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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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ANNUAL REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT 1934:



For the Fiscal Year Ended December 31, 2004



Commission File Number: 0-30717



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E-SMART TECHNOLOGIES, INC.

(Name of Small Business Issuer in its Charter)



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|                         |  |                                     
|------------------------ |  | ------------------------------------
|Nevada                   |  | 88-0409261                          
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)



222 Grace Church
Street, Suite 300, Port Chester, NY 10573

(Address of Principal executive Office, including Zip Code)



(914) 939-5081

(Issuers Telephone Number)



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



COMMON STOCK, $.001 PAR VALUE

(Title of Class)



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Check whether Issues: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No ̈



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. ̈



Issuers revenues for the two years ended December 31, 2004: $ -0-



The aggregate market value of Common Stock held by non-affiliates at March 31, 2005 was $36,951,558.



Shares of Common Stock, $.001 par value per share, outstanding at March 31, 2005: 173,535,944shares



DOCUMENTS INCORPORATED BY REFERENCE:



No documents are incorporated by reference into this Annual Report.



Transitional Small Business Disclosure Format (check
one):    Yes ̈No  x



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PART I



ITEM 1. Description of Business ITEM 2. Description of Property ITEM 3. Legal Proceedings ITEM 4. Submission of Matters to a Vote of Security Holders PART II ITEM
5. Market for the Registrants Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities ITEM 6. Managements Discussion and Analysis or Plan of Operations ITEM 7. Financial Statements ITEM 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ITEM 8-A. Controls and Procedures PART III ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the
Exchange Act ITEM 10. Executive Compensation ITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ITEM 12. Certain Relationships and Related Transactions ITEM 13. Exhibits and Reports on Form 8K
ITEM 14. Principal Accountant Fees and Services SIGNATURES CERTIFICATIONS



Safe Harbor Statement



Certain statements
contained herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We desire to avail ourselves of certain safe harbor provisions of the 1995 Reform Act and are
therefore including this special note to enable us to do so. Forward-looking statements included in this Report on Form 10-KSB involve known and unknown risks, uncertainties, and other factors which could cause our actual results, performance
(financial or operating) or achievements to differ from our best estimate of future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. These risks include, but are not limited to,
risks related to recently consummated acquisitions as well as future acquisitions, our ability to increase our revenues and generate income from operations, effects of competition and technological changes, risks related to exposure to personal
injury and workers compensation claims, risks that our insurers may not provide adequate coverage, risks associated with compliance with government regulations such as ERISA, state and local employment regulations and dependence upon key
personnel.



We believe it is important to communicate our
expectations to our investors. There may be events in the future, however, that we are not able to accurately predict or over which we have no control. The risk factors listed above, as well as any cautionary language in this report, provide
examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we described in our forward-looking statements. Before any investment is made in our securities, awareness that the occurrence
of any of the events described in the risk factor section and elsewhere in this report, and other events that we have not predicted or assessed could have a material adverse effect on our ability to transition out of the development stage. In such
case, the price of our securities could decline and any investor may lose all or part of the investors investment.



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PART I



ITEM 1. DESCRIPTION OF BUSINESS



General



e-Smart Technologies, Inc., a Nevada corporation (the Company or the Registrant), was incorporated on July 15, 1997, under the name Boppers Holdings, Inc. (Boppers). On December 22,
2000, and by virtue of a Certificate of Amendment to our Articles of Incorporation, our name was changed to e-Smart Technologies, Inc. Prior to the change of name, and pursuant to an Acquisition Agreement and Plan of Merger dated as of August 16,
2000, between Boppers and Plainview Laboratories, Inc. (PLI), a Nevada corporation, all the outstanding shares of common stock of PLI were exchanged for 20,000 shares of Rule 144 restricted common stock of Boppers in a transaction in
which Boppers was the successor corporation. At the time of the merger with Boppers, PLI was a publicly owned entity with a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the
Exchange Act).



We were organized under the laws of
the State of Nevada on July 15, 1997, we have limited operations, and, in accordance with SFAS#7, we are considered a development stage company. Our administrative offices are located at 222 Grace Church Street, Suite 300, Port Chester, NY 10573 Our
registered agent in the State of Nevada is The Corporation Service Company and our transfer agent is Holladay Stock Transfer Company of Scottsdale, Arizona. Our common stock trades in the over-the-counter market under the symbol ESMT. Our telephone
number is (914) 939-5081.



The 2000 Merger



On October 20, 2000, Boppers, Boppers Acquisition Corp., a then newly-formed
Nevada corporation and wholly owned subsidiary of Boppers (BAC), and e-Smart Systems, Inc., a Nevada corporation (e-Smart Systems) and wholly owned subsidiary of Intermarket Ventures, Inc., a Utah corporation
(IVI), entered into an Agreement and Plan of Merger (the Merger Agreement). Pursuant to the terms of the Merger Agreement: (i) Boppers acquired all of the issued and outstanding shares of common stock of e-Smart Systems; (ii)
BAC merged with and into e-Smart Systems such that e-Smart Systems was the survivor; (iii) e-Smart Systems became a wholly owned subsidiary of Boppers; and (iv) IVI, the sole shareholder of e-Smart Systems, acquired control of Boppers as described
below.



Prior to the consummation of the transactions
contemplated by the Merger Agreement, Boppers had 200,000,000 authorized shares of Common Stock, par value $.001 per share (the Boppers Common Stock), 20,000,000 authorized shares of Preferred Stock, par value $.001 per share and
3,501,000 issued and outstanding shares of Boppers Common Stock. Pursuant to the Merger Agreement, Boppers: (i) issued 58,600,000 shares of Boppers Common Stock to IVI in exchange for 58,600,000 shares of e-Smart Systems common stock, par
value $.001 per share, owned of record by IVI; and (ii) converted warrants to purchase an aggregate of 2,900,000 shares of e- Smart



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Systems common stock at $10.00 per share into warrants to purchase an aggregate of 2,900,000 shares Boppers Common Stock at $10.00 per share (the
Warrants). The foregoing caused a change in the control of Boppers.



On November 27, 2000, Boppers management resigned and the Registrants present management took control. The Companys name was changed from Boppers Holdings, Inc. to e-Smart Technologies, Inc.,
effective as of December 22, 2000.



By virtue of a merger that
was completed on December 22, 2000, and pursuant to subsequent grants of rights from IVI Smart (defined hereinafter), we directly own the exclusive license for certain technologies for the U.S.A. and Asia except China. In addition, and through our
wholly owned subsidiary e-Smart Systems, Inc., a Nevada corporation, we own the exclusive license for China to the smart card technology and any and all other smart card related assets originally developed or otherwise owned by IVI, one of our major
shareholders, and now owned by IVI Smart Technologies, Inc., a Delaware corporation and subsidiary of IVI (IVI Smart). IVIs and now IVI Smarts research and development lab was the creator of what we believe to be the market
leader in multi-application smart card solutions. IVI dubbed this technology the Super Smart Card System. We have sublicensed the rights to market the technology to state and federal agencies to our forty-five (45%) percent owned
affiliate, Homeland Defense, Inc., a Nevada corporation, which is majority owned (fifty-five (55%) percent) by our Chairman, Chief Executive Officer, President and Chief Financial Officer Mary Grace.



Recent Developments



During the first quarter of fiscal 2004, and through e-Smart Korea, Inc., our wholly owned Korean subsidiary, we entered
into two material agreements that we believe will lay the groundwork for our transition to operating status. On February 25, 2004, we signed a Mutual Cooperation Agreement with Daewoo International (Daewoo), a multinational
trading company, manufacturer and infrastructure builder-provider (the Daewoo Agreement). On February 27, 2004, we entered into a Master Teaming Agreement (the Samsung Agreement) with Samsung SDS
(Samsung), a leading global IT solutions provider in Korea with annual revenue of in excess of US $1.43 billion. In addition, the Company directly entered into another material agreement that is designed to pave the way towards
re-commencing operations in China. In this regard, and on February 27, 2004, we entered into a Cooperation Agreement with a Chinese corporation principally owned by entities controlled by the Peoples Republic of China (the PRC)
Ministry of Information Industry (the China Agreement). On April 4, 2004, we signed an agreement with the Ministry of Transportation and Communication and the Republic of Kyrgyzstans Supervisory Institute for e-Government (the
Kyrgyzstan Agreement). On August 13, 2004, and pursuant to the Daewoo Agreement, we signed an agreement in Uzbekistan with the Ministry of Economy of the Republic of Uzbekistan, Uzbekistan Uzbekprom Association and the Bank Association of the
Republic of Uzbekistan (the Uzbekistan Agreement). On November 8, 2004, we signed an agreement in Indonesia with P.T. Primrose Gantari Indonesia (the Indonesia Agreement). On December 3, 2004, and pursuant to the Samsung
Agreement, we entered into two project agreements, the Samsung Student Card Project Agreement with Samsung SDS Co., LTD., and Kobile Inc. (the Student Card Agreement), and the Samsung Mybi Agreement with Mybi Co, Ltd., the leading
micro-payment card company



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in Korea, with approximately 20 million customers (the Mybi Agreement). The following is a brief summary of the foregoing agreements:



A. The Daewoo Agreement. In furtherance of our business plan, we have
engaged and partnered with Daewoo with a view towards undertaking projects in Uzbekistan and in over 20 other countries. Pursuant to the terms of the Daewoo Agreement, the parties have agreed to work together to identify projects on an international
basis within listed countries that capitalize both on the unique biometric and other systems developed by us and on Daewoos strengths within those countries. Prior to the date of the Daewoo Agreement, Daewoo chose our Super Smart Card and BVS2 to gain an edge over competitors in the national ID market. Upon jointly agreeing to
pursue a potential project, a project-specific agreement will be entered into on terms to be negotiated on a case by case basis.



B. The Samsung Agreement. Samsung is a leading contender in the domestic Korean market for the development and implementation of a National ID Card
and other large scale public ID card systems. We believe that Samsung, like Daewoo, selected our biometric systems, because when configured for a privacy protected, multi-application, National ID Card, our systems provide a powerful tool for
identity verification that is useful for security purposes, an exceptional ability to prevent ID theft crimes and a unique ability to protect the privacy and civil rights of each cardholder. Under the terms of the Samsung Agreement, the parties have
agreed to work together to identify domestic Korean projects as well as certain international projects that capitalize on the unique features of our technologies and upon Samsungs status and implementation abilities. Upon jointly agreeing to
pursue a potential project, a project-specific agreement will be entered into on terms to be negotiated on a case by case basis. To date, the parties have identified three potential projects and discussions are underway in connection therewith.
Despite the clear need to protect the Korean public from identity theft and other ID related crimes, however, the notion of a national ID card with a biometric system has stirred controversy regarding privacy related issues amongst both legislators
and privacy groups. These fears, coupled with the failure of other biometric systems tested in the Korean public arena, have prevented the current introduction of a biometric National ID Card in Korea.



