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Sunday, July 31, 2005 1:10:05 PM
Links tend to disappear after a short time,
Company Profile
July / Aug 2005
www.inksure.com
Current Stock Quote
News Releases
InkSure Technologies Inc. (“InkSure”, “INKS” or “the Company”) provides comprehensive security solutions that are designed to protect branded products, documents and other products from counterfeiting, fraud and diversion. The Company’s proprietary markers, or “taggants”, are embedded in commercial inks and printed directly onto product labels, packaging or documents, thus creating a unique “signature” that can be identified by proprietary computerized readers to determine a product’s authenticity and supply chain data. Invisible to the naked eye and virtually impossible to replicate or reverse-engineer, INKS’ solutions provide a very high degree of security, accuracy and customization. We believe InkSure is positioned for rapid growth over the next several years as businesses, governments and institutions seek to address the more than $500 billion in annual losses caused by global counterfeiting. While quarterly revenues can fluctuate due to the timing of new contracts, revenues for the full year 2005 are expected to more than triple, and annual revenues should grow at a 50%-plus average annual rate for the foreseeable future. With a recurring-revenue business model that generates high gross margins, we believe INKS will command a premium valuation once the Company achieves profitability (later this year). The stock has the potential to significantly outperform the overall market on an intermediate- and long-term basis, and we consider INKS an attractive investment opportunity for those who can accept the risks associated with micro-cap companies that are not yet profitable.
Investment Highlights:
Analysts estimate that losses from counterfeiting and diversion of branded and other products range from $300 billion to $1 trillion annually, and such losses are growing at a 20% annual rate. Counterfeit goods are thought to represent 6%-8% of global trade, and counterfeiting results in billions of dollars in lost tax revenues to governments around the world. As an example of the scope of this problem, the World Health Organization estimates that counterfeit drugs account for 10% of the global pharmaceutical trade. Counterfeit pharmaceuticals can be found in nearly every country around the world, resulting in huge revenue losses and creating medical liability risks for the major drug companies. The growing proliferation of counterfeit pharmaceuticals is propelled by the power of the Internet and direct email advertisements.
Document fraud alone is estimated to cost the U.S. approximately $20 billion annually. As more technologically advanced forgery methods are developed, more sophisticated, multi-layered overt/covert security solutions are required to provide effective protection.
In a survey conducted by the International Anti Counterfeiting Coalition in 2000, Fortune 500 companies reported that they spend an average of $2 to $4 million per year to combat counterfeiting, and some reported spending up to $10 million each. Research conducted by Security Solution Consultancy has concluded that the size of the current market for document and product protection is equivalent to 5%-6% of the amount lost to counterfeiting – or approximately $25 billion annually.
Existing security technologies, such as holograms and watermarks, are increasingly being counterfeited, generating demand for newer, more effective security solutions. InkSure Technologies has developed authentication systems that are invisible to the naked eye, virtually impossible to replicate or reverse-engineer, extremely accurate and cost-effective. We expect the Company’s SmartInkTM solutions, which create product “signatures” that can be identified by proprietary computerized electro-optical “readers”, to capture a significant share of the “covert” security solutions market in coming years.
The Company has a strong intellectual property portfolio – consisting of patented and patent-pending inventions and trade secrets – and world-class research and development capabilities.
To date, InkSure has announced strategic marketing relationships with, among others, Sun Chemical, the world’s largest manufacturer of printing inks and performance pigments; and Merck KGaA, a leading global chemical company. INKS is pursuing applications for its technology in such diverse industries as Financial, Pharmaceutical, Apparel, Consumer and Luxury Goods, Transportation, and Government. Prospective new customers are currently testing the Company’s SmartInk solutions in more than a dozen countries around the world.
The Company is currently working on the development of next-generation “chipless” RFID (“radio frequency identification”) technology that is designed to enable “ item-level” authentication, tracking and tracing of products. If successfully developed, this technology could eventually replace the familiar barcode technology (a multi-billion-dollar market) and other electronic surveillance solutions that are widely used on a global scale.
INKS’ management team and Board of Directors have been successful in the nurturing of young companies into very successful enterprises. Several worked together at Sensormatic Electronics, an electronic article surveillance company that evolved from a start-up to a $1.1 billion (revenue) company before being successfully sold to Tyco International.
While InkSure’s business is characterized by lengthy sales cycles, the Company’s long-term strategy is to generate recurring and high-margin revenues from the proprietary inks that customers use to assure the authenticity of millions of products and/or documents. This is a classic “razor / razor blade” business model that should deliver outstanding value to shareholders over the next few years.
InkSure should achieve profitability once its quarterly revenues exceed $1.1 million, and we expect INKS’ revenue “run rate” to reach this level before the end of 2005. Once revenues exceed breakeven levels, we believe InkSure’s recurring-revenue business model will allow over 60% of incremental sales to flow to the Company’s “bottom line” as pretax profit.
We are optimistic that InkSure will announce a number of new business relationships during 2005 that will greatly improve the “predictability” of future revenues and earnings. These developments should expand investor interest in the Company and its common stock. With only 15 million shares outstanding and the potential to address multi-billion dollar (sales) market opportunities, we believe INKS shares can significantly outperform the general stock market on an intermediate-to-long-term basis.
INVESTMENT DATA
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Traded OTC BB Symbol "INKS"
Recent Price $2.65 52-Week High: $3.20
Fiscal Year Ends Dec. 31 52-Week Low: $0.95
Shares Outstanding 15,011,579 Insider Ownership 13%
Est. Float (shs) 7,000,000 Institutional Ownership Nil
Total Market Value $39.8 Mil. Avg. Daily Volume 53,900 shs.
Revenue: Earnings (Loss) Per Diluted Share:
2004 $0.9 Mil. 2004 ($0.15)
2005E $3.0-3.5 Mil. 2005E Profitable by Q4
2006E $6.0-$6.5 Mil. 2006E $0.05-$0.10
2007E $12.0-$12.5 Mil. 2007E $0.20-$0.25
--------------------------------------------------------------------------------
CONDENSED BALANCE SHEET (Unaudited)
--------------------------------------------------------------------------------
March 31, 2005
($000)
Current Assets $2,220*
Current Liabilities $648
Severance Pay Fund 118
Accrued Severance Pay 132
Property & Equipment, net 245
Goodwill 271
Shareholders Equity 2,074
TOTAL $2,854
TOTAL $2,854
--------------------------------------------------------------------------------
*Includes cash and equivalents of $1.3 million.
“The global counterfeit business is out of control, targeting
everything from computer chips to life-saving medicines. It’s
getting so bad that even China may need to crack down.”
“Fakes”
Business Week
February 7, 2005
Corporate Overview
The Company’s core technology was developed by InkSure when it was a subsidiary of a smart card technology company headquartered in Israel. INKS was later bought by an outside investor group and became a public company in 2002. InkSure’s corporate and global sales headquarters are located in Ft. Lauderdale, Florida, while its hardware manufacturing and R&D activities are conducted in Israel. Proprietary SmartInks, which represent the key to INKS’ recurring-revenue business model, are contract manufactured by established ink manufacturers in the U.S. and Israel. The Company’s common stock is currently listed on the OTC Bulletin Board under the symbol “INKS”.
InkSure develops, markets and sells customized authentication systems designed to enhance the security of documents and branded products and to meet the growing demand for protection from counterfeiting and diversion. In this context, “counterfeit items” are imitation items that are offered as genuine with the intent to deceive or defraud. “Diversion”, or “gray market commerce”, involves the selling of goods (often genuine goods) in a geographic market where both the wholesale and retail prices are high, while falsely purchasing them from another market where wholesale prices are lower, thus taking advantage of the price differential between the two markets. The United Kingdom’s Counterfeit Intelligence Bureau estimates that losses by companies and governments from counterfeiting and diversion range from $300 billion to $1 trillion annually.
INKS’ products involve two principal components – (1) customizable security inks, created by mixing chemical markers into standard printing inks and coatings, that are suitable for almost every type of digital and impact printing on a wide variety of surfaces or substrates, such as paper documents, plastic identification cards, packaging materials and labels; and (2) sophisticated “full spectral curve” readers that use proprietary software to quickly analyze the taggants, or “markers”, in the inks. The Company’s products are considered to be “covert”, because its encoded inks are indistinguishable from standard non-security inks and are easily applied to documents, products, product labels, packaging and designs. InkSure’s ink-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 the Company’s readers.
InkSure is also working on the development of next-generation “chipless” radio frequency identification (“RFID”) technology designed to enable item-level tagging of merchandise, packages, and other products. If successfully commercialized, RFID technology represents a potential “home run” for investors that could dwarf the very substantial opportunities for capital appreciation potential inherent in INKS’ current business model. RFID “chipless” tags would permit “non line of sight” collection of product information and would be suitable for a variety of applications, including authentication, supply chain management and traceability, proof of ownership, and data carrying transactions. If successfully developed, we believe such technology could eventually replace the familiar barcode technology and other electronic article surveillance solutions that are currently available. While we do not necessarily expect INKS to introduce new RFID “track and trace” products within the next twelve months, and a sizeable investment may be required to commercialize the technology, continued research and development in this area is certainly justified in light of the multi-billion-dollar market opportunity that could be targeted by “chipless” RFID products.
Analysts estimate that losses from counterfeiting and “gray
market” diversion of branded and other products range from
$300 billion to $1 trillion annually, and such losses are growing
at a 20% annual rate.
