expenses of
$118,000 related to the impact of ASC718-10 and increase in payroll expenses
$139,000.

     Selling and marketing expenses in the nine months ended September 30, 2010
included non-cash expenses of $117,000 regarding stock based compensation
related to the impact of ASC718-10.

     GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $602,000, or by 131%, to $1,062,000 in the nine months ended
September 30, 2010 from $460,000 in the nine months ended September 30, 2009.
This increase in general and administrative expenses was primarily due to the
additional provision for legal expenses of $221,000 associated with the
settlement agreement reached with Secu-Systems (see Note 4 in the above
financial statements) and increase of $241,000 in non-cash expenses related to
the impact of ASC718-10, increase in accrued board fees and expenses $80,000 and
increase in payroll expenses $60,000.


                                       9

     General and administrative expenses in the nine months ended September 30,
2010 included non-cash expenses of $281,000 regarding stock based compensation
related to the impact of ASC718-10.

     OPERATING PROFIT (LOSS). As a result of the foregoing, the Company had an
operating loss of $979,000 in the nine months ended September 30, 2010 compared
to an operating profit of $474,000 in the nine months ended September 30, 2009.

     GAIN ON DEBT RESTRUCTURING. Gain on debt restructuring was $5,881,000 in
the nine months ended September 30, 2010 compared with zero gain on debt
restructuring in the nine months ended on September 30, 2009. The gain on debt
restructuring in the nine months ended on September 30, 2010 was as a result of
the restructuring of our senior secured convertible notes in January2010.

     FINANCIAL INCOME (EXPENSES), NET. Financial income, net changed by
$8,653,000 to financial income, net of $6,190,000 in the nine months ended
September 30, 2010 from financial expenses, net of $2,463,000 in the nine months
ended September 30, 2009. This change in financial income (expenses), net was
primarily due to gain on debt restructuring in amount of $5,881,000, due to
decrease of $2,260,000 in non-cash financial expenses related to warrants to
issue shares and due to decrease of $399,000 in interest expenses on Convertible
notes.

     NET PROFIT (LOSS). We had net profit of $5,211,000 in the nine months ended
September 30, 2010, compared with a net loss of $1,989,000 in the nine months
ended September 30, 2009. The change in net profit (loss) in the nine months
ended September 30, 2010 compared to the nine months ended September 30, 2009 is
attributable mainly to the non cash gain on the debt restructuring. Without the
non cash gain on the debt restructuring, we would have had a net loss of
$670,000 in the nine months ended September 30, 2010.

     LIQUIDITY AND CAPITAL RESOURCES

     We have incurred substantial losses since our inception in April 1997. We
had an accumulated deficit of approximately $15,731,000 as of September 30,
2010. We had a positive working capital (current assets less current
liabilities) of approximately $1,943,000 as of September 30, 2010. Losses may
continue in the foreseeable future.

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

     As of September 30, 2010, we had cash, cash equivalents and short-term
deposits of approximately $2,483,000, compared to $1,283,000 as of December 31,
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 during the nine months ended September 30, 2010
which was partially offset by the cash used for operating activities.

     We had negative cash flow from operating activities of approximately
$334,000 during the nine months ended September 30, 2010 compared to positive
cash flow from operating activities of $218,000 during the nine months ended
September 30, 2009. The increase in the negative cash flow from operating
activities in the nine months ended September 30, 2010 is attributable mainly to
the operating loss during the nine months ended September 30, 2010.

     We had negative cash flow from investing activities of approximately
$23,000 during the nine months ended September 30, 2010 compared to negative
cash flow of $12,000 during the nine months ended September 30, 2009. The
negative cash flow from investing activities during the nine months ended
September 30, 2010 was due to purchase of fixed assets and deposits made in
connection of long term lease.

     We had a positive cash flow from financing activities of approximately
$1,557,000 during the nine months ended September 30, 2010 compared to zero
positive cash flow from financing activities during the nine months ended
September 30, 2009. The positive cash flow during the nine months ended
September 30, 2010 is mainly due to the debt restructuring and the closing of
the private placement.

     We believe that our existing cash, together with cash to be collected from
customers and governmental grants, will be sufficient to support our operations
for the next twelve months. Continuing product development and enhancement,
expected new product launches, corporate operations and marketing expenses will
continue to require additional capital. Our current cash flow from operations
are insufficient to cover our long term business plans.

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

                                       10

     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.

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

     RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

     We believe that our future success will depend upon our ability to enhance
our existing products and systems and introduce new commercially viable products
and systems addressing the demands of the evolving markets for brand and
document protection. As part of the product development process, we work closely
with current and potential customers, distribution channels and leaders in
certain industry segments to identify market needs and define appropriate
product specifications. Our employees also participate in industry forums in
order to stay informed about the latest industry developments.

     With respect to the RFID technology we are developing, we have filed six
patent families related to various aspects of the RFID technology. Our first two
patent families have already matured into patents granted in the following
jurisdictions: United States, France, Germany, Switzerland and United Kingdom.
Regarding our third and fourth patent families, we have filed an International
Patent Application and thereafter National Phase entry applications in United
States, Europe, Japan and Hong Kong were filed. These applications are still in
examination. In addition our fifth patent family has matured into patents
granted in the United States, France, Germany, Switzerland, and the United
Kingdom. On July 2009, we filed a US provisional application with regards to our
sixth patent family.

     CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     Our contractual obligations and commitments at September 30, 2010
principally include obligations associated with operating lease obligations and
the lease of several automobiles. Our total future obligation is approximately
$194,000 until September 2013. We expect to finance these contractual
commitments from cash on hand and cash generated from operations.

     During 2007-2009 and through September 30, 2010, we received governmental
research and development grants of approximately $1,909,000 from the Office of
the Chief Scientist of Israel, or the OCS. These royalties-bearing research and
development grants partially cover our innovative research and development
project expenses. Royalties would become due to OCS only if the RFID research
and development project funded by the grant is successfully commercialized and
results in sales revenues based on the know-how developed during the RFID
project. The royalty rate is 3%-4% of the sales revenues based on the RFID
research and development project funded by the grant, and is capped at the grant
amount actually received from the OCS plus interest. We have no assurance that
the RFID project or commercialization plan will be successful.



                                       11

ITEM 4. CONTROLS AND PROCEDURES

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

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

     There were no changes in our internal control over financial reporting,
identified in connection with the evaluation of such internal control that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     On December 12, 1999, Secu-System Ltd. filed a lawsuit with the District
Court in Tel Aviv-Jaffa against Supercom Ltd. (the former owner of the company's
business) and InkSure Ltd. seeking a permanent injunction and damages at an
estimated amount of NIS 500,000 (approximately $ 136,400 at the exchange rate as
of September 30, 2010) asserting that the printing method applied to certain
products that have been developed by InkSure Ltd. constitutes, inter alia: (a)
breach of a confidentiality agreement between the plaintiff and Supercom; (b)
unjust enrichment of Supercom (by virtue of the sale of our shares) and InkSure
Ltd.; (c) a breach of fiduciary duties owed to the plaintiff by Supercom and
InkSure Ltd.; and (d) a tort of misappropriation of trade secret and damage to
plaintiff's property. As part of its complaint, Secu-System sought, among other
things, an injunction and a 50% share of profits from the printing method at
issue. On July 25, 2010, following the mediation, the parties entered into a
settlement and release agreement (the "Settlement Agreement").

     Pursuant to the Settlement Agreement, InkSure and SuperCom shall pay to
Secu-System an aggregate amount, which will be between NIS 1,500,000 - NIS
2,000,000 (approximately between $409,277 and $545,703 at the exchange rate as
of September 30, 2010), with the exact amount (the "Settlement Amount") to be
determined by the mediator as follows: (i) each of InkSure and SuperCom shall be
responsible, severally but not jointly, to pay 50% of the Settlement Amount;
(ii) within 10 business days after the execution of the Settlement Agreement,
InkSure shall deposit 50% of the Settlement Amount in trust with the Trustee;
(iii) SuperCom shall deposit its 50% of the Settlement Amount with the Trustee
in 10 equal monthly installments, commencing on the first calendar month after
the execution of the Settlement Agreement. SuperCom's payments shall carry an
annual interest at the rate of a 4% per annum; and (iv) should SuperCom fail to
pay any of the monthly installments within 7 days of its due date, its entire
share of the Settlement Amount shall become immediately due. As of September 30,
2010, the Company has accrued an amount of $238,745 to cover its share of the
settlement costs.

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


                                       12

ITEM 6.  EXHIBITS

The following exhibits are being filed with this Report:

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

3.1                 Certificate of Incorporation of InkSure Technologies Inc.
                    (incorporated by reference to Exhibit 3.1 to the
                    Company's Current Report on Form 8-K (file no. 000-24431)
                    filed on July 22, 2003).

3.2                 Certificate of Amendment of Certificate of Incorporation of
                    InkSure Technologies Inc. (incorporated by
                    reference to Exhibit 3.1 to the Company's Current Report on
                    Form 8-K (file no. 000-24431) filed on September 24, 2010).

10.1                Employment Agreement, between InkSure Ltd. and Mr. David
                    (Dadi) Avner, dated as of August 15, 2010 (incorporated by
                    reference to Exhibit 10.1 to the Company's Current Report on
                    Form 8-K (file no. 000-24431) filed on September 24, 2010).

10.2                Amendment No. 1 to the InkSure Technologies Inc. 2002
                    Employee, Director and Consultant Stock Option Plan
                    (incorporated by reference to Exhibit 10.2 to the Company's
                    Current Report on Form 8-K (file no. 000-24431) filed on
                    September 24, 2010).

10.3                Amendment No. 2 to the InkSure Technologies Inc. 2002
                    Employee, Director and Consultant Stock Option Plan
                    (incorporated by reference to Exhibit 10.3 to the Company's
                    Current Report on Form 8-K (file no. 000-24431) filed on
                    September 24, 2010).

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

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

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

* Filed herewith

**Furnished herewith


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SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                           INKSURE TECHNOLOGIES INC.

Dated: November 15, 2010                   By: /s/ Tal Gilat
                                           --------------------------
                                           Tal Gilat
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)

Dated: November 15, 2010                   By: /s/ David (Dadi) Avner
                                           --------------------------
                                           David (Dadi) Avner
                                           Chief Financial Officer,
                                           (Principal Financial Officer)

                                       14