C. The China Agreement. We signed a co-operation agreement and agreed
to form a joint venture company in the PRC with two PRC companies. One, Guo Xin Well-tel Technology Co., Ltd., is primarily owned and controlled by an entity of the Ministry of Information Industry (the Ministry); and the other is
primarily owned and controlled by PRC persons involved in media and public relations in the PRC. We will be a fifty (50%) percent shareholder of this joint venture (the maximum allowed by China law for this type of venture) and the two PRC companies
will own thirty (30%) percent and twenty (20%), respectively. The Ministry was created March 1998 by merging the former Ministry of Post and Telecommunications, which oversaw network standards and access, and the Ministry of Electronics and
Information, which oversaw computers and software (and by divesting the resulting ministry of responsibility for postal administration and the telecom trunk line network). The Ministry is now described as a super-agency overseeing
telecommunications, multimedia, broadcasting, satellites, and the Internet. The parties to this Agreement have agreed to work together



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and to cooperate in doing everything necessary to create the joint venture and to obtain a business license that will allow the joint venture to effectuate
our business plan of mass distribution of the Super Smart Card and the operation of the BVS2 throughout the PRC. Commencing March 1, 2004, Guo Xin Well-tel Technology Co., Ltd. agreed to provide office space to the joint venture within their offices at the MII and to provide all required local liaison services
necessary to obtain the required permit necessary to do business in the PRC. We agreed to pay a non-accountable expense allowance of US$10,000 per month commencing March 1, 2004, in exchange for the above mentioned facilities and services. Upon its
formation, the joint venture will repay all formation expenses to us. After formation, we are also responsible for providing twenty-five million (25,000,000) Chinese Yuan (approximately US$3,000,000) capital to the joint venture company in various
tranches over a period of two years commencing with a payment of fifteen (15%) percent of this total within three months after the date of formation of the joint venture with all required permits and licenses having been issued.



D. The Kyrgyzstan Agreement. We have signed an agreement with the
Ministry of Transportation and Communication and the Republic of Kyrgzystans Supervisory Institute for Government. Pursuant to the agreement, and following our securing of the requisite funding against guarantees to be provided by the country,
e-Smart shall provide a nationwide implementation of a turnkey BVS2 platform and required Super Smart Cards together with any other hardware and software necessary to implement the product. The agreement provides that we shall operate and control the payment gateway, implement a National ID system, provide an
e-Passport/e-visa system, provide government employee ID cards, provide an AFC (automatic fare collection) system for public transportation, government among other projects, as well as to install and implement the nationwide infrastructure over
which all of these projects will operate. The World Bank has agreed to partially fund certain aspects of this overall project.



Since signing this agreement political unrest has forced a change of government and clear new leadership is just being established. Public statements made during April
2005 by this new leadership have stressed that all agreements with the government and foreign obligations of all kinds were to be kept and honored without exception. Their can be no assurance that this is the case. The Company is monitoring the
situation as of the date this report is being made but no clear conclusions can yet be drawn.



E. The Uzbekistan Agreement. Together with Daewoo, we entered into an agreement with the Republic of Uzbekistan with the goal of introducing the BVS2 system and Super Smart Card into Uzbekistan. Pursuant to the agreement we agreed: (i) to secure the requisite
funding in order to commence and complete the project against provision of satisfactory guarantees to be provided by the country; (ii) to expand and secure our servicing system within the Uzbekistan banking sector; and (iii) to improve the
information exchange process between the Uzbekistan government and social institutions and commercial companies through the use of our multifunction BVS2 and Super Smart Card system. The Uzbekistan Agreement provides for the payment of transaction/usage fees to us and the division of recurring revenues among us, Daewoo
International and the Republic of Uzbekistan.



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F. The Indonesia Agreement. We have signed a co-operation agreement with P.T. Primrose Gantri
Indonesia, a local company with an extensive network of business and banking relationships in Indonesia (Primrose). The management of Primrose is composed of top management from the now disbanded Indonesia Bank Restructuring Agency. This
agency successfully restructured numerous Indonesian banks and sold assets for the Indonesian government with the effect of stabilizing and stimulating the Indonesian economy. The agreement provides that the parties will promote and market our
BVS2 system and Super Smart Card Payment System to the top ten Indonesian banks and
other large corporations in Indonesia. As a result of this agreement, the Company is in serious discussions with a premier bank in Indonesia.



G. The Student Card Agreement. This agreement, which requires us to secure the requisite funding against various project guarantees (e.g., deposits
to be paid for the cards, security bonds for installed equipment, etc.) and sets forth certain binding obligations for the collaboration on a nationwide School and Educational Institution Management Project in the Republic of Korea. The purpose of
the agreement is to deploy our BVS2 platform and
requisite Super Smart Cards together with other
related BVS2 based technologies and equipment
necessary to digitize and provide certain biometric verification and payment services to all participating schools, educational institutions and their related facilities located in the Republic of Korea on a turn key basis. In anticipation of a roll
out, contracts with 500 institutions have already been signed and an additional 500 institution agreements are in the process of being finalized. The contracts with participating institutions provide that and that transaction fees will be charged
and that these fees together with recurring revenues shall be shared among the parties, with 60% being paid to us.



H. The Mybi Agreement. Mybi Co. Ltd., is the largest Korean based micro-payment processor and automatic fare collection company in the country. In
order to grow, Mybis management concluded that it was necessary to supplement its micro-payment business with a full-service payment offering. In order to prevent the fraud that plagues other systems, Mybi concluded that the technology offered
by e-Smart was the best in the world for such purpose. The Company believes that working with Mybi gives the Company an immediate large active customer base. The purpose of the agreement, therefore, is to deploy a Mybi Card built on our Super Smart
Card and to deploy our BVS2 platform and other technologies in conjunction with
Mybis existing infrastructure so as to create a hardened payment system with no down-time during the enhancement. The agreement further provides that transaction fees shall be charged for services and shared by the
parties per the agreement. Samsung is also a partner in this Agreement and has arranged for multiple hospitals to use the system for payment and other consumer services. Finally, the agreement also provides that the Company shall arrange the
requisite funding against the transaction fees to be earned based upon historical card usage patterns and other guarantees to be provided by Mybi and its shareholders.



Products



The Company, IVI Smart and our subsidiaries and affiliates are all principally engaged in the business of creating, marketing, manufacturing, installing,
operating and



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maintaining proprietary systems that are designed to positively authenticate each and every end user of any networked or local access system while protecting
at all times all information residing on or transported by the system. These products are designed to provide assurance that the user is the person that he or she claims to be and whether or not he or she has the credential to access the premises or
information being sought. As stated, our business is providing and operating systems. We intend to earn income primarily from transaction fees and/or other service based fees connected to the use of our systems once installed. We do not intend to
either manufacture or install systems on our own, rather, we intend to outsource manufacturing of our Super Smart Card, Super Smart Readers and proprietary components under OEM agreements; and to outsource installation to select partners that are major
systems integrators in each country of installation. Prior to the sale of a system, our business activities are strictly limited to marketing, research and development, and customer customization. After a sale is made, we supervise the manufacture
and installation of the system and, once deployed, operate the system on behalf of the purchaser. By outsourcing all other activities, we hope to keep our cost of operations down and minimize the complexity of our business.



One of the key distinctions of our system from all other systems is our
proprietary smart card, the Super Smart Card. We
believe that we are the worlds first and currently the only provider of a commercially available dual ISO 7816 (contact) and ISO 14443 B (wireless) compatible smart card featuring both a fingerprint sensor onboard, a biometric matching engine
onboard and a multi-application microprocessor. To our knowledge, as of the date hereof, the Super Smart Card is the only dual-interface biometrically activated, microprocessor-based smart card product. Because our Super Smart Card contains a microprocessor, it can store and process information and run multiple
applications. Because our Super Smart Cards have
an on-board digital fingerprint sensor, hold a biometric fingerprint template, and have an onboard biometric matching engine, our Super Smart Cards are able to perform an ID verification without reference to any network (or any other) database. For
this reason, we call the Super Smart Card
biometrically activated or biometrically powered. Our cards are referred to as dual interface because they work either in conjunction with a reader that requires physical contact with the card to supply power and to transfer data or with
a reader that does not require physical contact with a card reader, as power and data are transferred to each card through a magnetic field generated by a card reader. Our Super Smart Card combines the benefits of microprocessors, biometrics and dual interface cards in an
ISO compatible system and form-factor.



All of our products are
designed to operate on a common platform which we currently refer to as the Biometric Verification Security System or the BVS2 (the current and improved version of the Super Smart Card System). The BVS2 Platform is based on our licensors pending patents and other proprietary technologies and consists of our Super Smart Card (our unique smart card with an on-board biometric
multi-application micro-processor, a unique on-board biometric sensor (fingerprint) and a unique digital photo ID system among other items), readers, operational software, application development software and a communication technology that ensures
that the transmission of data to and from the Super Smart Card and throughout the system is secure and reliable. The BVS2 can be customized to support a large number of applications in a multitude of markets. Some of the markets for which we have



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customized the BVS2platform include national security, immigration/border crossing, ID-fraud free credit/debit card pre-processing, welfare/food-stamp benefits and medical services. We believe that there is
no existing practical limit to the number or types of applications we can customize our system to run.



Our products offer the following benefits:



| |  |  | The information stored on our card and transferred between the card and the reader is secured behind biometric activation and is protected by both physical and software encryption
down to the physical layer (our PrestoChango protection system);
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| |  |  | The biometric system being completely on the card with full independent operation capabilities allows for identity and credential verification even during emergency situations where
denial of service attacks or other network outages prevent network database access and would cause many other systems to fail;
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| |  |  | Our Super Smart Cards support multiple, independent applications secured even from each other on the same card, each protected by the biometric and each protected end-to-end throughout the system by our proprietary information
protection system, PrestoChango;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The system operator of the BVS2 platform (whether we or anyone else) has no access to user or customer information unless granted access by the application owner for some specific reason; and
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| |  |  | Our cards are durable and easy to use, our technology can be placed in objects that take a variety of forms, such as key chains, wristwatches and necklaces/pendants.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



The e-Smart Solution



We believe that our Super Smart Card has a technological advantage over any other existing smart cards that we have seen in
the market. The Super Smart Card is a dual
interface card working with existing contact and existing wireless type B readers. The Super Smart Card is a complete biometric system with its own sensor and matching system onboard every card. The Super Smart Card is an advanced microprocessor type smart card protected by a hardware based firewall
enhanced by software that protects data down to the physical layer. We believe that our Super Smart Card is rendered useless if tampered with and that counterfeiting is not possible. In short, we believe that at this time the Super Smart Card is a one-of-a-kind piece of technology that gives us a competitive advantage over all
other suppliers and that makes us a sole source supplier to anyone that needs a reliable, stand-alone, privacy protected, biometrically empowered system of identity verification for all purposes whether for public security or private commercial use.