Products
We believe InkSure’s technology offers significant advantages over other authentication solutions such as visible and invisible ultraviolet marks, fluorescent inks, watermarks and fibers, optically variable inks and holograms that are offered by the Company’s competitors. INKS’ technology, which is based on multi-disciplinary technologies, including chemistry, printing, electro-optics and software, offers customers a customized solution that provides a high level of security and flexibility while remaining cost-effective.
Each security ink (SmartInkTM) has a unique “signature” that is invisible to the naked eye, virtually impossible to replicate or reverse-engineer, and extremely accurate. This signature is comprised of a variety of factors, including the amounts and unique properties of the chemicals included in the ink, the type of ink, the ink color, the printing method and the substrate. The customized inks contain unique chemical markers (“taggants”) with distinct luminescent properties and combinations thereof that create customized, recognizable codes. The Company’s proprietary hand-held and/or mounted electro-optic readers are designed for a full spectral curve analysis rather than mere intensity measurements in one or two specific wavelengths. Thus, a counterfeit item would have to replicate an entire unique signature (every variable upon which the signature depends) rather than merely replicating certain portions of the signature. This is why INKS can assure its customers such a high level of security.
InkSure’s solutions are highly flexible and can be applied to almost every type of ink and coating used by standard printing devices. The inks are also suitable for printing on any type of surface or substrate for which digital and impact printing is available. According to a particular client’s security needs, unique coded inks can be applied to different products or batches, and the corresponding reader can be programmed to authenticate and verify each of the different codes – and indicate which code was verified. Currency and high value documents typically incorporate more than one security feature, and many brand owners are using both overt and covert security measures (“layered security”) in order to make reproduction of documents or packaging increasingly difficult and costly for counterfeiters.
The Company’s technology provides a very cost-effective way to prevent counterfeiting and diversion, with the security ink for each product or document costing fractions of a penny (US$). Because INKS’ readers can detect even trace amounts of the specific chemical markers, customers can achieve a relatively high level of security in high-volume applications at reasonable incremental costs.
InkSure has developed a number of “Solution Packages” to meet various market needs. These packages rely primarily on the Company’s core technology, which is best described as “line of sight authentication”. INKS has designed several generic readers that provide different levels of security for various target applications. For specific projects, due to the flexibility upon which the technology is built, the Company customizes the generic readers to fit customer needs according to size and speed requirements.
Huge and Rapidly Growing Market Opportunity
As noted earlier in this report, approximately $25 billion is currently being spent each year (globally) on document and product protection, and this market is growing at an estimated rate of 20% annually. InkSure has chosen to address this market opportunity using a “razor / razor blade” approach with respect to the sale of its readers and inks. Management views its proprietary readers as “infrastructure” products, similar to a hand-held razor, while the specialty SmartInks represent the razor blades that generate “recurring” sales. A similar analogy can be seen in the way Hewlett-Packard makes its money from the recurring sale of ink cartridges for its printers, rather than from the sale of the printers themselves.
Given the nature of the large corporations, governments and institutions that represent prospective customers, InkSure has learned that the sales process can be painfully long, and this makes it difficult to predict how quickly revenues will ramp up in the near term (12-18 months). However, once a customer adopts INKS’ technology for the protection of documents or branded products, the Company can look forward to a recurring “annuity” of high-margin revenues from the sale of SmartInks.
The most receptive market segment for INKS’ authentication applications would appear to include 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 the Company’s solutions. In addition, InkSure has targeted customers that need a covert security feature that is extremely difficult to reverse-engineer.
The potential market for InkSure’s products can generally be divided into two major classifications:
Documents (e.g., bank notes, checks, postage stamps, transportation and event tickets, tax stamps, pre-paid telephone cards, identification cards, passports); and
Brand Products (e.g., pharmaceuticals, cellular and electronic equipment, alcoholic beverages, cigarettes, software, automotive products, toys, apparel).
To date, the Company has entered into strategic relationships with Sun Chemicals Group B.V., the world’s largest manufacturer of printing inks and performance pigments, and Merck KGaA, a leading global chemical company, to leverage the development, distribution and co-marketing of its security products.
Specific market opportunities are reviewed below.
PACKAGING. This involves brand protection through the application of SmartInk solutions to products, packaging, labels, and/or stickers and is suitable for a number of industries, including consumer goods (e.g., apparel, cosmetics, fragrances, software, tobacco), pharmaceuticals, and industries that rely upon component parts (e.g., automotive, computer hardware). Several major North American customers are already using InkSure’s technology to protect hundreds of millions of products (i.e., individual items or packages) on a global scale.
TAX STAMPS. Government-issued tax stamps that are attached to tobacco, wine, alcohol and export products offer significant global opportunities for InkSure ’s authentication technology.
GAMES AND ENTERTAINMENT. Tickets and wrist bands for major sporting and entertainment events can be printed using SmartInks and authenticated at the entrance using either hand-held or stationary readers. Similarly, lottery tickets and gaming chips are subject to counterfeiting and may be authenticated at the time of submission for payment.
TRANSPORTATION. Both national and local transportation authorities issue travel passes, season tickets and single-use tickets, all of which are subject to counterfeiting. Since 2002, the Istanbul Greater Municipalities Public Transportation Co., which operates the municipal bus system in Istanbul, Turkey and is one of the world’s largest public transportation companies (over 3,000 buses and 10 million passengers per month), has been using InkSure’s SmartInk solution to reduce revenue losses due to the counterfeiting of single-ride bus tickets. Revenues from the sale of bus tickets more than doubled after InkSure’s covert security solution was adopted by the bus system, increasing the bus system’s revenue by over $33 million annually. This was an excellent “proof of concept” contract that provided substantive recurring revenues to the Company.
FINANCIAL DOCUMENTS. Historically, checks and other financial documents have incorporated security features, in the substrate or the pre-printed form, in an effort to protect the fixed and variable data imprinted on such documents. SmartInk technology can now protect both fixed and variable data directly and has been used by a major European bank to protect variable data printed onto some of the bank’s documents.
GOVERNMENT IDENTITY DOCUMENTS. InkSure has the unique ability to mark inkjet ink and thermal transfer ribbons with SmartInk, thus providing authentication capabilities to the variable data on passports, visas, drivers licenses, ID cards, birth certificates, and motor vehicle registrations. These market opportunities will involve a long-term marketing and selling process, given the typical government bid process and cycles for initiating new features.
RETAIL VOUCHERS AND GIFT CERTIFICATES. Many retailers currently use printed vouchers and gift certificates to increase sales. Certificates of Authenticity that accompany a wide variety of retail goods ranging from software products to luxury goods, are also an area of opportunity.
To date, InkSure has focused primarily upon market segments where the Company has already achieved meaningful penetration and actual sales, or where management considers near-term sales potential to be above-average – packaging, tax stamps, financial documents, entertainment (i.e., ticketing) and transportation.
The U.S. Food & Drug Administration began 58 investigations of
counterfeit drugs in fiscal 2004, up from 22 in 2003.
Experienced Management Team
When investing in micro-cap companies that have set their sights on attaining leadership positions in an emerging industry (covert security), it is critical to evaluate the management team selected to execute an aggressive growth strategy.
Elie Housman, CEO and Chairman of the Board
Mr. Housman was a Principal at Charterhouse Group International, a privately-held merchant bank, from 1989 until June 2001, where he was involved in the acquisition of a number of companies with total sales of several hundred millions of dollars. Prior to Charterhouse, he was co-owner of AP Parts, a $250 million automotive parts manufacturer. He was also the Chairman of Novo Plc. in London, a leading company in the broadcast storage and services industry.
Yaron Meerfeld, Chief Operating Officer
Mr. Meerfeld was previously the Managing Director of Kromotek, Inc. and Vice President of Sales and Marketing at an Israeli-based smart card technology company. He has a strong background in authentication and multi-layered security systems for documents, passports, ID cards and smart cards.
Eyal Bigon, Chief Financial Officer
Mr. Bigon, who joined InkSure in 2002, has extensive experience as the CFO of RiT Technologies (Nasdaq: “RITT”), a world-leading provider of integrated network management solutions for the communications market. Before joining RiT, he held financial positions with Tadiran and IBM.
R. James Assaf, CEO, Global Sales and Marketing U.S. Operations
Mr. Assaf was formerly the Director of Business Development, Mergers and Acquisitions at Sensormatic Electronics Corporation, the world’s leading producer of retail security systems. During his 15 years at Sensormatic, he helped build that company’s sales to more than $1 billion per year, and he engineered numerous M&A transactions prior to Sensormatic’s acquisition by Tyco International in 2001. (One of the Company’s independent directors was formerly Chairman of the Executive Committee and Co-Chief Executive Officer at Sensormatic).
“Certainly, when you look at pharmaceuticals, you are not just
looking at the cost of counterfeiting and lost revenues.....but you
are also looking at the liability risk from personal injuries that can
result from pharmaceutical companies that have not adequately
protected their supply chain.”
R. James Assaf
CEO, Global Sales & Marketing, U.S. Operations
InkSure Technologies Inc.
Dr. Shlomo Dukler, Chief Technology Officer
Dr. Shlomo Dukler has an extensive background in Photoluminescence, Pigments, Organic/Inorganic fluorescent compounds, Spectroscopy, Printing Inks and Security Printing Inks. He was previously Head of the Chemistry Department of the Government of Israel Laboratories. Dr. Shlomo Dukler holds a Ph.D in Physical and Organic Chemistry.