Our technology not only enables a microprocessor-based smart
card system to operate in both a contact and a contactless environment, but also enables our biometric fingerprint sensor and biometric engine to work in both a contact and a contactless



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environment as well. We believe that this ability to operate the biometric system both with a contact reader and wirelessly is but one of the abilities
unique to our Super Smart Card. As the Super
Smart Card is an ISO compatible smart card, our
technology is not only available for new systems, but can be integrated with existing contact and contactless (wireless) systems.



The Biometric Verification Security System (BVS2)



The BVS2 is an integrated platform designed from the ground up to provide a security blanket of networked services necessary to protect everything from a single system to a nation-wide system. We
believe that the BVS2 is a complete platform that
can accommodate virtually any existing peripheral deemed appropriate for whatever task is required. We also believe that the BVS2s architecture is totally modular and upgradeable, almost infinitely scalable, fault tolerant, redundant and highly trustworthy. Authorized access 
both physical and logical  is provided via the BVS2s secure, standardized and irrefutable biometric credential as generated by the Super Smart Card (as described below).



All BVS2 transactions (financial, data or otherwise) are routed through, logged, indexed and sorted by the BVS2s Universal Gateway subsystem. This subsystem is empowered by a secure group of networked servers that can
access an almost unlimited number of diverse and legacy database systems and protocols via the Universal Gateways exceptional data translation system, the Automated Protocol Manager (APM). If the BVS2 is tasked to make an inquiry of the normally
incompatible database systems of multiple domestic and foreign agencies; the BVS2 can complete the inquiry quickly and efficiently, without human intervention, automatically combining normally irreconcilable data into one single language report. The BVS2s instant data-field manager
allows any authorized user to instantly change information requests. With the addition of an optional analysis module, the BVS2s proprietary algorithms can analyze data customized to user requirements. In short, the BVS2 is an easy to use, yet extremely powerful system built to provide security to entire
nations. At the same time and without unnecessary hampering the work and needs of government officials, we believe that the BVS2 offers the maximum in privacy protection to individuals. Some Key Components and Subsystems Comprising the BVS2 are described below.



The Super Smart Card



The Super Smart Card is the tool required to unlock a BVS2 Transaction. A BVS2 Transaction can be many different things depending on the application in use. However, whether a money transaction or a data transaction or an access
transaction or any other transaction, the Super Smart Card utilizing our complete on-board biometric fingerprint matching system and our Presto Chango application and information security system is the BVS2s ignition and the users fingerprint is the key to start the BVS2 Transaction.



The Super Smart Card is a unique interoperable smart card featuring a non-JAVA based, multi application micro-processor that can perform multiple independent and discrete
functions all protected behind hardware firewalls enhanced by software within



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the chip (the Presto Chango system). In addition, each Super Smart Card contains our own unique fingerprint sensor and biometric processing engine. No biometric data ever leaves the card in the privacy protected version of
the Super Smart Card. Biometric data resides only
on the Super Smart Card. All biometric processing
is done on the card. Only the finger of the owner of each Super Smart Card placed on their own Super Smart Cards fingerprint sensor will activate the card, thereby insuring the personal privacy of each holder. We believe that Identity theft is theoretically made impossible. Lost or stolen cards have no value to anyone. The Super
Smart Card, which we believe to be both
tamperproof and counterfeit-proof, supports multiple discrete applications including, among others: ID Card, Debit/Credit Card, Drivers License and Physical and/or Logical Access Card.



The standard Super Smart Card features an ISO contact operation interface (ISO 7816) and an ISO wireless operation
interface (ISO 14443 B) and will operate on most ISO compatible contact 7816 readers or wireless 14443 B readers. The Super Smart Card is an integral part of the BVS2. Every Super Smart Card contains an on-card biometric fingerprint sensor and digital 3-D photo ID system. Any other biometric can be added to the card and to the system. The
Super Smart Card is inherently secure due to our
hardware-based architecture. Each application on a Super Smart Card is secured from access by any unauthorized party by virtue of our on-chip hardware firewall system and our high-level encryption system, Presto-Chango. Other card systems, such as those now used for the DOD CAC cards, rely on and run
software, primarily JAVA based, to create pseudo multi-applications all with the inherent security problems of JAVA.



The following is a summary of certain of the salient features of the Super Smart Card:



| |  |  | Unique Sensor On-Card. Only the fingerprint of the registered user can activate the card. The sensor performs with equal reliability with wet, dry, hot or cold fingers. The
system prevents unauthorized use of any card or card application by requiring the authorized cardholders fingerprint to activate the micro-processor inside and to initiate any transaction or to access any information (see below for more
information about our fingerprint sensor);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fraud-proof, counterfeit-proof and hack-proof.We believe that the physical characteristics of each Super Smart Card causes tampering to permanently disable it and destroy any information contained
therein. We also believe that counterfeit cards cannot work on the system, rendering any fake cards absolutely useless for all purposes;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Hardware Based, Software Enhanced, Multi-Application System.One card can contain multiple and independent and secure applications. For example, the technology will
permit/deny access (physical and/or logical), identify precise location and/or movement of personnel and/or watch list parties while at the same time operating other secure applications, each completely and securely isolated one from the other;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Immediate identification Assurance & Privacy Protection. The system provides
| | - |  | ----------------------------------------------------------------------------



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immediate and we believe sure authentication for all users and their credentials once they are properly
enrolled onto the system. All biometric details are stored only on the Super Smart Card and not in any database (except where required by law, e.g., for INS needs or as required by certain voluntary programs) and the user leaves his or her fingerprint only on his or her own card which
never leaves their hand;



| |  |  | Stolen fingerprints of no use.Unlike other systems where a stolen fingerprint can mean a stolen identity, use of biometric information alone without ones own Super
Smart Card is of no use with the BVS2. Each persons biometric information is
inextricably entwined with certain other information unique to that user. Unless the biometric presented contains the additional unique information just mentioned (i.e., ones own Super Smart Card), not even the true owner of the biometric information will be granted access without
the intervention of at least one, if not two high level, human, operations supervisors/officers intervention, to establish the identity of the person concerned; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | One Card System  Multiple Government Applications  Total Security Saves Taxpayer Money.The Super Smart Card allows multiple secure applications to co-exist and operate on the same card. Because
of the versatility of the BVS2 and Super Smart
Card, one card and one system can be used by
every federal agency, saving the cost of having a multitude of systems and infrastructure to support each. In addition, because of the many services that the Super Smart Card can securely perform, there are many opportunities to defray costs by using one multi-purpose card and one
multi-purpose network system and charging separate application fees for each application. In addition, we believe that since there is broad compatibility with many of the readers already in use, our system will, upon installation, save time and
money for certain uses.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | More information Regarding Our Fingerprint Sensor.A key component of each Super Smart Card is the BioSensor Fingerprint Sensor. Each Super Smart Card contains one of these tiny (.33 mm thin), low power consumption sensors that is
durable enough to be embedded in a smart card and yet not effected by static electricity, the elements or the condition (wet, dry, hot, cold) of the users skin. Imaging is in 3D and based on micro-pressure variations across the sensor surface
caused by the ridges and valleys existing in ones fingerprint. Users of the Super Smart Card with our built in sensor do not have to be concerned about leaving their fingerprint(s) on some reader that is fixed on a wall or sitting on a desk for someone to steal. The cardholder
is always in control of his or her own fingerprint(s). The biometric fingerprint sensor incorporated in the Super Smart Card was developed by BioSensor LLC, a Hawaiian limited liability company (BioSensor) and wholly owned subsidiary of IVI Smart, utilizing base
intellectual property developed by IVI Smart but productized by BioSensor.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Use of the sensor is made possible pursuant to a Confidential Technology Assignment and License Agreement dated as of May 1, 2003, with IVI Smart, a principal stockholder of our Company (the License
Agreement). Pursuant to the License Agreement, IVI Smart granted to BioSensor the exclusive right to develop certain of our intellectual property at BioSensors sole cost and expense with



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respect to certain biometric fingerprint sensor technology created by IVI Smart and BioSensor granted to
IVI Smart the exclusive rights to any sensor developed by BioSensor. In consideration for the use of IVI Smarts intellectual property, BioSensor issued 50,000,000 of its Common Units to IVI Smart. No other Common Units were issued by
Biosensor. Accordingly, Biosensor became a wholly owned subsidiary of IVI Smart and an affiliate of the Registrant. In consideration for the exclusive rights to use the sensor technology developed by BioSensor, IVI Smart agrees to pay a one-time
royalty to BioSensor equal to $.35 for each Super Smart Card sold or distributed by IVI Smart or any affiliate or licensee.



| |  |  | The Zero/Zero System.Our Zero False Acceptance - Zero False Reject system is believed by us to be unique in the field of biometrics. In the normal
course, when setting a biometric system, the closer to theoretical zero false acceptances you set your matching system for, the further you get from zero false rejections. In fact, a false rejection rate in the 30% to 40%
range is not unheard of when many systems are set to the theoretical zero false acceptance rate. A false acceptance means the system confirms that you are someone else. A false rejection means the system will not confirm that you are who you really
are. Based on our internal studies, our Zero/Zero System, using a patent pending technique that combines human factors with mechanical factors, is able to reduce the false reject rate to something less than 0.5% on the first use and to something
less than 0.2% after the third to fifth use of the system by each new user. This reduction in the false rejection rate is extremely significant when dealing with high volumes of people in situations such as border crossings and airports. Each false
rejection means that valuable time and manpower must be used to conduct a secondary inspection to check someone who is already cleared and increases the risk that an unauthorized individual will get through in the confusion. The Zero/Zero System is
built in to of our Super Smart Cards.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Card Readers



The card reader is the tool that supplies power to our Super Smart CardsTM
and the instrument through which each card communicates with the BVS2TM platform. We intend to offer a full complement of readers as part of our proposed BVS2 system offering. For clients that need readers, we intend to offer a family of multi-system readers ready to meet
almost any need that the market may have. These include a handheld wireless internet appliance and card reader to a dedicated stand alone desktop reader to interface modules that allow the use of most standard, off the shelf PDAs,
sub-notebooks and other similar devices. We intend to offer a browser-phone with a contact card reader already incorporated. Our latest reader is a mobile GPRS based internet appliance with constant wireless access to the commercial mobile internet.
This reader features a large, full color LCD display, a keyboard and a printer all in a handheld battery operated unit. We believe that there will be a large demand for this reader. All of our readers will be manufactured under contract with
established card reader manufacturers on an as ordered basis based on customer orders as received. We intend to distribute these readers on a fully burdened cost basis making little or no profit and generally retaining ownership and maintenance
responsibilities. (For the avoidance of confusion, maintenance responsibilities are outsourced to our strategic partners.)



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The Universal Gateway with Legacy Preserver Technology



The BVS2 features a special gateway, that is designed to both take in all types of information from multiple sources and applications and forward it to its
correct destinations and to translate the Babel-Speak of over one hundred (100) different legacy systems and technical services (this prevents the need to replace entire systems in use). When any such legacy system is attached to a
BVS2 empowered network using our Legacy
Preserver hardware, virtually all information
passing through the network enters the Universal Gateway and by default is translated by the Universal Gateways Automated Protocol Manager into a common language such that the information becomes available for use on all connected systems. Translation is in near real-time with the speed of
any particular datas delivery basically controlled by the transmission speed of the legacy system that such data resides on. The Universal Gateway is a distributed system with redundant back up at all points. We believe that in the unlikely
event that any node went down including the redundancy, that failure would not shut down the entire system.



Presto-Chango



Presto-Chango is designed to protect
computer information down to the physical layer from unauthorized access. We believe that any attempt to move information from our storage place without proper authority causes that iteration of the information to morph into gibberish that cannot be
deciphered by anyone or any system. Authorized access allows information to move, encrypted for transport, for any authorized and proper use which can be specified by user. Coupled with the BVS2s operating software, Presto-Chango is designed to enable sensitive information to transit the Internet or any public
network without risk of information theft. Working together with the Super Smart Card, we believe that our system can provide superior logical protection where truly secure computer access and records are an absolute requirement.



Our Strategy



Our goal is to create a global network featuring the BVS2 platform that allows the full potential of each Super Smart Card to be used anywhere in the world and the maximum potential transaction fees for us. Key elements of our strategy
include:



Enhance Technological Position.We intend to
continue to invest in research and development in order to enhance our technological position, develop new technologies, extend the functionality of our products and services, and offer innovative products to our customers. For example, at the
request of a potential government client, we have just completed the development of a fully wireless biometric passport that can match fingerprints on a stand alone basis or faces when coupled with our digital video reader or both. We intend to
continue with this type of research and development that can lead to immediate potential sales.



Expand Domestic Market Presence.We are directly and through our Homeland Defense, Inc., affiliate actively engaged in marketing efforts to various
agencies of the



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U.S. federal government. We have especially targeted various agencies within the Department of Homeland Security, including but not limited to the Bureau of
Immigration and Customs Enforcement and the Transportation Security Administration. We intend to step up our marketing efforts to these and other agencies both on a direct basis and on a partnering basis with major U.S. domestic systems integrators
in line with these agencies current policy of awarding virtually all major contracts to a handful of well known integrators, such as, Accenture, EDS, SAIC, Titan and the like.



Expand Global Market Presence.Currently, we market our products in Asia from our marketing subsidiary in Seoul,
Korea and through strategic partnering agreements with two global IT companies and a Chinese state-owned company for domestic sales in the Peoples Republic of China. We intend to use these entities to strengthen our presence in existing
markets, penetrate new markets, provide local customer service and technical support, and adapt our products to our local customers specific needs.



Generate Recurring Revenues.We rejected a business model that called for one-time payments for our products and technologies. Other companies that
have followed the one-time payment model in the smart card business, such as Gemplus and Oberthur, have not fared well financially through business cycles during the low end of business cycles. Instead, our business plan is to sell entire systems,
including our Super Smart Cards, only on a turn
key basis in a manner that permits us to operate the system and collect transaction fees and service fees for an extended period of time. Our business plan is also to focus on large scale governmental clients that will cause wide use of our Super
Smart Card and BVS2 system and related technologies, in the event of a sale and in such
circumstances would maximize our potential transaction fee base.



Leverage Existing Relationships and Seek New Ones. We have entered into a relationship with Daewoo International, among others, to help us cover the Asian national ID card market. We have entered into this relationship, and others,
in order to facilitate and accelerate our penetration into new markets, and to assist us in defining and pursuing new applications for our products. We are continuously seeking additional relationships to complement our marketing strategy and
promote our brand worldwide.



Leverage Presence in Existing
Industries to Enter into New Industries.We intend to offer our customers the ability to add new applications to their smart cards, thereby expanding the number of industries in which our products are used and the number of transaction fees that
we could potentially collect. For example, users of the national ID card will have the option to add a payment application to their card among many others. We plan to generate additional revenues through the sale and installation of the software
required to add and operate these applications.



Marketing and Distribution



We intend to enhance our position in the design and
development of Super Smart Card and BVS2 based products and related technologies by developing
new applications for our technology. We also intend to enter new markets, either alone or through strategic relationships. In so doing, we aim to create additional potential sources of revenues from transaction fees and additional potential sources
for revenue from customer support.



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We intend to market our technologically advanced products directly, through our Homeland Defense, Inc.
affiliate, and through e-Smart Korea, Inc., our Korean subsidiary, as well as indirectly through a global network of strategic relationships with major systems integrators and others. Our sales and marketing efforts will be directed from our offices
in Seoul, Korea, Beijing, China, Las Vegas, Nevada, and San Jose, California.



Proprietary Technologies



We are the owner of
three technology licenses. Each license has been granted pursuant to an Exclusive Use and Distribution Agreement (collectively the License Agreements), each of which grants us exclusivity to the technology covered in a
particular territory. The three territories covered are the Peoples Republic of China, all of Asia except the Peoples Republic of China and the United States of America. IVI Smart, the current licensor, is one of our principal
shareholders. The rights to technology granted to us includes all smart card and related assets of the licensor including the Super Smart Card, the BVS2 platform and all relevant components thereof. The License Agreements require that all inventions and improvements made by us be assigned to the licensor with a license to use granted
back to us on the same terms and conditions as the technology was granted to us in the original license. We are jointly responsible to protect and defend the technology in the event of challenge, or disputes of any kind in a covered territory.



Our success and ability to compete depend in large part upon
the protection of the proprietary technology that we license. We and the licensor rely on a combination of patent, trademark, copyright and trade secret law, as well as know-how, confidentiality agreements and other contractual relationships with
employees, affiliates, distributors and others. In this regard, our licensor has a number of pending patent applications in various jurisdictions, globally.



Neither we nor the licensor can be certain that patents will be issued with respect to any of the pending or future patent applications. In addition, as
with every other company that depends on patents, until the outcome of any future litigation is determined, we can not be certain that any patents if issued will be enforceable against alleged infringers or will be upheld if their validity is
challenged.



Competition



Based on our own extensive research, we believe that, at least as of the
date hereof, that there is no product that can directly compete with the Super Smart Card and the BVS2 platform. On the other hand, there are numerous products and competitors in the smart card and smart card operating system arena. We must, therefore, anticipate competition in sales of our products, systems and
technologies from other providers of microprocessor-based smart card technologies. We expect competition to intensify as, and if, we become successful in our deployment plans and our competitors commit greater resources to the development of
biometrically empowered contactless microprocessor-based smart cards. Some of the larger chip manufacturers that operate



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in the smart card market, including Atmel, STM, Infineon and Philips Semiconductors, have announced that they are developing contactless microprocessor-based
smart cards. However, we know of no card planned or otherwise that has the sophistication and features of the Super Smart Card.



We also compete with contactless ASIC-based technologies developed primarily by Philips Semiconductors, which comply with ISO 14443 and which are used by
some of the largest manufacturers of smart cards, including Gemplus, Schlumburger and Giesecke & Devrient, and Sonys contactless ASIC based technology, that is not ISO compliant. Further, we also compete with contact-based products such as
microprocessor-based contact cards, ASIC-based contact cards, memory chip cards and magnetic strip cards.



We believe that all of these cards offer inferior functionality compared to our dual interface, biometrically powered, contactless microprocessor-based
smart cards. Nevertheless, some of our potential customers have in the past, and may in the future, consider these inferior alternatives sufficient for their needs.



Employees



As of December 31, 2004, we had approximately six employees in San Jose, California, a staff of ten in our main Asian marketing office in Seoul, Korea,
four in Beijing, China, and two consultants, headquartered in Singapore. Our Chief Executive Officer, President and Chief Financial Officer, Mary A. Grace, lives in New York City but travels more than 95% of the time on our behalf, and our Chief
Technical Officer, Tamio Saito, lives in San Jose, California. None of our employees is a party to a collective bargaining agreement.



Risk Factors



The following risks with respect to our proposed business and financial condition should be carefully considered. These risks and uncertainties are not
the only ones facing us. Other risks and uncertainties that have not been predicted or assessed by us may also adversely affect us. Some of the information in this report contains forward-looking statements that involve substantial risks and
uncertainties. These statements can be identified by forward-looking words such as may, will, expect, anticipate, believe, intend, estimate, and continue
or other similar words. Statements that contain these words should be carefully read for the following reasons:



| |  |  | The statements may disclose our future expectations;
| | - |  | ----------------------------------------------------



| |  |  | The statements may contain projections of our future earnings or our future financial condition; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | The statements may state other forward-looking information.
| | - |  | -------------------------------------------------------------



Risks Related to Our Business



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Until recently, we were delinquent in filing reports with the SEC.



Although we are required to file annual, quarterly and special reports, and
other information with the Securities and Exchange Commission (the SEC), until January 10, 2005, we were materially delinquent in our filing of these required reports. Accordingly, and during the period October 10, 2000 through January
10, 2005, there were periods during which there was limited public information on which to base an informed investment decision concerning our securities.



The SEC commenced an Administrative Proceeding against us .



On February 3, 2005, Administrative Law Judge, Lillian A. McEwen (the ALJ) published her Initial Decision on Remand (the
Remand Decision) in an Administrative Proceeding originally commenced by the Securities and Exchange Commission (the SEC) against us on December 12, 2003 (the Proceeding). In the Remand Decision, the ALJ denied
the SECs Division of Enforcements (the Division) request for the imposition of sanctions against us, and gave both sides 21 days to appeal her decision. The Divisions time to appeal expired on February 24, 20005.
Accordingly the Remand Decision became final. Details concerning the Proceeding are set forth herein under Item 3, Legal Proceedings.



We have no history of revenue from operations and we have only minimal assets.



As of the date of this report, we have yet to generate any revenue from operations. Our assets are comprised of the
contracts we have signed and our licenses of the smart card intellectual property from IVI Smart. In all likelihood, we will continue to incur pre-operating expenses without corresponding revenues for some time in the foreseeable future. This may
result in our continuing to incur a net operating loss which will increase continuously until we can generate cash flow from operations. There can be no assurance that we will be successful in developing our proposed operations or that we will ever
become profitable.