Dana Kaplan, Vice President, Marketing Ms. Kaplan has extensive experience in international marketing. Her prior positions include commercial marketing management at Bagir Ltd. and international marketing planning and management for Israeli companies operating in the global market. Ms. Kaplan’s technical background involves experience as an R&D chemist at Avco Chem (pigments and dyestuffs).
Chris Brown, Sr. Vice President of Sales, North & Central America
Mr. Brown joined InkSure in 2003 after more than 15 years of extensive strategic marketing, management and sales experience in the security industry at ADT/Tyco and Sensormatic. His positions included Director of ADT/Tyco’s RFID development program, Director of Sales and Marketing in charge of Sensormatic’s Source Tagging sales force, and Director of Operations for Sensormatic’s security sponsorship of the 2002 Olympic Winter Games. Mr. Brown was in charge of Sensormatic’s successful campaign to receive the recommendation of the National Association of Recording Merchandisers (NARM) and the Record Industry Association of America (RIAA) to utilize Sensormatic’s anti-shoplifting labels in all major CD and DVD releases. The NARM and RIAA recommendations were instrumental in subsequent chain-wide rollouts at Wal-Mart and Musicland, cementing Sensormatic’s dominant leadership position in its industry.
“We’ve seen a massive increase (in counterfeiting) in the last
five years, and there is a risk that it will spiral out of our control.”
Anthony Simon
Marketing Chief
Unilever Bestfoods
Summary and Conclusion
Prior to 2004, we would characterize most of INKS’ activities as “developmental” in nature. Since early 2002, the Company has been involved in validating its technology through a multi-year contract with the municipal bus system in Istanbul, Turkey that was very successful in reducing revenues lost to the counterfeiting of bus tickets. Targeted sales and marketing initiatives on a broader scale, however, were not launched until last year, following two private placements of common stock that raised approximately $2.4 million in funding for such activities. (Note: the Company also raised $6.7 million in initial equity financing in October 2002).
We believe InkSure is on the threshold of a dramatic acceleration in revenue growth, and the Company should achieve profitability by the fourth quarter of 2005. Revenues for the year ended December 31, 2004, were modest at $955,000 (up 57% from previous year) and were derived primarily from initial revenues from an unidentified North American corporation that is using InkSure’s security solution for a worldwide brand protection project, along with a new authentication project in Turkey. (Many brand owners that are victims of counterfeiting do not publicize their losses, nor do they publish their expenditures related to controlling the problem. Unfortunately, this will often prevent INKS from disclosing customer names when announcing new contracts).
As we noted earlier in this report, the “sales cycle” for major security contracts is a long one, sometimes taking a year or more, but once a contract is signed, the Company can look forward to a growing stream of recurring revenues from high-margin ink sales for years to come. We believe the sales and marketing efforts undertaken by management during the past twelve months will begin to bear fruit in 2005, when we estimate that revenues will more than triple to $3.0-$3.5 million. If our projections are realized, INKS should become profitable by the fourth quarter of 2005, based upon our assumption that the Company’s “breakeven” revenue level approximates $1.1 million quarterly. We expect revenues to expand at a 100%-plus average annual rate for the next couple of years and at a 50%-plus annual rate for the balance of the decade.
If, as we expect, InkSure is successful in its sales/marketing activities, the Company should announce a number of significant new customers and contracts during the balance of 2005, and we believe this will greatly expand the level of interest within the investment community, along with trading activity in the stock.
Recent Developments
Cigarette maker JT International has boosted its
anti-counterfeiting budget from $200,000 to $15 million in the
past six years, spending the money on a network of
investigators, lawyers and informants in factories suspected of
making fakes.
We consider several developments significant in terms of the outlook for InkSure Technologies Inc. and its common stock as an attractive investment during the next several years.
On June 14, 2005, InkSure announced its receipt of the largest equipment order in the Company’s history. The international order, from the Company’s strategic marketing partner, Sun Chemical Group B.V., the world’s leading manufacturer of printing inks, calls for the utilization of InkSure’s security solutions in a number of projects involving the packaging of consumer products. Authentication of the packaging of hundreds of millions of individual product containers will involve hundreds of field SignaSureTM readers and a number of high-speed production line SortSureTM quality assurance systems. “We expect to begin recognizing equipment revenues from this order relatively soon, and revenues arising from project consumables are expected to be significant and recurring in the second half of 2005 and future years,” commented the Company’s CEO, Elie Housman, in a related news release. “Our record first quarter and backlog from U.S. customers, along with this order, form a solid foundation of recurring business that should facilitate continued revenue growth.”
On June 6, 2005, INKS announced the marketing release of TrackSureTM, a revolutionary handheld reader that performs barcode reading, authentication and validation against an onboard database with the single push of a button. TrackSure can read all standard formats of linear barcodes, either visible or invisible, and compare the scanned ID to barcode information stored in the TrackSure database or a customer’s centralized database. In addition, the multi-functional TrackSure operates as an authentication device to definitively authenticate barcodes printed with InkSure’s SmartInk for secure track and trace applications. “Investigators and field agents can retrieve on-the-spot detailed information from a scanned item, including product identification, product origin, and distribution area, and can determine immediately whether the barcode has been copied or tampered with,” noted the Company in a related news release. “TrackSure allows us to extend our expertise involving covert, machine-readable technology (‘CMRT’) beyond our core application of anti-counterfeiting, to include protection against diversion and gray marketing activities.”
On June 1, 2005, the Company announced that its wholly-owned InkSure RF subsidiary was awarded two key U.S. patents related to the Company’s ongoing development of “Chipless” RFID tags. According to IDTechEx Ltd., a leading consultancy in smart labels and smart packaging, global revenues from RFID systems should exceed $10 billion by 2010, with “Chipless RFID” accounting for at least 30% of the total. “Our goal is to develop multi-bit ‘chipless’ RFID tags that can be manufactured and applied to product labels at a cost of well below one cent each,” observed CEO Elie Housman in a related news release. “Such tags offer far more speed, functionality and ease-of-use than traditional barcodes and have the potential to revolutionize brand protection and supply chain management on a global scale.”
On May 5, 2005, InkSure reported sharply higher first quarter revenues and a reduction in net loss, when compared with the prior-year period. Sales increased 215% to $494,000 in the three months ended March 31, 2005, versus sales of $157,000 in the first quarter of 2004. The Company reported a net loss of $0.03 per share for the quarter, compared with a net loss of $0.05 per share in the year-earlier period. “We are pleased that our revenues during the first quarter of 2005 more than tripled prior-year levels and were 37% higher than in the fourth quarter of 2004, which increase was primarily due to new customers in the United States,” commented the Company’s CEO in a related news release. “Last year, we entered into agreements to supply our SmartInk covert security solutions to two new customers in the U.S. for brand protection products. Independently and in cooperation with our strategic partners, Sun Chemical Group B.V. and Merck KGaA, InkSure is currently involved in field testing of our security solutions with a number of potential customers in several countries, and we are optimistic that some of these initiatives will develop into firm contracts during the balance of the year.”
On March 30, 2005, InkSure filed its Form 10-K that reported upon operating results for 2004. Revenues rose 57% to $955,000 and the Company reported a net loss of ($2.1 million), or ($0.24) per share, for the year ended December 31, 2004. Approximately 65% of revenues came from two new customers in North America that are using INKS’ coding solutions and handheld authentication readers in brand protection projects. Another 25% of revenues were derived from purchases by MTM Guvenlik (Turkey) of readers and ink for hologram-related products. Sales related to the Company’s agreement with Sun Chemical represented approximately 6% of 2004 revenues. We found the following statement in the 10-K of great interest: “We are currently concentrating on entering and implementing large-scale projects. These potential contracts are subject to a long sales cycle and the timetable is lengthy for entering and implementing such projects. These projects involve high volume sales through multiple-year sales contracts.” Another sentence that a caught our attention: “We anticipate a period of significant growth in connection with expansion of our marketing efforts and business.”
On November 8, 2004, the Company announced a global marketing partnership with “Security Industries”, a newly formed business unit of Merck KGaA (Germany), to present a joint solution in the battle against the growing problem of counterfeit documents and products, including pharmaceuticals. Security Industries, which combines the know-how and products of Merck KGaA’s Pigments and Liquid Crystals divisions, specializes in overt marking materials that are visible and immediately identify a product as real or fake (Merck’s unique pigments can be found on many banknotes around the world). InkSure specializes in machine-readable covert security markings, which require special readers to detect embedded features that are invisible to the naked eye. When both technologies are combined, the result is a multi-tiered security feature with multiple authentication levels. “Merck’s Security Industries and InkSure each have distinctly different technologies that fit well together to offer a combined, double-barreled protection against counterfeiting,” noted Dr. Michael Weiden, Manager of Security Industries, in a related news release. “InkSure has access to the ticketing and brand protection industries, while Merck has customers in the banknotes, pharmaceutical and cosmetics industries. Our cooperation will enable each company to reach a wider customer base, while providing our respective customers a broader array of authentication solutions.”
In March and August 2004, InkSure entered into sales agreements to supply its authentication solutions to two separate customers in North America for brand protection projects. Each project involves the protection of millions of items using INKS” coding solutions and handheld authentication readers, as well as quality assurance tools that are used to ensure that SmartInks are applied according to specifications. Revenues from these two agreements totaled $616,000, or 65% of the Company’s total revenues for the year ended December 31, 2004.