We are undercapitalized and may be
unable to continue our business unless we raise additional money.



We have limited working capital and until delivery on our first three contracts for our system and smart cards, we will continue to be dependent upon proceeds derived from private securities offerings for funds for the continuation of our
proposed transaction business. We will need to obtain additional financing in order to implement all the material aspects of our business plan. There can be no assurance that additional financing will be available to us on acceptable terms, if at
all. If we continue to raise funds by issuing additional equity securities, further dilution to existing equity holders will necessarily result. Accordingly, we are subject to all of the risks inherent in starting a new business enterprise including
the potential loss of all monies invested and never realizing any revenue generating operations.



We may not be able to operate successfully if we are unable to hire qualified additional personnel.



Our success may largely be dependent on the personal efforts and abilities
of our



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management and our ability to attract and retain qualified key personnel in the future. Except for Tamio Saito, our Chief Technical Officer and member of our
Board of Directors, none of our management team has ever operated a smart card business or has any experience with the manufacture and marketing of smart card products. In addition to performing their regular duties, our management must spend a
significant amount of time devising strategies to execute our business model.



We are presently highly dependent upon four people.



Our ultimate success or failure will depend to a large extent on the services and efforts of our two executive and operating officers, Mary A. Grace and Tamio Saito, as well as the co-inventor of our BVS2 and Super Smart Card technology, Wayne Drizin, and the Managing Director of e-Smart Korea, Richard
In Kun Kim. The loss of the services of any one or more of these key persons, especially during the period prior to the design, complete installation and successful operation of our first biometric card and BVS2 based products and related technologies system will have a material adverse effect on
the continued economic viability of our company. Since we believe that Messrs. Saito and Drizin are the individuals best able to continue to refine, to present and to customize the use of our system and oversee its installation, and that Ms. Grace
and Mr. Kim are essential managers, the untimely demise, unavailability or disability of one or more of these four persons, would leave us without the ability to pursue, procure and fulfill contracting opportunities or possibly even to continue our
business.



We have no Key Man Insurance.



Presently, we do not maintain or carry any key man life insurance. We intend
to purchase life insurance on the lives of our key personnel as soon as possible. Upon purchase of this insurance, we will pay the premiums and designate the Company as the sole beneficiary. The lack of key man coverage and the lack of other such
insurance may have a material adverse effect upon our business in the event of the untimely loss of any of our key employees.



We may be deprived of the services of a co-inventor of our Super Smart Card technology.



In September of 2000, the U.S. Attorneys Office in Phoenix, Arizona, charged Wayne Drizin, a co-inventor of our Super Smart Card technology,
with six counts of wire fraud in connection with certain share transactions involving a predecessor of IVI that allegedly took place during 1995 and 1996. In October 2003, and after a trial by jury, Mr. Drizin was found not guilty of four counts in
the complaint but convicted on two counts of aiding and abetting wire fraud. A law firm has been retained to file a timely appeal in this matter. However, and in the event the conviction is not reversed, Mr. Drizin may be incarcerated for a period
of time and in such case we would be deprived of his skills and advice which may have a material adverse effect upon our proposed business during any such period.



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We have no directors and officers liability insurance



The employment of other qualified officers and directors may be contingent
upon our acquiring a policy of directors and officers liability insurance in an amount reasonably satisfactory to such nominees. Our failure to acquire such a policy may prevent us from attracting the services of other qualified officers and
directors.



We have a history of losses and may not achieve
profitability in the foreseeable future.



We have incurred
losses in each year since our inception. Our losses resulted primarily from expenses we incurred in research and development, selling and marketing, as well as in general and administrative expenses. We have never had any revenue. We expect to
continue to incur operating losses in future periods as we invest in the expansion of our global operations and continue to enhance our research and development capabilities and expand our relationship with contract manufacturers.



If the market for smart cards in general, and for biometric,
multi-application-based smart cards in particular, does not grow as we expect, we may not succeed in selling our products.



The success of our products depends on commercial enterprises, governmental authorities and other potential card issuers adopting biometric
multi-application based smart card technologies. Other card technologies, such as magnetic strips or bar codes, are widely used and could be viewed by potential customers as more cost effective alternatives to our products. Additionally, potential
customers in developed countries such as the United States may already have installed systems that are based on technologies different than ours and may therefore be less willing to incur the capital expenditure required to install or upgrade to a
biometric multi-application-based smart card system. As a result, we cannot provide any assurance that there will be significant market opportunities for smart card systems. If demand for biometric multi-application-based smart card products such as
ours does not develop or develops more slowly than we anticipate, we may have fewer opportunities for growth than we expect.



If we fail to develop new products or adapt our existing products for use in new markets, our revenue growth may be impeded and we may incur
significant losses.



To date, we have not delivered any
products incorporating our advanced Super Smart Card and BVS2 System
based products and technologies in any markets. We are currently developing and planning delivery our technology for use as maximum security ID and payment cards, for use by governmental authorities, banks and commercial enterprises. We have not yet
received revenues from sales of these products. We are devoting significant resources to developing and marketing these and other products and adapting our existing products for use in new markets. If we fail to develop markets for our products we
will not generate revenues and continue to incur significant losses.



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Our inability to maintain our current, and establish new, strategic relationships could impair our
revenue growth.



In accordance with our business model, we
plan and have entered into strategic relationships in order to facilitate or accelerate our penetration into new markets. The termination of any of our strategic relationships or our failure to develop additional relationships in the future may
limit our ability to expand the markets in which our products are deployed or to sell particular products, and thereby impair our revenue growth.



We face intense competition. If we are unable to compete successfully, our business prospects will be impaired.



We face intense competition from developers of contact and contactless
microprocessor-based technologies and products, developers of contactless products that use other types of technologies that are not microprocessor-based, and non-smart card technologies. We compete on a range of competitive factors including price,
compatibility with the products of other manufacturers, and the ability to support new industry standards and introduce new reliable technologies. Many of our competitors, such as Phillips Semiconductors, a division of Phillips Electronics N.V., and
Infineon Technologies AG, have greater market recognition, larger customer bases, and substantially greater financial, technical, marketing, distribution, and other resources than we possess. As a result, they may be able to introduce new products,
respond to customer requirements and adapt to evolving industry standards more quickly than we can.



While at the moment we believe we offer a unique product that is easy to differentiate from our competitors, in the future, we may not be able to
differentiate our products sufficiently from those of our competitors. If we cannot compete successfully with our existing and future competitors, we could experience lower sales, price reductions, loss of revenues, reduced gross margins and reduced
market share.



From time to time, we or one or more of our
present or future competitors may announce new or enhanced products or technologies that have the potential to replace or shorten the life cycles of our existing products. The announcement of new or enhanced products may cause customers to delay or
alter their purchasing decisions in anticipation of such products, and new products developed by our competitors may render our products obsolete or achieve greater market acceptance than our products.



If there is a sustained increase in demand for microprocessors,
availability might be limited and prices might increase.



Our products require microprocessors and other silicon based chips. The microprocessor industry periodically experiences increased demand and limited availability due to production capacity constraints. For example, there has been a
shortage in the availability of microprocessors since the middle of 1999. Increased demand for, or limited availability of, microprocessors could substantially increase the cost of producing our products. In addition, as a result of a shortage, we
may be forced to delay shipments of our products, or devote additional resources to maintaining higher



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levels of microprocessor inventory. Consequently, we may experience substantial period-to-period fluctuations in our cost of revenues and, therefore, in our
future results of operations.



Our products have long
development cycles and we may expend significant resources in relation to a specific project without realizing any revenues.



The development cycle for our products varies from project to project. Typically, the projects in which we are involved are complex and require that we
customize our products to our customers needs and specifications. We then conduct evaluation, testing, implementation and acceptance procedures of the customized products with the customer. Only after successful completion of these procedures
will customers place orders for our products in commercial quantities, if any. We, therefore, cannot provide an assurance that contracts that we enter into will result in commercial sales. As a result, we may expend financial, management and other
resources to develop customer relationships before we become capable of recognizing any revenues.



We are dependent on a small number of suppliers for critical components, delays or discontinuance of the supply of components may hamper our ability to
produce our products on a timely basis and cause short-term adverse effects.



The components we use in our products, including microprocessors and cards, are supplied by third party suppliers and manufacturers. Many of these suppliers are our sole suppliers. Although we are now in the process
of securing additional sources of supply, in the meantime, we may experience short-term adverse effects due to delayed shipments that will delay the supply of our products to our customers, and that may result in cancellation of orders for our
products. In addition, we do not generally have long term supply contracts under which our suppliers are committed to supply us with components at a fixed price. Suppliers could increase component prices significantly without warning or could
discontinue the manufacture or supply of components used in our products. We may not be able to develop alternative sources for product components if, and as, required in the future. Even if we are able to identify any alternative source of supply,
we may need to modify our products to be compatible with other components, which may cause delays in product shipments, increase manufacturing costs and increase product prices.



Because some of our suppliers are located in Europe and the Far East, we may experience logistical problems in our supply
chain, including long lead times for receipt of products or components and shipping delays.



If we fail to hire, train and retain qualified research and development personnel, our ability to enhance our existing products, develop new products and compete successfully may be materially and adversely
affected.



Our success depends, in part, on our ability to
hire, train and retain qualified research and development personnel. Individuals who have expertise in research and development in our industry are scarce. Competition for such personnel is intense in the electronics industry, particularly in the
United States, and therefore hiring, training and retaining such personnel is both time consuming and expensive. If we fail to hire, train and retain employees with skills in research and development, we may not be able to enhance our existing
products or develop new products.



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Our ability to compete depends on our continuing right to use, and our ability to protect, our
intellectual property rights.



Our technology is licensed
from a major shareholder, IVI Smart (see Proprietary Technologies).Our success and ability to compete depend in large part on using our licensed intellectual property and proprietary rights to protect the technology we use and
the products we make. We rely on a combination of patent, trademark, copyright and trade secret law, as well as confidentiality agreements and other contractual relationships with our employees, customers, affiliates, distributors and others.



Our licensor currently has patents pending in the United
States, Europe, Japan and elsewhere that have not yet resulted in granted patents. We cannot be certain that patents will be issued with respect to any of these pending or future patent applications or that the scope of any future patents that are
issued to our licensor, will provide us with adequate protection for our technology and products. Others may challenge these patents or registered trademarks. We do not know whether any of them will be upheld as valid or will be enforceable against
alleged infringers and thus we do not know whether they will enable us to prevent or hinder the development of competing products or technologies. Moreover, patents provide legal protection only in the countries where they are registered and the
extent of the protection granted by patents varies from country to country.



The measures we have taken to protect our technology and products may not be sufficient to prevent their misappropriation by third parties or independent development by others of similar technologies or products.
Competitors may also develop competing technology by designing around our patents and will then be able to manufacture and sell products which compete directly with ours. In that case, our business and operating results would be harmed. While
substantially all of our employees are subject to non-compete agreements, these agreements may be difficult to enforce or deemed unenforceable by a court of competent jurisdiction.



In order to protect our technology and products and enforce our patents and other proprietary rights, we may need to
initiate litigation against third parties or defend opposition proceedings before the European Patent Office or prosecute interference proceedings before the U.S. Patent and Trademark Office. These legal and administrative proceedings could be
expensive and occupy significant management time and resources.



Furthermore, a successful opposition to our patent in any jurisdiction could provide a basis for our competitors to claim that our patents in other jurisdictions covering this technology are invalid.



Our products may infringe the intellectual property rights of others.



It is not possible to know with certainty that the
manufacture and sale of our products do not or will not infringe patents or other intellectual property rights owned by third



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parties. There may, for example, be patent applications pending at the moment, which if granted, may cover products that we have just developed or are
developing. In certain other jurisdictions there is no publication of the subject matter of patents until the patents are issued. Third parties may from time to time claim that our current or future products infringe their patent or other
intellectual property rights. In addition, if third parties claim that our customers are violating their intellectual property rights, our customers may seek indemnification from us, which could be costly, or may terminate their relationships with
us. Any intellectual property claim could involve time-consuming and disruptive litigation and, if determined adversely to us, could prevent us from making or selling our products, and subject us to substantial monetary damages or require us to seek
licenses.



Intellectual property rights litigation is complex
and costly, and we cannot be sure of the outcome of any such litigation. Even if we prevail, the cost of such litigation could harm our results of operations. In addition, such litigation is time consuming and could divert our managements
attention and resources away from our business. If we do not prevail in any litigation, in addition to any damages we might have to pay, we might be required to discontinue the use of certain processes, cease the manufacture, use and sale of
infringing products and solutions, expend significant resources to develop non-infringing technology or obtain licenses on unfavorable terms. Licenses may not be available to us on acceptable terms or at all. In addition, some licenses are
non-exclusive and, therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or cannot design around any third party patents or otherwise avoid infringements, we may be unable to sell
some of our products.



We are susceptible to changes in
international markets and difficulties with international operations could harm our business.



Our ability to penetrate any market whether domestic or international, is dependent, in part, on political and economic factors that we have no control
over. In addition, there are certain inherent risks in international operations which include:



| |  |  | Changes in regulatory requirements and standards;
| | - |  | -------------------------------------------------



| |  |  | Required licenses, tariffs and other trade barriers;
| | - |  | ----------------------------------------------------



| |  |  | Difficulties in enforcing intellectual property rights across, or having to litigate disputes in, various jurisdictions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Difficulties in staffing and managing international operations;
| | - |  | ---------------------------------------------------------------



| |  |  | Potentially adverse tax consequences; and
| | - |  | -----------------------------------------



| |  |  | The burden of complying with a wide variety of complex laws and treaties in various jurisdictions.
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | General political instability
| | - |  | -----------------------------



If we are unable to manage the risks associated with our focus on international sales, our business may be harmed.



24



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We may have to adapt our products in order to integrate them into our customers systems or if
new government regulations or industry standards are adopted or current regulations or standards are changed.



Some of our products are subject to mandatory government regulation in the countries in which they are used. For example, card readers that are used in
the United States require certification of compliance with regulations of the Federal Communications Commission and in Europe of compliance with regulations of the European Telecommunications Standards Institute regarding emission limits of radio
frequency devices. In addition, governmental certification for the systems into which our products are integrated may be required. The International Standards Organization is in the process of approving industry standards regulating the transfer of
data between contactless smart cards and readers. If there is a change to government regulations or industry standards, we may have to make significant modifications to our products and, as a result, could incur significant costs and may be unable
to deploy our products in a timely manner.



In addition, prior
to purchasing our products, some customers may require us to receive certification that our products can be integrated successfully into their systems or comply with applicable regulations. Receipt of these certifications may not occur in a timely
manner or at all. In some cases, in order for our products, or for the system into which they are integrated, to be certified, we may have to make significant product modifications. Failure to become so certified could render us unable to deploy our
products in a timely manner or at all.



Our products may
contain defects that we find only after deployment, which could harm our reputation, result in loss of customers and revenues and subject us to product liability claims.



Our products are highly technical and deployed as part of large and complex projects. Any defects in our products could
result in:



| |  |  | Harm to our reputation;
| | - |  | -----------------------



| |  |  | Loss of, or delay in, revenues;
| | - |  | -------------------------------



| |  |  | Loss of customers and market share;
| | - |  | -----------------------------------



| |  |  | Failure to attract new customers or achieve market acceptance for our products; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Unexpected expenses to remedy errors.
| | - |  | -------------------------------------



In addition, we could be exposed to potential product liability claims. Currently we maintain no product liability insurance. We intend to seek product
liability insurance prior to the distribution of our products. However, we cannot provide any assurances that we can obtain this insurance in an amount that will be sufficient to cover any successful product liability claim or in any amount at all
or for a premium we can accept.



25



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If we self insure or if there is any product liability claim in excess of our insurance coverage, any related payments would have to be made out of our cash
reserves, and this would harm our business. Furthermore, the assertion of product liability claims, regardless of the merits underlying the claim, could result in substantial costs to us, divert managements attention away from our operations
and damage our reputation and business.



Nevada Law Permits
the Limitation on Directors Liability.



Pursuant to
our Certificate of Incorporation and under Nevada law, our directors are not liable to us or our stockholders for monetary damages for breach of fiduciary duty, except for liability in connection with a breach of the duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing violation of law, for dividend payments or stock repurchases illegal under Nevada law or any transaction in which a director has derived an improper personal benefit.



Risks Related To Our Common Shares



We are controlled by IVI Smart



At December 31, 2004, IVI Smart owned approximately 77% of our outstanding
shares of Common Stock. Accordingly, this entity effectively has the ability to control the outcome of all matters requiring stockholder approval, including, but not limited to, the election and removal of directors, and any merger, consolidation or
sale of all, or substantially all, of our assets, and to control our management and effectively have the ability affairs.



Our share price has fluctuated in the past and may continue to fluctuate in the future.



The market price of our shares in the over-the-counter market has
experienced significant fluctuations and may continue to fluctuate significantly. The market price of our shares may be significantly affected by factors such as the announcements of agreements, new products or product enhancements by us or our
competitors and technological innovations by us or our competitors. In addition, while we cannot assure you that any securities analysts will initiate or maintain research coverage of our Company and our shares, any statements or changes in
estimates by analysts initiating or covering our shares or relating to the smart card industry could result in an immediate and adverse effect on the market price of our shares. Further, we cannot predict the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of the shares prevailing from time to time. Sales of a substantial number of shares or the perception that such sales could occur following the filing of this report, could
have a material adverse effect on the market price of our shares.



Trading in shares of companies, such as the registrant, listed on the Pink Sheets in general and trading in shares of technology companies in particular have been subject to extreme price and volume fluctuations that have been unrelated or
disproportionate to operating or other performance. We have made arrangements for the filing of a Form 211 to initiate trading of our common stock on the OTC Bulletin Board. However, until this application is filed and approved, of which there can
be no assurance, no market maker is presently publishing bid and asked quotations in our common stock.



26



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If our shares continue to be considered a Penny Stock, any investment in our shares will continue to
be considered a high-risk investment and continue to be subject to restrictions on marketability.



Since the bid price of our shares continues to be below $5.00, our common shares are deemed to be penny stock for the purposes of the Exchange
Act. Brokers effecting transactions in a penny stock are subject to additional customer disclosure and record keeping obligations. The additional obligations include disclosure of the risks associated with low price stocks, stock quote information
and broker compensation. In addition, brokers making transactions in penny stocks are subject to additional sales practice requirements under the Exchange Act. These additional requirements include making inquiries into the suitability of penny
stock investments for each customer or obtaining the prior written agreement of the customer for the penny stock purchase. Because of these additional obligations, some brokers will not effect transactions in our securities.



Our share price could be adversely affected by future sales of our shares.



As of December 31, 2004, we had 173,535,944 shares of
common stock issued and outstanding, exclusive of shares issuable upon exercise of outstanding warrants and shares reserved for issuance upon the exercise of outstanding options granted to management and others. The market price of our shares could
drop as a result of sales of substantial amounts of our shares in the public market following the exercise of either or both of the outstanding warrants or options. This factor could also make it more difficult to raise additional funds through
future private offerings of our shares or other securities. Until we file the Certificate of Amendment to our Articles of Incorporation authorized by the consent of a majority of our stockholders on December 1, 2003, and increasing the number of
authorized shares of our common stock from 200 million to 300 million, all but 17,535,944 of our issued and outstanding options are non-exercisable.



We do not anticipate paying cash dividends in the foreseeable future.



We have paid no dividends on our common stock since our inception and presently intend to continue to retain all earnings,
if any, for use in our business. Investors who anticipate the need for either immediate or future income by way of cash dividends from their investment should refrain from investing in our securities.



Our shareholders could experience dilution of their ownership interest if
we issue more shares that are purchased by third parties.



Under Nevada law, shareholders in public companies such as the registrant do not have preemptive rights. This means that our shareholders do not have the legal right to purchase shares in a new issue before they are offered to third
parties. In addition, our board of directors may approve the issuance of shares in many instances without shareholder approval. As a result, our shareholders could experience dilution of their ownership interest if we decide to raise additional
funds by issuing more shares and these shares are purchased by third parties.



Conclusion



While to date there has not been a
strong demand for smart cards domestically in the



27



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USA, this trend is changing. The federal government has numerous initiatives that require deployment of smart cards, with the Department of Defense Common
Access Card being a prime example. There is a challenge for suppliers in that there is more than one standard and more than one type of smart card. In addition, there is a massive installed base of infrastructure utilizing other technologies (bar
codes, magnetic stripe, etc.) that is difficult to overcome. Todays post 9/11 world, however, demands ID verification that is fast, simple, sure and secure. From terrorism to identity theft (one of the worlds fastest growing crimes),
society requires accurate identification of each person. We believe that at this time there is no other viable system than the Super Smart Card operating on the BVS2 platform that can make this ID verification while still protecting privacy and civil rights.



Available Information



We have filed, and we intend to continue to file Annual Reports on Form 10-KSB on a timely basis for all subsequent years.
In addition, we file Quarterly Reports on Form 10Q-SB, Current Reports on Form 8-K, amendments to these reports, and other information with the SEC. The public may read and copy any materials we file with the SEC at the SECs Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1800-SEC-0330. The SEC maintains an Internet site (www.sec.gov) that contains reports,
proxy and information statements, and other information regarding issuers that file electronically with the SEC.