In June 2003, Sun Chemical Group B.V., the world’s largest manufacturer of printing inks, and InkSure Technologies announced a strategic marketing alliance to offer revolutionary machine-readable ink-based Brand and Document Authentication solutions under the SunSureTM brand name. Commenting on the alliance, Richard Pettifor, Group Managing Director and Corporate VP for Sun Chemical, said: “As a company committed to ‘total value’, we have been looking at innovative ways to support our customers’ needs for more effective weapons against enormous counterfeit and diversion losses. Our long search for the best machine-readable solution available, and extensive evaluation, have convinced us that InkSure’s extraordinary technology has the potential to revolutionize the authentication market.”
The Outlook
We would characterize InkSure as a “development stage” company prior to last year. Although the Company generated some revenues, most notably from the municipal bus agency in Istanbul, Turkey, we consider activities prior to 2004 as primarily involving R&D activities and working with a few customers to “prove” the value of its covert security solutions and the ability of INKS to deliver upon the promise of its SmartInks technology.
Management began to devote meaningful resources to sales and marketing activities in 2004, and new contracts accounted for approximately two-thirds of the Company’s $955,000 in revenues for the year ended December 31, 2004, when INKS reported a net loss of ($2.1 million), or ($0.24) per share. While InkSure has been unable to disclose the names of certain existing or prospective customers, we believe the initial success of the Company’s sales and marketing initiatives will allow 2005 revenues to more than triple to $3.0-$3.5 million. In the first quarter of 2005, revenues more than tripled, rising 215% to $494,000, compared with $157,000 in the prior-year period. If our projections are achieved, the Company’s revenue “run rate” should exceed estimated quarterly “breakeven” levels ($1.1 million) by the fourth quarter of 2005.
The timing of new contracts can have a significant impact upon sales in any particular quarter. Therefore, we expect considerable volatility in quarterly operating results for the foreseeable future. Annual results should be more indicative of important business trends.
We understand that “field tests” are currently underway with potentially large customers in several countries and expect INKS to announce a number of new contracts during the balance of the current year. This should enhance the ability of investors to envision rapid growth in sales and earnings over the next several years. Once the Company becomes profitable, we estimate that approximately 35% of incremental reader sales and over 70% of incremental SmartInk sales will fall to its “bottom line” as pretax profit. As InkSure’s business expands, an increasing portion of its revenues will be derived from high-margin security ink sales, as the Company builds a rapidly growing stream of recurring earnings. Because of the predictability of such “annuity” income, we believe investors will place a high multiple on INKS’ sales until earnings reach a level that can support a valuation model based on profitability.
Our tentative projection for the year ending December 31, 2006 anticipates an approximate doubling in revenues to the $6.0-$6.5 million area, as existing and new customers adopt InkSure’s covert security solutions for an expanding variety of documents and branded products. The Company should be able to earn $0.05-$0.10 per share (non-taxed) in 2006 under this scenario. Another doubling in revenue (to $12 million-plus) is likely in 2007, with earnings per diluted share reaching $0.20-$0.25. We believe INKS can grow its sales 50% or more each year through the balance of the current decade.
With investor enthusiasm for INKS likely to expand rapidly under this scenario, we believe the Company will be able to access the funds necessary to support its anticipated growth during the next several years. The Company raised approximately $2.4 million in new equity during 2004 and still had $1.3 million of cash in the bank as of March 31, 2005. While the monthly cash “burn rate” currently approximates $250,000, we expect cash requirements to decrease markedly as revenue growth accelerates. Although management may choose to seek additional capital as INKS’ stock price rises, in order to allow the Company to more aggressively pursue new business opportunities, we believe InkSure can achieve profitability without raising additional capital.
As of March 31, 2005, InkSure’s balance sheet revealed a current ratio of 3.4-to-1.0 (current assets = $2.2 million vs. current liabilities = $0.6 million), while cash and equivalents represented approximately 47% of the Company’s total assets of $2.9 million. INKS’ capital structure consisted of $2.1 million in shareholders’ equity, there was no long-term debt outstanding, and the Company had a tax loss carryforward of approximately $3.5 million that should shelter earnings from income taxes for the foreseeable future.
Investment Considerations
“Pakistan and Russia are huge producers of fake
pharmaceuticals, while in Italy an estimated 10% of all designer
clothing is fake, much of it produced domestically. Gangs in
Paraguay funnel phony cosmetics, designer jeans, and toys
from China to the rest of South America. Bulgarians are masters
at bootlegging U.S. liquor brands. This is one fight that will take
years to win.”
“Fakes”
Business Week
February 7, 2005
In our opinion, InkSure is pursuing a highly effective business strategy that can deliver outstanding value to shareholders in coming years.
At their current price of $2.65, we do not believe INKS shares adequately reflect the potential for rapid growth in the covert security industry or the Company’s opportunity to become one of the leading “pure plays” in this multi-billion-dollar industry. We believe INKS’ share price will appreciate significantly as the Company and its prospects become more widely recognized within the investment community during the next several years.
With a business model that delivers recurring revenue from high-margin security inks, and given the likelihood that over 60% of incremental sales will fall directly to the “bottom line” after profitability is achieved, we would expect INKS shares to support a premium price-to-sales ratio during the next couple of years, and a high price-to-earnings ratio over the long term.
If management is successful in the development and commercialization of “chipless” RFID tags, we believe the stock’s long-term capital appreciation potential would be enhanced even further. In our opinion, INKS shares represent an attractive speculative investment opportunity for investors able to accept the risks associated with a micro-cap stock company that is not yet profitable or cash-flow-positive.
Investors should exercise caution when buying or selling INKS shares, because although there are approximately 15 million common shares currently outstanding and we estimate the public “float” at 7.0 million shares, trading can be quite “thin” on any particular day. Investors should use “limit” orders when buying or selling INKS shares. If our revenue and profitability projections realistic, we would anticipate a listing of the stock on Nasdaq or the American Stock Exchange within the next 12-18 months. Insiders (officers + directors) beneficially own about 13% of the Company’s shares outstanding, while institutional ownership is insignificant at the present time.
R. Jerry Falkner, CFA
July 12, 2005
INKSURE TECHNOLOGIES INC.
Condensed Statements of Operations
(In Thousands, Except Per Share Data)
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2003 2004 2005E
2006E 2007E
Revenue $608 $955 $3,300 $6,300 $12,300
Gross Profit 474 542 - - -
Income (Loss) from Operations (3,000) (2,062) - - -
Net Income (Loss) ($2,965) ($2,061) ($1,500) $1,400 $4,000
Earnings (Loss) Per Diluted Share ($0.24) ($0.15) ($0.10) $0.08 $0.22
Weighted Avg. Diluted Shares Outstanding (000) 11,982 13,957 15,100 17,500 18,000
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Additional information on this Company can be found on the World Wide Web:
www.inksure.com
www.rjfalkner.com
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This Research Profile contains “forward-looking” statements within the meaning of U. S. federal securities laws. Forward-looking statements regarding the Company’s performance inherently involve risks and uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, acceptance of the company’s products in the marketplace, competition, technological changes within the covert security industry, the availability of adequate capital, licensing and commercialization of the Company’s technologies, general economic conditions, currency translation effects, litigation, reliance upon third-party service providers, the effect of government regulation and other risks discussed in the Company’s periodic report filings with the U.S. Securities and Exchange Commission. By making these forward-looking statements, RJ Falkner & Company, Inc. undertakes no obligation to update these statements for revisions or changes after the date of this report.
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RJ FALKNER & COMPANY, INC. publishes research reports on small- and micro-cap companies. The information contained in our reports is based upon sources which we consider reliable but is not guaranteed by us, nor do such reports represent a solicitation to buy or sell the securities discussed therein. The information and opinions contained in our research reports are based upon publicly available information as of the date such reports are published. Readers of our reports should recognize that the information, projections, opinions, and/or conclusions contained in the reports may have changed since publication, and we assume no responsibility for updating the reports as a result of such changes. This report may include financial information that is not prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States. Readers of this report should review the financial information provided by the subject company of this report in its 10-K, 10-Q and 8-K filings with the Securities and Exchange Commission.
Additional information on the companies discussed in our research reports is available upon request by contacting us at 800-377-9893. While we are paid by the companies that are the subject of our research reports for the provision of research coverage, we are not an agent of such companies, and all of the views expressed in our research reports accurately reflect our research analysts’ personal views about any and all of the subject securities or issuers. No part of our research analysts’ compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed by such analysts in the research reports. All opinions and/or conclusions in our research reports were developed independently by the analysts writing the reports, unless otherwise stated. Our analyses of small- and micro-cap companies have been independently prepared by us, and any sales and/or earnings forecasts included in our research reports were independently prepared by RJ FALKNER & COMPANY, INC., unless otherwise stated, and are not endorsed by the managements of the companies which are the subject of our reports. Such sales and/or earnings forecasts were prepared based upon historical information that was available to the public as of the date of publication of the reports. Use of these reports may be subject to the applicable rules of certain self-regulatory organizations, and securities mentioned in the reports which are traded over-the-counter may not be cleared for sale in certain states.
RJ FALKNER & COMPANY, INC. and/or its employees, officers, affiliates or members of their families may have long or short positions in the securities discussed in the research reports (and/or options or warrants relating thereto) and may purchase and/or sell the securities or options/warrants from time to time in the open market or otherwise. RJ FALKNER & COMPANY, INC. derives its compensation from the provision of research reports and investor relations consulting services. RJ FALKNER & COMPANY, INC. currently receives a cash retainer of $3,000 per month from INKSURE TECHNOLOGIES INC. for the periodic publication and distribution of research reports on the company, along with certain investor relations services. An officer of RJ FALKNER & COMPANY, INC. currently owns 8,500 shares of INKS common stock and has been granted an option (expiring March 2015) to purchase up to 50,000 shares of INKS common stock at an exercise price of $1.40 per share.
Dubi
Company Profile
July / Aug 2005
www.inksure.com
Current Stock Quote
News Releases
InkSure Technologies Inc. (“InkSure”, “INKS” or “the Company”) provides comprehensive security solutions that are designed to protect branded products, documents and other products from counterfeiting, fraud and diversion. The Company’s proprietary markers, or “taggants”, are embedded in commercial inks and printed directly onto product labels, packaging or documents, thus creating a unique “signature” that can be identified by proprietary computerized readers to determine a product’s authenticity and supply chain data. Invisible to the naked eye and virtually impossible to replicate or reverse-engineer, INKS’ solutions provide a very high degree of security, accuracy and customization. We believe InkSure is positioned for rapid growth over the next several years as businesses, governments and institutions seek to address the more than $500 billion in annual losses caused by global counterfeiting. While quarterly revenues can fluctuate due to the timing of new contracts, revenues for the full year 2005 are expected to more than triple, and annual revenues should grow at a 50%-plus average annual rate for the foreseeable future. With a recurring-revenue business model that generates high gross margins, we believe INKS will command a premium valuation once the Company achieves profitability (later this year). The stock has the potential to significantly outperform the overall market on an intermediate- and long-term basis, and we consider INKS an attractive investment opportunity for those who can accept the risks associated with micro-cap companies that are not yet profitable.
Investment Highlights:
Analysts estimate that losses from counterfeiting and diversion of branded and other products range from $300 billion to $1 trillion annually, and such losses are growing at a 20% annual rate. Counterfeit goods are thought to represent 6%-8% of global trade, and counterfeiting results in billions of dollars in lost tax revenues to governments around the world. As an example of the scope of this problem, the World Health Organization estimates that counterfeit drugs account for 10% of the global pharmaceutical trade. Counterfeit pharmaceuticals can be found in nearly every country around the world, resulting in huge revenue losses and creating medical liability risks for the major drug companies. The growing proliferation of counterfeit pharmaceuticals is propelled by the power of the Internet and direct email advertisements.
Document fraud alone is estimated to cost the U.S. approximately $20 billion annually. As more technologically advanced forgery methods are developed, more sophisticated, multi-layered overt/covert security solutions are required to provide effective protection.
In a survey conducted by the International Anti Counterfeiting Coalition in 2000, Fortune 500 companies reported that they spend an average of $2 to $4 million per year to combat counterfeiting, and some reported spending up to $10 million each. Research conducted by Security Solution Consultancy has concluded that the size of the current market for document and product protection is equivalent to 5%-6% of the amount lost to counterfeiting – or approximately $25 billion annually.
Existing security technologies, such as holograms and watermarks, are increasingly being counterfeited, generating demand for newer, more effective security solutions. InkSure Technologies has developed authentication systems that are invisible to the naked eye, virtually impossible to replicate or reverse-engineer, extremely accurate and cost-effective. We expect the Company’s SmartInkTM solutions, which create product “signatures” that can be identified by proprietary computerized electro-optical “readers”, to capture a significant share of the “covert” security solutions market in coming years.
The Company has a strong intellectual property portfolio – consisting of patented and patent-pending inventions and trade secrets – and world-class research and development capabilities.
To date, InkSure has announced strategic marketing relationships with, among others, Sun Chemical, the world’s largest manufacturer of printing inks and performance pigments; and Merck KGaA, a leading global chemical company. INKS is pursuing applications for its technology in such diverse industries as Financial, Pharmaceutical, Apparel, Consumer and Luxury Goods, Transportation, and Government. Prospective new customers are currently testing the Company’s SmartInk solutions in more than a dozen countries around the world.
The Company is currently working on the development of next-generation “chipless” RFID (“radio frequency identification”) technology that is designed to enable “ item-level” authentication, tracking and tracing of products. If successfully developed, this technology could eventually replace the familiar barcode technology (a multi-billion-dollar market) and other electronic surveillance solutions that are widely used on a global scale.
INKS’ management team and Board of Directors have been successful in the nurturing of young companies into very successful enterprises. Several worked together at Sensormatic Electronics, an electronic article surveillance company that evolved from a start-up to a $1.1 billion (revenue) company before being successfully sold to Tyco International.
While InkSure’s business is characterized by lengthy sales cycles, the Company’s long-term strategy is to generate recurring and high-margin revenues from the proprietary inks that customers use to assure the authenticity of millions of products and/or documents. This is a classic “razor / razor blade” business model that should deliver outstanding value to shareholders over the next few years.
InkSure should achieve profitability once its quarterly revenues exceed $1.1 million, and we expect INKS’ revenue “run rate” to reach this level before the end of 2005. Once revenues exceed breakeven levels, we believe InkSure’s recurring-revenue business model will allow over 60% of incremental sales to flow to the Company’s “bottom line” as pretax profit.
We are optimistic that InkSure will announce a number of new business relationships during 2005 that will greatly improve the “predictability” of future revenues and earnings. These developments should expand investor interest in the Company and its common stock. With only 15 million shares outstanding and the potential to address multi-billion dollar (sales) market opportunities, we believe INKS shares can significantly outperform the general stock market on an intermediate-to-long-term basis.
INVESTMENT DATA
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Traded OTC BB Symbol "INKS"
Recent Price $2.65 52-Week High: $3.20
Fiscal Year Ends Dec. 31 52-Week Low: $0.95
Shares Outstanding 15,011,579 Insider Ownership 13%
Est. Float (shs) 7,000,000 Institutional Ownership Nil
Total Market Value $39.8 Mil. Avg. Daily Volume 53,900 shs.
Revenue: Earnings (Loss) Per Diluted Share:
2004 $0.9 Mil. 2004 ($0.15)
2005E $3.0-3.5 Mil. 2005E Profitable by Q4
2006E $6.0-$6.5 Mil. 2006E $0.05-$0.10
2007E $12.0-$12.5 Mil. 2007E $0.20-$0.25
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CONDENSED BALANCE SHEET (Unaudited)
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March 31, 2005
($000)
Current Assets $2,220*
Current Liabilities $648
Severance Pay Fund 118
Accrued Severance Pay 132
Property & Equipment, net 245
Goodwill 271
Shareholders Equity 2,074
TOTAL $2,854
TOTAL $2,854
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*Includes cash and equivalents of $1.3 million.
“The global counterfeit business is out of control, targeting
everything from computer chips to life-saving medicines. It’s
getting so bad that even China may need to crack down.”
“Fakes”
Business Week
February 7, 2005
Corporate Overview
The Company’s core technology was developed by InkSure when it was a subsidiary of a smart card technology company headquartered in Israel. INKS was later bought by an outside investor group and became a public company in 2002. InkSure’s corporate and global sales headquarters are located in Ft. Lauderdale, Florida, while its hardware manufacturing and R&D activities are conducted in Israel. Proprietary SmartInks, which represent the key to INKS’ recurring-revenue business model, are contract manufactured by established ink manufacturers in the U.S. and Israel. The Company’s common stock is currently listed on the OTC Bulletin Board under the symbol “INKS”.
InkSure develops, markets and sells customized authentication systems designed to enhance the security of documents and branded products and to meet the growing demand for protection from counterfeiting and diversion. In this context, “counterfeit items” are imitation items that are offered as genuine with the intent to deceive or defraud. “Diversion”, or “gray market commerce”, involves the selling of goods (often genuine goods) in a geographic market where both the wholesale and retail prices are high, while falsely purchasing them from another market where wholesale prices are lower, thus taking advantage of the price differential between the two markets. The United Kingdom’s Counterfeit Intelligence Bureau estimates that losses by companies and governments from counterfeiting and diversion range from $300 billion to $1 trillion annually.
INKS’ products involve two principal components – (1) customizable security inks, created by mixing chemical markers into standard printing inks and coatings, that are suitable for almost every type of digital and impact printing on a wide variety of surfaces or substrates, such as paper documents, plastic identification cards, packaging materials and labels; and (2) sophisticated “full spectral curve” readers that use proprietary software to quickly analyze the taggants, or “markers”, in the inks. The Company’s products are considered to be “covert”, because its encoded inks are indistinguishable from standard non-security inks and are easily applied to documents, products, product labels, packaging and designs. InkSure’s ink-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 the Company’s readers.
InkSure is also working on the development of next-generation “chipless” radio frequency identification (“RFID”) technology designed to enable item-level tagging of merchandise, packages, and other products. If successfully commercialized, RFID technology represents a potential “home run” for investors that could dwarf the very substantial opportunities for capital appreciation potential inherent in INKS’ current business model. RFID “chipless” tags would permit “non line of sight” collection of product information and would be suitable for a variety of applications, including authentication, supply chain management and traceability, proof of ownership, and data carrying transactions. If successfully developed, we believe such technology could eventually replace the familiar barcode technology and other electronic article surveillance solutions that are currently available. While we do not necessarily expect INKS to introduce new RFID “track and trace” products within the next twelve months, and a sizeable investment may be required to commercialize the technology, continued research and development in this area is certainly justified in light of the multi-billion-dollar market opportunity that could be targeted by “chipless” RFID products.
Analysts estimate that losses from counterfeiting and “gray
market” diversion of branded and other products range from
$300 billion to $1 trillion annually, and such losses are growing
at a 20% annual rate.