ITEM 2. DESCRIPTION OF PROPERTY



We currently maintain our executive offices at 222 Grace Church Street, Suite 300, Port Chester, NY 10573. We utilize approximately 500 square feet of
space, have access to a copy and fax machine and telephone service and pay a monthly fee of $1,000. Our office facilities in New York are adequate for the purposes for which they are intended and provide sufficient capacity to accommodate our
short-term needs.



We sublease approximately 7,000 square feet of research and
development industrial/warehouse space at 1810 Old Oakland Road, #F, San Jose, California 95131 from Big Bang Technology, Inc., a California corporation controlled by and under common control of Tamio Saito, our Chief Technology Officer and a
principal stockholder (BBT). We pay $3,000 per month and have the use of a conference room, office equipment, paved parking spaces, telephone and computer equipment. We sublease this space on a month to month basis without the benefit of
a written sublease. We believe that our rental expense is equal or better than we could have negotiated for at arms length with a non-affiliated landlord for similarly situated space. Our space is adequate for our current needs and being utilized to
approximately 80% of its capacity.



ITEM 3. LEGAL PROCEEDINGS



A. On February 3, 2005, Administrative Law Judge, Lillian
A. McEwen (the ALJ) published her Initial Decision on Remand (the Remand Decision) in an Administrative Proceeding originally commenced by the Securities and Exchange Commission (the SEC) against us on December
12, 2003 (the Proceeding). In the Remand Decision,



28



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the ALJ denied the SECs Division of Enforcements (the Division) request for the imposition of sanctions against us, and gave both
sides 21 days to appeal her decision. The Divisions time to appeal expired on February 24, 20005. Accordingly the Remand Decision became final.



In the Proceeding, the SEC sought, inter alia, to interrupt public trading in our securities as a result of our failure to file periodic reports and filings
required by the Securities and Exchange Act of 1934, as amended (the Exchange Act). On March 4, 2004, the ALJ published an Initial Decision in the Proceeding (the Initial decision). In her Initial Decision, the ALJ found that
we failed to make the required filings, violated Section 13(a) and Rules 13a-1 and 13a-13 of the Exchange Act and revoked our registration.



On March 23, 2004, we filed a petition with the SEC for review of the ALJ s Initial Decision. The SEC granted our petition on March 26, 2004. On March 30, 2004, the
Division asked that the ALJs Initial Decision be summarily affirmed pursuant to SEC Rule of Practice 411(e). The Division also moved for leave, under the SECs Rule of Practice 410(d), to file a brief in opposition to our petition for
review. On July 16, 2004, the SEC published an order wherein the Divisions motions for summary affirmance and for leave to file a brief in opposition to our petition for review were denied.



Between the date of the Initial Decision and the Remand Decision, we filed all of its
delinquent periodic filings required under the Exchange Act.



B. On February 27, 2003, we filed the first of an expected series of both state and federal lawsuits



The initial complaint as filed by e-Smart is against named and unnamed individuals for Conspiracy to Interfere with Prospective Economic Advantage, Conspiracy to Slander and Defame, Conspiracy to Breach
Fiduciary Duties and for Punitive Damages. The Complaint seeks compensatory damages of one billion dollars in addition to unspecified punitive damages against those that lied to the U.S. Attorneys Office in an effort to discredit our
products and personnel.



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



Neither during the fourth quarter of the
fiscal year ended December 31, 2004, nor at any time since the December 18, 2000, Special Meeting of Stockholders did the Registrant conduct a meeting of its stockholders pursuant to definitive proxy materials under Regulation 14A under the Exchange
Act.



29



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PART II



ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES



Market Information



Since late 1997, our common stock, our only class of trading equity securities, has been traded in the over-the-counter
market on the Pink Sheets under the symbol ESMT. The following table sets forth the range of high and low bid price information for the common stock for each fiscal quarter for the past two fiscal years as reported by the Pink Sheets
LLC. High and low bid quotations represent prices between dealers without adjustment for retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.



|                              |  |         |  |       
|----------------------------- |  | ------- |  | ------
|                              |  | HIGHBID |  | LOWBID
|Year Ended December 31, 2004: |  |         |  |       
|Fourth Quarter                |  | 1.03    |  | .51   
|Third Quarter                 |  | 1.15    |  | .60   
|Second Quarter                |  | 1.75    |  | .97   
|First Quarter                 |  | 2.06    |  | .90   
|                              |  |        
|Year Ended December 31, 2003: |  |         |  |       
|Fourth Quarter                |  | 1.75    |  | 1.00  
|Third Quarter                 |  | 2.30    |  | 0.30  
|Second Quarter                |  | 0.35    |  | 0.10  
|First Quarter                 |  | 0.25    |  | 0.10  



Since our shares began
trading in the over-the-counter market in the Pink Sheets, the prices for our shares have fluctuated widely. There may be many factors that explain these variations. We believe that such factors include (a) the demand for our common stock, (b) the
number of shares of our common stock available for sale, (c) developments in the smart card industry, and (d) changes in the performance of the stock market in general, among others.



In recent years, the stock market has experienced extreme price and volume fluctuations that have had a substantial effect
on the market prices for many small and emerging growth companies such as the registrant, which may be unrelated to the operating performances of the specific companies. Some companies that have experienced volatility in the market price of their
stock have been the targets of securities class action litigation. If we became the target of securities class action litigation, it could result in substantial costs and a diversion of managements attention and resources and have an adverse
effect on our ability to implement our business plan. In addition, holders of shares of our common stock could suffer substantial losses as a result of fluctuations and declines in the market price of our common stock.



The trading of shares of our common stock is subject to limitations set forth
in Rule 1 Sg-9 of the Exchange Act. This rule imposes sales practice requirements on broker-dealers who sell so-called penny stocks to persons other than established customers,



30



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accredited investors or institutional investors. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer: (a)
approve a persons account for transactions in penny stocks; and (b) receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a
persons account for transactions in penny stocks, the broker or dealer must: (i) obtain financial information and investment experience and objectives of the person; and (ii) make a reasonable determination that the transactions in penny
stocks are suitable for that the person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any
transaction in a penny stock, a disclosure schedule relating to the penny stock market, which, in highlight form, (x) sets forth the basis on which the broker or dealer made the suitability determination; and (y) explains that the broker or dealer
received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about commissions payable to both the
broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in penny stocks.



Holders



As of December 31, 2004, the approximate number of holders of record of shares of our common stock, $.001 par value per share, our only class of trading securities, was believed by management to be as follows:



|                              |  |                        
|----------------------------- |  | -----------------------
|Title of Class                |  | Number of RecordHolders
|Common Stock, $.001 par value |  | 198                    



We believe there are
numerous shareholders whose securities are held in street name with various brokerage houses. The exact number of shareholders is unknown to us.



Dividends



To the best of managements knowledge and belief, we have never paid a dividend; and no dividends are expected to be paid at least until we achieve a
full year of profitable operations. Until then, earnings, if any, will be retained and used to finance the development and expansion of our business.



ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



Over the next 12 months we expect to continue our marketing and research and



31



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development efforts, and plan to install and implement our first systems in operation and proving the viability of our Super Smart Card and BVS2 based products and related technologies. While there can be no assurance, we are
looking forward to the sale and deployment of two systems during this period encompassing an expected aggregate of approximately 15 million Super Smart Cards.



Additionally, based on our recently executed Cooperation Agreement with Guo Xin Well-tel Technology Co., Ltd., and another entity in the PRC, we have
agreed to form a joint venture company in the PRC. While there can be no assurance, our Chinese partners have applied for a business license allowing our joint venture company to effectuate mass distribution of the Super Smart Card and the operation of the BVS2 throughout the PRC.



Since present management assumed control in 2000, our source of funds has
been private placements of our equity securities to accredited investors, and we expect this dependence to continue until the delivery and implementation of our first system/s and to such time as we generate sufficient income to cover operating
costs. As of the date of this Report, we expect that this dependence to perhaps continue until the fourth quarter of 2005; and based upon our current and planned 2005 rate of operating commitments, that we will require approximately $2,500,000 in
additional subscriptions during this period.



Our ability to
maintain what we believe to be the state-of-the-art quality of our Super Smart Card and BVS2
system and based products and related technologies is dependent upon our on going research and development to improve our products functionality and durability and to reduce their cost of manufacture. In addition, we are constantly trying to find
and develop new products that enhance the functionality of our BVS2 platform. This research and development is an integral part of our operating commitments for 2005 and as such, is dependent upon funds from subscribers. Accordingly, it is subject to the same risks enumerated in the
preceding paragraph.



We are constantly acquiring equipment in
connection with our research and development activities. Our planned 2005 budget is approximately $1,000,000 for such acquisitions, but could change depending on a number of factors, including upon our rate of accomplishment. In connection with the
anticipated sale of one or more systems, we will need to lease additional space for an operations and testing center for certain customers, we will need to lease a liaison office near their offices as a condition of contract.



Commencing January 1, 2004, we began the integration of the San Jose research
and development center and its staff and operations into our Company. As a result, we plan to hire between six and ten new employees. In addition, and commencing upon the first sale of one of our systems, we anticipate that: (i) we will be required
to retain an additional six to ten employees to perform administrative, logistics and quality control functions; and (ii) we will need to open a local liaison office with an administrative and clerical staff of two or three persons.



32



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Off-Balance Sheet Arrangements



The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on
the Companys financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.



Forward Looking Statements:



This discussion includes Forward-Looking Statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or
performance (often, but not always, using words or phrases such as expects or does not expect, is expected, anticipates or does not anticipate, plans, estimates or
intends, or stating that certain actions, events or results may, could, would, might or will be taken, occur or be achieved) are not statements of historical fact and may be
considered forward looking statements. Such statements are included, among other places in this Form 10-KSB, in the sections entitled Managements Discussion and Analysis, and Description of Business.
Forward-looking statements are based on expectations, estimates and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently
anticipated. Although the Registrant believes that the expectations reflected in such forward-looking statements are reasonable, the Registrant can give no assurance that such expectations will prove to have been correct.