Products
We believe InkSure’s technology offers significant advantages over other authentication solutions such as visible and invisible ultraviolet marks, fluorescent inks, watermarks and fibers, optically variable inks and holograms that are offered by the Company’s competitors. INKS’ technology, which is based on multi-disciplinary technologies, including chemistry, printing, electro-optics and software, offers customers a customized solution that provides a high level of security and flexibility while remaining cost-effective.
Each security ink (SmartInkTM) has a unique “signature” that is invisible to the naked eye, virtually impossible to replicate or reverse-engineer, and extremely accurate. This signature is comprised of a variety of factors, including the amounts and unique properties of the chemicals included in the ink, the type of ink, the ink color, the printing method and the substrate. The customized inks contain unique chemical markers (“taggants”) with distinct luminescent properties and combinations thereof that create customized, recognizable codes. The Company’s proprietary hand-held and/or mounted electro-optic readers are designed for a full spectral curve analysis rather than mere intensity measurements in one or two specific wavelengths. Thus, a counterfeit item would have to replicate an entire unique signature (every variable upon which the signature depends) rather than merely replicating certain portions of the signature. This is why INKS can assure its customers such a high level of security.
InkSure’s solutions are highly flexible and can be applied to almost every type of ink and coating used by standard printing devices. The inks are also suitable for printing on any type of surface or substrate for which digital and impact printing is available. According to a particular client’s security needs, unique coded inks can be applied to different products or batches, and the corresponding reader can be programmed to authenticate and verify each of the different codes – and indicate which code was verified. Currency and high value documents typically incorporate more than one security feature, and many brand owners are using both overt and covert security measures (“layered security”) in order to make reproduction of documents or packaging increasingly difficult and costly for counterfeiters.
The Company’s technology provides a very cost-effective way to prevent counterfeiting and diversion, with the security ink for each product or document costing fractions of a penny (US$). Because INKS’ readers can detect even trace amounts of the specific chemical markers, customers can achieve a relatively high level of security in high-volume applications at reasonable incremental costs.
InkSure has developed a number of “Solution Packages” to meet various market needs. These packages rely primarily on the Company’s core technology, which is best described as “line of sight authentication”. INKS has designed several generic readers that provide different levels of security for various target applications. For specific projects, due to the flexibility upon which the technology is built, the Company customizes the generic readers to fit customer needs according to size and speed requirements.
Huge and Rapidly Growing Market Opportunity
As noted earlier in this report, approximately $25 billion is currently being spent each year (globally) on document and product protection, and this market is growing at an estimated rate of 20% annually. InkSure has chosen to address this market opportunity using a “razor / razor blade” approach with respect to the sale of its readers and inks. Management views its proprietary readers as “infrastructure” products, similar to a hand-held razor, while the specialty SmartInks represent the razor blades that generate “recurring” sales. A similar analogy can be seen in the way Hewlett-Packard makes its money from the recurring sale of ink cartridges for its printers, rather than from the sale of the printers themselves.
Given the nature of the large corporations, governments and institutions that represent prospective customers, InkSure has learned that the sales process can be painfully long, and this makes it difficult to predict how quickly revenues will ramp up in the near term (12-18 months). However, once a customer adopts INKS’ technology for the protection of documents or branded products, the Company can look forward to a recurring “annuity” of high-margin revenues from the sale of SmartInks.
The most receptive market segment for INKS’ authentication applications would appear to include 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 the Company’s solutions. In addition, InkSure has targeted customers that need a covert security feature that is extremely difficult to reverse-engineer.
The potential market for InkSure’s products can generally be divided into two major classifications:
Documents (e.g., bank notes, checks, postage stamps, transportation and event tickets, tax stamps, pre-paid telephone cards, identification cards, passports); and
Brand Products (e.g., pharmaceuticals, cellular and electronic equipment, alcoholic beverages, cigarettes, software, automotive products, toys, apparel).
To date, the Company has entered into strategic relationships with Sun Chemicals Group B.V., the world’s largest manufacturer of printing inks and performance pigments, and Merck KGaA, a leading global chemical company, to leverage the development, distribution and co-marketing of its security products.
Specific market opportunities are reviewed below.
PACKAGING. This involves brand protection through the application of SmartInk solutions to products, packaging, labels, and/or stickers and is suitable for a number of industries, including consumer goods (e.g., apparel, cosmetics, fragrances, software, tobacco), pharmaceuticals, and industries that rely upon component parts (e.g., automotive, computer hardware). Several major North American customers are already using InkSure’s technology to protect hundreds of millions of products (i.e., individual items or packages) on a global scale.
TAX STAMPS. Government-issued tax stamps that are attached to tobacco, wine, alcohol and export products offer significant global opportunities for InkSure ’s authentication technology.
GAMES AND ENTERTAINMENT. Tickets and wrist bands for major sporting and entertainment events can be printed using SmartInks and authenticated at the entrance using either hand-held or stationary readers. Similarly, lottery tickets and gaming chips are subject to counterfeiting and may be authenticated at the time of submission for payment.
TRANSPORTATION. Both national and local transportation authorities issue travel passes, season tickets and single-use tickets, all of which are subject to counterfeiting. Since 2002, the Istanbul Greater Municipalities Public Transportation Co., which operates the municipal bus system in Istanbul, Turkey and is one of the world’s largest public transportation companies (over 3,000 buses and 10 million passengers per month), has been using InkSure’s SmartInk solution to reduce revenue losses due to the counterfeiting of single-ride bus tickets. Revenues from the sale of bus tickets more than doubled after InkSure’s covert security solution was adopted by the bus system, increasing the bus system’s revenue by over $33 million annually. This was an excellent “proof of concept” contract that provided substantive recurring revenues to the Company.
FINANCIAL DOCUMENTS. Historically, checks and other financial documents have incorporated security features, in the substrate or the pre-printed form, in an effort to protect the fixed and variable data imprinted on such documents. SmartInk technology can now protect both fixed and variable data directly and has been used by a major European bank to protect variable data printed onto some of the bank’s documents.
GOVERNMENT IDENTITY DOCUMENTS. InkSure has the unique ability to mark inkjet ink and thermal transfer ribbons with SmartInk, thus providing authentication capabilities to the variable data on passports, visas, drivers licenses, ID cards, birth certificates, and motor vehicle registrations. These market opportunities will involve a long-term marketing and selling process, given the typical government bid process and cycles for initiating new features.
RETAIL VOUCHERS AND GIFT CERTIFICATES. Many retailers currently use printed vouchers and gift certificates to increase sales. Certificates of Authenticity that accompany a wide variety of retail goods ranging from software products to luxury goods, are also an area of opportunity.
To date, InkSure has focused primarily upon market segments where the Company has already achieved meaningful penetration and actual sales, or where management considers near-term sales potential to be above-average – packaging, tax stamps, financial documents, entertainment (i.e., ticketing) and transportation.
The U.S. Food & Drug Administration began 58 investigations of
counterfeit drugs in fiscal 2004, up from 22 in 2003.
Experienced Management Team
When investing in micro-cap companies that have set their sights on attaining leadership positions in an emerging industry (covert security), it is critical to evaluate the management team selected to execute an aggressive growth strategy.
Elie Housman, CEO and Chairman of the Board
Mr. Housman was a Principal at Charterhouse Group International, a privately-held merchant bank, from 1989 until June 2001, where he was involved in the acquisition of a number of companies with total sales of several hundred millions of dollars. Prior to Charterhouse, he was co-owner of AP Parts, a $250 million automotive parts manufacturer. He was also the Chairman of Novo Plc. in London, a leading company in the broadcast storage and services industry.
Yaron Meerfeld, Chief Operating Officer
Mr. Meerfeld was previously the Managing Director of Kromotek, Inc. and Vice President of Sales and Marketing at an Israeli-based smart card technology company. He has a strong background in authentication and multi-layered security systems for documents, passports, ID cards and smart cards.
Eyal Bigon, Chief Financial Officer
Mr. Bigon, who joined InkSure in 2002, has extensive experience as the CFO of RiT Technologies (Nasdaq: “RITT”), a world-leading provider of integrated network management solutions for the communications market. Before joining RiT, he held financial positions with Tadiran and IBM.
R. James Assaf, CEO, Global Sales and Marketing U.S. Operations
Mr. Assaf was formerly the Director of Business Development, Mergers and Acquisitions at Sensormatic Electronics Corporation, the world’s leading producer of retail security systems. During his 15 years at Sensormatic, he helped build that company’s sales to more than $1 billion per year, and he engineered numerous M&A transactions prior to Sensormatic’s acquisition by Tyco International in 2001. (One of the Company’s independent directors was formerly Chairman of the Executive Committee and Co-Chief Executive Officer at Sensormatic).
“Certainly, when you look at pharmaceuticals, you are not just
looking at the cost of counterfeiting and lost revenues.....but you
are also looking at the liability risk from personal injuries that can
result from pharmaceutical companies that have not adequately
protected their supply chain.”
R. James Assaf
CEO, Global Sales & Marketing, U.S. Operations
InkSure Technologies Inc.
Dr. Shlomo Dukler, Chief Technology Officer
Dr. Shlomo Dukler has an extensive background in Photoluminescence, Pigments, Organic/Inorganic fluorescent compounds, Spectroscopy, Printing Inks and Security Printing Inks. He was previously Head of the Chemistry Department of the Government of Israel Laboratories. Dr. Shlomo Dukler holds a Ph.D in Physical and Organic Chemistry.
Dana Kaplan, Vice President, Marketing Ms. Kaplan has extensive experience in international marketing. Her prior positions include commercial marketing management at Bagir Ltd. and international marketing planning and management for Israeli companies operating in the global market. Ms. Kaplan’s technical background involves experience as an R&D chemist at Avco Chem (pigments and dyestuffs).
Chris Brown, Sr. Vice President of Sales, North & Central America
Mr. Brown joined InkSure in 2003 after more than 15 years of extensive strategic marketing, management and sales experience in the security industry at ADT/Tyco and Sensormatic. His positions included Director of ADT/Tyco’s RFID development program, Director of Sales and Marketing in charge of Sensormatic’s Source Tagging sales force, and Director of Operations for Sensormatic’s security sponsorship of the 2002 Olympic Winter Games. Mr. Brown was in charge of Sensormatic’s successful campaign to receive the recommendation of the National Association of Recording Merchandisers (NARM) and the Record Industry Association of America (RIAA) to utilize Sensormatic’s anti-shoplifting labels in all major CD and DVD releases. The NARM and RIAA recommendations were instrumental in subsequent chain-wide rollouts at Wal-Mart and Musicland, cementing Sensormatic’s dominant leadership position in its industry.
“We’ve seen a massive increase (in counterfeiting) in the last
five years, and there is a risk that it will spiral out of our control.”
Anthony Simon
Marketing Chief
Unilever Bestfoods
Summary and Conclusion
Prior to 2004, we would characterize most of INKS’ activities as “developmental” in nature. Since early 2002, the Company has been involved in validating its technology through a multi-year contract with the municipal bus system in Istanbul, Turkey that was very successful in reducing revenues lost to the counterfeiting of bus tickets. Targeted sales and marketing initiatives on a broader scale, however, were not launched until last year, following two private placements of common stock that raised approximately $2.4 million in funding for such activities. (Note: the Company also raised $6.7 million in initial equity financing in October 2002).
We believe InkSure is on the threshold of a dramatic acceleration in revenue growth, and the Company should achieve profitability by the fourth quarter of 2005. Revenues for the year ended December 31, 2004, were modest at $955,000 (up 57% from previous year) and were derived primarily from initial revenues from an unidentified North American corporation that is using InkSure’s security solution for a worldwide brand protection project, along with a new authentication project in Turkey. (Many brand owners that are victims of counterfeiting do not publicize their losses, nor do they publish their expenditures related to controlling the problem. Unfortunately, this will often prevent INKS from disclosing customer names when announcing new contracts).
As we noted earlier in this report, the “sales cycle” for major security contracts is a long one, sometimes taking a year or more, but once a contract is signed, the Company can look forward to a growing stream of recurring revenues from high-margin ink sales for years to come. We believe the sales and marketing efforts undertaken by management during the past twelve months will begin to bear fruit in 2005, when we estimate that revenues will more than triple to $3.0-$3.5 million. If our projections are realized, INKS should become profitable by the fourth quarter of 2005, based upon our assumption that the Company’s “breakeven” revenue level approximates $1.1 million quarterly. We expect revenues to expand at a 100%-plus average annual rate for the next couple of years and at a 50%-plus annual rate for the balance of the decade.
If, as we expect, InkSure is successful in its sales/marketing activities, the Company should announce a number of significant new customers and contracts during the balance of 2005, and we believe this will greatly expand the level of interest within the investment community, along with trading activity in the stock.
Recent Developments
Cigarette maker JT International has boosted its
anti-counterfeiting budget from $200,000 to $15 million in the
past six years, spending the money on a network of
investigators, lawyers and informants in factories suspected of
making fakes.
We consider several developments significant in terms of the outlook for InkSure Technologies Inc. and its common stock as an attractive investment during the next several years.
On June 14, 2005, InkSure announced its receipt of the largest equipment order in the Company’s history. The international order, from the Company’s strategic marketing partner, Sun Chemical Group B.V., the world’s leading manufacturer of printing inks, calls for the utilization of InkSure’s security solutions in a number of projects involving the packaging of consumer products. Authentication of the packaging of hundreds of millions of individual product containers will involve hundreds of field SignaSureTM readers and a number of high-speed production line SortSureTM quality assurance systems. “We expect to begin recognizing equipment revenues from this order relatively soon, and revenues arising from project consumables are expected to be significant and recurring in the second half of 2005 and future years,” commented the Company’s CEO, Elie Housman, in a related news release. “Our record first quarter and backlog from U.S. customers, along with this order, form a solid foundation of recurring business that should facilitate continued revenue growth.”
On June 6, 2005, INKS announced the marketing release of TrackSureTM, a revolutionary handheld reader that performs barcode reading, authentication and validation against an onboard database with the single push of a button. TrackSure can read all standard formats of linear barcodes, either visible or invisible, and compare the scanned ID to barcode information stored in the TrackSure database or a customer’s centralized database. In addition, the multi-functional TrackSure operates as an authentication device to definitively authenticate barcodes printed with InkSure’s SmartInk for secure track and trace applications. “Investigators and field agents can retrieve on-the-spot detailed information from a scanned item, including product identification, product origin, and distribution area, and can determine immediately whether the barcode has been copied or tampered with,” noted the Company in a related news release. “TrackSure allows us to extend our expertise involving covert, machine-readable technology (‘CMRT’) beyond our core application of anti-counterfeiting, to include protection against diversion and gray marketing activities.”
On June 1, 2005, the Company announced that its wholly-owned InkSure RF subsidiary was awarded two key U.S. patents related to the Company’s ongoing development of “Chipless” RFID tags. According to IDTechEx Ltd., a leading consultancy in smart labels and smart packaging, global revenues from RFID systems should exceed $10 billion by 2010, with “Chipless RFID” accounting for at least 30% of the total. “Our goal is to develop multi-bit ‘chipless’ RFID tags that can be manufactured and applied to product labels at a cost of well below one cent each,” observed CEO Elie Housman in a related news release. “Such tags offer far more speed, functionality and ease-of-use than traditional barcodes and have the potential to revolutionize brand protection and supply chain management on a global scale.”
On May 5, 2005, InkSure reported sharply higher first quarter revenues and a reduction in net loss, when compared with the prior-year period. Sales increased 215% to $494,000 in the three months ended March 31, 2005, versus sales of $157,000 in the first quarter of 2004. The Company reported a net loss of $0.03 per share for the quarter, compared with a net loss of $0.05 per share in the year-earlier period. “We are pleased that our revenues during the first quarter of 2005 more than tripled prior-year levels and were 37% higher than in the fourth quarter of 2004, which increase was primarily due to new customers in the United States,” commented the Company’s CEO in a related news release. “Last year, we entered into agreements to supply our SmartInk covert security solutions to two new customers in the U.S. for brand protection products. Independently and in cooperation with our strategic partners, Sun Chemical Group B.V. and Merck KGaA, InkSure is currently involved in field testing of our security solutions with a number of potential customers in several countries, and we are optimistic that some of these initiatives will develop into firm contracts during the balance of the year.”
On March 30, 2005, InkSure filed its Form 10-K that reported upon operating results for 2004. Revenues rose 57% to $955,000 and the Company reported a net loss of ($2.1 million), or ($0.24) per share, for the year ended December 31, 2004. Approximately 65% of revenues came from two new customers in North America that are using INKS’ coding solutions and handheld authentication readers in brand protection projects. Another 25% of revenues were derived from purchases by MTM Guvenlik (Turkey) of readers and ink for hologram-related products. Sales related to the Company’s agreement with Sun Chemical represented approximately 6% of 2004 revenues. We found the following statement in the 10-K of great interest: “We are currently concentrating on entering and implementing large-scale projects. These potential contracts are subject to a long sales cycle and the timetable is lengthy for entering and implementing such projects. These projects involve high volume sales through multiple-year sales contracts.” Another sentence that a caught our attention: “We anticipate a period of significant growth in connection with expansion of our marketing efforts and business.”
On November 8, 2004, the Company announced a global marketing partnership with “Security Industries”, a newly formed business unit of Merck KGaA (Germany), to present a joint solution in the battle against the growing problem of counterfeit documents and products, including pharmaceuticals. Security Industries, which combines the know-how and products of Merck KGaA’s Pigments and Liquid Crystals divisions, specializes in overt marking materials that are visible and immediately identify a product as real or fake (Merck’s unique pigments can be found on many banknotes around the world). InkSure specializes in machine-readable covert security markings, which require special readers to detect embedded features that are invisible to the naked eye. When both technologies are combined, the result is a multi-tiered security feature with multiple authentication levels. “Merck’s Security Industries and InkSure each have distinctly different technologies that fit well together to offer a combined, double-barreled protection against counterfeiting,” noted Dr. Michael Weiden, Manager of Security Industries, in a related news release. “InkSure has access to the ticketing and brand protection industries, while Merck has customers in the banknotes, pharmaceutical and cosmetics industries. Our cooperation will enable each company to reach a wider customer base, while providing our respective customers a broader array of authentication solutions.”
In March and August 2004, InkSure entered into sales agreements to supply its authentication solutions to two separate customers in North America for brand protection projects. Each project involves the protection of millions of items using INKS” coding solutions and handheld authentication readers, as well as quality assurance tools that are used to ensure that SmartInks are applied according to specifications. Revenues from these two agreements totaled $616,000, or 65% of the Company’s total revenues for the year ended December 31, 2004.
In June 2003, Sun Chemical Group B.V., the world’s largest manufacturer of printing inks, and InkSure Technologies announced a strategic marketing alliance to offer revolutionary machine-readable ink-based Brand and Document Authentication solutions under the SunSureTM brand name. Commenting on the alliance, Richard Pettifor, Group Managing Director and Corporate VP for Sun Chemical, said: “As a company committed to ‘total value’, we have been looking at innovative ways to support our customers’ needs for more effective weapons against enormous counterfeit and diversion losses. Our long search for the best machine-readable solution available, and extensive evaluation, have convinced us that InkSure’s extraordinary technology has the potential to revolutionize the authentication market.”
The Outlook
We would characterize InkSure as a “development stage” company prior to last year. Although the Company generated some revenues, most notably from the municipal bus agency in Istanbul, Turkey, we consider activities prior to 2004 as primarily involving R&D activities and working with a few customers to “prove” the value of its covert security solutions and the ability of INKS to deliver upon the promise of its SmartInks technology.
Management began to devote meaningful resources to sales and marketing activities in 2004, and new contracts accounted for approximately two-thirds of the Company’s $955,000 in revenues for the year ended December 31, 2004, when INKS reported a net loss of ($2.1 million), or ($0.24) per share. While InkSure has been unable to disclose the names of certain existing or prospective customers, we believe the initial success of the Company’s sales and marketing initiatives will allow 2005 revenues to more than triple to $3.0-$3.5 million. In the first quarter of 2005, revenues more than tripled, rising 215% to $494,000, compared with $157,000 in the prior-year period. If our projections are achieved, the Company’s revenue “run rate” should exceed estimated quarterly “breakeven” levels ($1.1 million) by the fourth quarter of 2005.
The timing of new contracts can have a significant impact upon sales in any particular quarter. Therefore, we expect considerable volatility in quarterly operating results for the foreseeable future. Annual results should be more indicative of important business trends.
We understand that “field tests” are currently underway with potentially large customers in several countries and expect INKS to announce a number of new contracts during the balance of the current year. This should enhance the ability of investors to envision rapid growth in sales and earnings over the next several years. Once the Company becomes profitable, we estimate that approximately 35% of incremental reader sales and over 70% of incremental SmartInk sales will fall to its “bottom line” as pretax profit. As InkSure’s business expands, an increasing portion of its revenues will be derived from high-margin security ink sales, as the Company builds a rapidly growing stream of recurring earnings. Because of the predictability of such “annuity” income, we believe investors will place a high multiple on INKS’ sales until earnings reach a level that can support a valuation model based on profitability.
Our tentative projection for the year ending December 31, 2006 anticipates an approximate doubling in revenues to the $6.0-$6.5 million area, as existing and new customers adopt InkSure’s covert security solutions for an expanding variety of documents and branded products. The Company should be able to earn $0.05-$0.10 per share (non-taxed) in 2006 under this scenario. Another doubling in revenue (to $12 million-plus) is likely in 2007, with earnings per diluted share reaching $0.20-$0.25. We believe INKS can grow its sales 50% or more each year through the balance of the current decade.
With investor enthusiasm for INKS likely to expand rapidly under this scenario, we believe the Company will be able to access the funds necessary to support its anticipated growth during the next several years. The Company raised approximately $2.4 million in new equity during 2004 and still had $1.3 million of cash in the bank as of March 31, 2005. While the monthly cash “burn rate” currently approximates $250,000, we expect cash requirements to decrease markedly as revenue growth accelerates. Although management may choose to seek additional capital as INKS’ stock price rises, in order to allow the Company to more aggressively pursue new business opportunities, we believe InkSure can achieve profitability without raising additional capital.
As of March 31, 2005, InkSure’s balance sheet revealed a current ratio of 3.4-to-1.0 (current assets = $2.2 million vs. current liabilities = $0.6 million), while cash and equivalents represented approximately 47% of the Company’s total assets of $2.9 million. INKS’ capital structure consisted of $2.1 million in shareholders’ equity, there was no long-term debt outstanding, and the Company had a tax loss carryforward of approximately $3.5 million that should shelter earnings from income taxes for the foreseeable future.
Investment Considerations
“Pakistan and Russia are huge producers of fake
pharmaceuticals, while in Italy an estimated 10% of all designer
clothing is fake, much of it produced domestically. Gangs in
Paraguay funnel phony cosmetics, designer jeans, and toys
from China to the rest of South America. Bulgarians are masters
at bootlegging U.S. liquor brands. This is one fight that will take
years to win.”
“Fakes”
Business Week
February 7, 2005
In our opinion, InkSure is pursuing a highly effective business strategy that can deliver outstanding value to shareholders in coming years.
At their current price of $2.65, we do not believe INKS shares adequately reflect the potential for rapid growth in the covert security industry or the Company’s opportunity to become one of the leading “pure plays” in this multi-billion-dollar industry. We believe INKS’ share price will appreciate significantly as the Company and its prospects become more widely recognized within the investment community during the next several years.
With a business model that delivers recurring revenue from high-margin security inks, and given the likelihood that over 60% of incremental sales will fall directly to the “bottom line” after profitability is achieved, we would expect INKS shares to support a premium price-to-sales ratio during the next couple of years, and a high price-to-earnings ratio over the long term.
If management is successful in the development and commercialization of “chipless” RFID tags, we believe the stock’s long-term capital appreciation potential would be enhanced even further. In our opinion, INKS shares represent an attractive speculative investment opportunity for investors able to accept the risks associated with a micro-cap stock company that is not yet profitable or cash-flow-positive.
Investors should exercise caution when buying or selling INKS shares, because although there are approximately 15 million common shares currently outstanding and we estimate the public “float” at 7.0 million shares, trading can be quite “thin” on any particular day. Investors should use “limit” orders when buying or selling INKS shares. If our revenue and profitability projections realistic, we would anticipate a listing of the stock on Nasdaq or the American Stock Exchange within the next 12-18 months. Insiders (officers + directors) beneficially own about 13% of the Company’s shares outstanding, while institutional ownership is insignificant at the present time.
R. Jerry Falkner, CFA
July 12, 2005
INKSURE TECHNOLOGIES INC.
Condensed Statements of Operations
(In Thousands, Except Per Share Data)
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2003 2004 2005E
2006E 2007E
Revenue $608 $955 $3,300 $6,300 $12,300
Gross Profit 474 542 - - -
Income (Loss) from Operations (3,000) (2,062) - - -
Net Income (Loss) ($2,965) ($2,061) ($1,500) $1,400 $4,000
Earnings (Loss) Per Diluted Share ($0.24) ($0.15) ($0.10) $0.08 $0.22
Weighted Avg. Diluted Shares Outstanding (000) 11,982 13,957 15,100 17,500 18,000
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Additional information on this Company can be found on the World Wide Web:
www.inksure.com
www.rjfalkner.com
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This Research Profile contains “forward-looking” statements within the meaning of U. S. federal securities laws. Forward-looking statements regarding the Company’s performance inherently involve risks and uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, acceptance of the company’s products in the marketplace, competition, technological changes within the covert security industry, the availability of adequate capital, licensing and commercialization of the Company’s technologies, general economic conditions, currency translation effects, litigation, reliance upon third-party service providers, the effect of government regulation and other risks discussed in the Company’s periodic report filings with the U.S. Securities and Exchange Commission. By making these forward-looking statements, RJ Falkner & Company, Inc. undertakes no obligation to update these statements for revisions or changes after the date of this report.
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RJ FALKNER & COMPANY, INC. publishes research reports on small- and micro-cap companies. The information contained in our reports is based upon sources which we consider reliable but is not guaranteed by us, nor do such reports represent a solicitation to buy or sell the securities discussed therein. The information and opinions contained in our research reports are based upon publicly available information as of the date such reports are published. Readers of our reports should recognize that the information, projections, opinions, and/or conclusions contained in the reports may have changed since publication, and we assume no responsibility for updating the reports as a result of such changes. This report may include financial information that is not prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States. Readers of this report should review the financial information provided by the subject company of this report in its 10-K, 10-Q and 8-K filings with the Securities and Exchange Commission.
Additional information on the companies discussed in our research reports is available upon request by contacting us at 800-377-9893. While we are paid by the companies that are the subject of our research reports for the provision of research coverage, we are not an agent of such companies, and all of the views expressed in our research reports accurately reflect our research analysts’ personal views about any and all of the subject securities or issuers. No part of our research analysts’ compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed by such analysts in the research reports. All opinions and/or conclusions in our research reports were developed independently by the analysts writing the reports, unless otherwise stated. Our analyses of small- and micro-cap companies have been independently prepared by us, and any sales and/or earnings forecasts included in our research reports were independently prepared by RJ FALKNER & COMPANY, INC., unless otherwise stated, and are not endorsed by the managements of the companies which are the subject of our reports. Such sales and/or earnings forecasts were prepared based upon historical information that was available to the public as of the date of publication of the reports. Use of these reports may be subject to the applicable rules of certain self-regulatory organizations, and securities mentioned in the reports which are traded over-the-counter may not be cleared for sale in certain states.
RJ FALKNER & COMPANY, INC. and/or its employees, officers, affiliates or members of their families may have long or short positions in the securities discussed in the research reports (and/or options or warrants relating thereto) and may purchase and/or sell the securities or options/warrants from time to time in the open market or otherwise. RJ FALKNER & COMPANY, INC. derives its compensation from the provision of research reports and investor relations consulting services. RJ FALKNER & COMPANY, INC. currently receives a cash retainer of $3,000 per month from INKSURE TECHNOLOGIES INC. for the periodic publication and distribution of research reports on the company, along with certain investor relations services. An officer of RJ FALKNER & COMPANY, INC. currently owns 8,500 shares of INKS common stock and has been granted an option (expiring March 2015) to purchase up to 50,000 shares of INKS common stock at an exercise price of $1.40 per share.
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