ITEM 7. FINANCIAL STATEMENTS



e-Smart Technologies, Inc. and Subsidiary

(A Development Stage Company)

Index to the Financial Statements

December 31, 2004 and 2003



|                                                                                                                                                            |  |     
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                            |  | Page
|Report of Independent Registered Accounting Firm                                                                                                            |  | 34  
|                                                                                                                                                            | 
|Financial Statements                                                                                                                                        |  |     
|                                                                                                                                                            | 
|Balance Sheets as of December 31, 2004 and 2003                                                                                                             |  | 35  
|                                                                                                                                                            | 
|Statements of Operations for the Years Ended December 31, 2004 and 2003 and for the Period from July 15, 1997 (date of inception) through December 31, 2004 |  | 36  
|                                                                                                                                                            | 
|Statement of Shareholders Equity for the Period from July 15, 1997 (date of inception) through December 31, 2004                                           |  | 37  
|                                                                                                                                                            | 
|Statements of Cash Flows for the Years Ended December 31, 2004 and 2003 and for the Period from July 15, 1997 (date of inception) through December 31, 2004 |  | 38  
|                                                                                                                                                            | 
|Notes to the Financial Statements                                                                                                                           |  | 39  



33



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Report of Independent Registered Accounting Firm



To
the Board of Directors and Shareholders of

e-Smart Technologies, Inc. and Subsidiary

(A Development Stage Company)



We have audited
the consolidated balance sheets of e-Smart Technologies, Inc. and Subsidiary (A Development Stage Company) as of December 31, 2004 and 2003 and the related consolidated statements of operations, shareholders equity and cash flows for the years
ended December 31, 2004 and 2003, and for the period from July 15, 1997 (date of inception) to December 31, 2004. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.



We conducted our audits in
accordance with standards established by the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts of disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of e-Smart Technologies, Inc. and Subsidiary
(A Development Stage Company) as of December 31, 2004 and 2003, and the results of its operations, and cash flows for the two years ended December 31, 2004 and 2003 and for the Period from July 15, 1997 (date of inception) through December 31, 2004,
in conformity with accounting principles generally accepted in the United States of America.



The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the notes to the financial statements, the Companys significant
working capital deficits and operating losses raise substantial doubt about its ability to continue as a going concern,. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.



Rosenberg Rich Baker Berman & Company



Bridgewater, New Jersey

March 31, 2005



34



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e-Smart Technologies, Inc. and Subsidiary

(A Development Stage Company)

Balance Sheets



|                                                                                                                                                        |  |              |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                                        |  | December 31, |            
|                                                                                                                                                        |  | 2004         |             |   | 2003 |  
|Assets                                                                                                                                                  |  |              |             |   |      |   |             |  
|Current Assets                                                                                                                                          |  |              |             |   |      |   |             |  
|Cash                                                                                                                                                    |  | $            | 42,857      |   |      | $ | 14,096      |  
|Due from Associated Business Group, a related party                                                                                                     |  |              |            |   |      |   | 31,334      |  
|Prepaid expenses                                                                                                                                        |  |              | 42,361      |   |      |   |            |  
|                                                                                                                                                        |  |              |             |   |      |   |             |  
|Total Current Assets                                                                                                                                    |  |              | 85,218      |   |      |   | 45,430      |  
|Equipment, net                                                                                                                                          |  |              | 42,518      |   |      |   |            |  
|License of Smart Card Technology, net of amortization                                                                                                   |  |              | 105,720     |   |      |   | 109,310     |  
|Due from Biosensor, LLC, a related party                                                                                                                |  |              | 324,500     |   |      |   |            |  
|Deposits - e-Smart Korea Group                                                                                                                          |  |              |            |   |      |   | 151,000     |  
|Lease deposit                                                                                                                                           |  |              | 58,139      |   |      |   |            |  
|                                                                                                                                                        |  |              |             |   |      |   |             |  
|Total Assets                                                                                                                                            |  |              | 616,095     |   |      |   | 305,740     |  
|                                                                                                                                                        |  |              |             |   |      |   |             |  
|Liabilities and Shareholders Equity (Deficiency)                                                                                                       |  |              |             |   |      |   |             |  
|Current Liabilities                                                                                                                                     |  |              |             |   |      |   |             |  
|Accounts payable                                                                                                                                        |  |              | 372,260     |   |      |   | 397,081     |  
|Note payable - InterMarket Ventures, a related party                                                                                                    |  |              | 314,000     |   |      |   |            |  
|Notes payable - other                                                                                                                                   |  |              | 117,500     |   |      |   | 80,000      |  
|Due to Associated Business Group, a related party                                                                                                       |  |              | 12,427      |   |      |   |            |  
|Accrued officers compensation                                                                                                                          |  |              | 212,758     |   |      |   |            |  
|Accrued expenses                                                                                                                                        |  |              | 72,015      |   |      |   | 38,853      |  
|                                                                                                                                                        |  |              |             |   |      |   |             |  
|Total Current Liabilities                                                                                                                               |  |              | 1,100,960   |   |      |   | 515,934     |  
|                                                                                                                                                        |  |              |             |   |      |   |             |  
|Note payable - InterMarket Ventures, a related party                                                                                                    |  |              | 930,400     |   |      |   |            |  
|                                                                                                                                                        |  |              |             |   |      |   |             |  
|Total Liabilities                                                                                                                                       |  |              | 2,031,360   |   |      |   | 515,934     |  
|                                                                                                                                                        |  |              |             |   |      |   |             |  
|Shareholders Equity (Deficiency)                                                                                                                       |  |              |             |   |      |   |             |  
|Common Stock, $0.001 par value, 200 million shares authorized, 173,535,944 and 170,707,012 shares issued and outstanding in 2004 and 2003,
respectively |  |              | 173,536     |   |      |   | 170,707     |  
|Additional paid in capital                                                                                                                              |  |              | 61,053,801  |   |      |   | 59,497,446  |  
|Deficit accumulated during the development stage                                                                                                        |  |              | (62,642,602 | ) |      |   | (59,878,347 | )
|                                                                                                                                                        |  |              |             |   |      |   |             |  
|Total Shareholders Equity (Deficiency)                                                                                                                 |  |              | (1,415,265  | ) |      |   | (210,194    | )
|                                                                                                                                                        |  |              |             |   |      |   |             |  
|Total Liabilities and Shareholders Equity (Deficiency)                                                                                                 |  | $            | 616,095     |   |      | $ | 305,740     |  
|                                                                                                                                                        |  |              |             |   |      |   |             |  



See
notes to the financial statements.



35



---



e-Smart Technologies, Inc. and Subsidiary

(A Development Stage Company)

Statements of Operations



|                                              |  |                         |             |   |                                                                     |   |             |      |  |   |             |  
|--------------------------------------------- |  | ----------------------- | ----------- | - | ------------------------------------------------------------------- | - | ----------- | ---- |  | - | ----------- | -
|                                              |  | Year Ended December 31, |             |   | For the Period from July 15,1997 (Date ofInception) to December 31, |  
|                                              |  | 2004                    |             |   | 2003                                                                |   |             | 2004 | 
|Revenue                                       |  | $                       |            |   |                                                                     | $ |            |      |  | $ |            |  
|                                              |  |                         |             |   |                                                                     |   |             |      |  |   |             |  
|Operating Expenses                            |  |                         |             |   |                                                                     |   |             |      |  |   |             |  
|Research and development                      |  |                         | 634,474     |   |                                                                     |   | 730,750     |      |  |   | 1,675,224   |  
|Selling, general and administrative           |  |                         | 2,106,119   |   |                                                                     |   | 1,841,635   |      |  |   | 5,253,893   |  
|Issuance of stock options for services        |  |                         |            |   |                                                                     |   | 34,170,000  |      |  |   | 55,646,000  |  
|Interest expense                              |  |                         | 22,662      |   |                                                                     |   | 28,972      |      |  |   | 63,735      |  
|                                              |  |                         |             |   |                                                                     |   |             |      |  |   |             |  
|Total Operating Expenses                      |  |                         | 2,763,255   |   |                                                                     |   | 36,771,357  |      |  |   | 62,638,852  |  
|                                              |  |                         |             |   |                                                                     |   |             |      |  |   |             |  
|Loss before provision for income taxes        |  |                         | (2,763,255  | ) |                                                                     |   | (36,771,357 | )    |  |   | (62,638,852 | )
|                                              |  |                         |             |   |                                                                     |   |             |      |  |   |             |  
|Provision for Income Taxes                    |  |                         | 1,000       |   |                                                                     |   | 250         |      |  |   | 3,750       |  
|                                              |  |                         |             |   |                                                                     |   |             |      |  |   |             |  
|Net Loss                                      |  | $                       | (2,764,255  | ) |                                                                     | $ | (36,771,607 | )    |  | $ | (62,642,602 | )
|                                              |  |                         |             |   |                                                                     |   |             |      |  |   |             |  
|Loss Per Share                                |  | $                       | (0.02       | ) |                                                                     | $ | (0.23       | )    |  | $ | (0.44       | )
|                                              |  |                         |             |   |                                                                     |   |             |      |  |   |             |  
|Weighted Average Number of Shares Outstanding |  |                         | 172,659,789 |   |                                                                     |   | 161,172,213 |      |  |   | 141,874,167 |  
|                                              |  |                         |             |   |                                                                     |   |             |      |  |   |             |  



See
notes to the financial statements.



36



---



e-Smart Technologies, Inc. and Subsidiary

(A Development Stage Company)

Statement of Shareholders Equity (Deficiency)

For the Period July 15, 1997 (date of inception) through December 31, 2004



|                                                         |  |              |             |                           |   |                            |  |   |            |  |   |             |   |  |   |             |  
|-------------------------------------------------------- |  | ------------ | ----------- | ------------------------- | - | -------------------------- |  | - | ---------- |  | - | ----------- | - |  | - | ----------- | -
|                                                         |  | Common Stock |             | AdditionalPaid-In Capital |   | RetainedEarnings (Deficit) |  |   | Total      | 
|                                                         |  | Shares       |             | Amount                    |   |                            | 
|Balance, July 15, 1997 (Inception of Development Period) |  | $            | 501,000     |                           | $ | 501                        |  | $ | 3,075      |  | $ |            |   |  | $ | 3,576       |  
|Issuance of shares for licensed technology               |  |              | 58,600,000  |                           |   | 58,600                     |  |   |           |  |   |            |   |  |   | 58,600      |  
|Net (loss)                                               |  |              |            |                           |   |                           |  |   |           |  |   | (2,944      | ) |  |   | (2,944      | )
|                                                         |  |              |             |                           |   |                            |  |   |            |  |   |             |   |  |   |             |  
|Balance, December 31, 2000                               |  |              | 59,101,000  |                           |   | 59,101                     |  |   | 3,075      |  |   | (2,944      | ) |  |   | 59,232      |  
|Issuance of shares for services                          |  |              | 16,016,200  |                           |   | 16,016                     |  |   | 119,640    |  |   |            |   |  |   | 135,656     |  
|Issuance of shares for licensed technology               |  |              | 70,000,000  |                           |   | 70,000                     |  |   |           |  |   |            |   |  |   | 70,000      |  
|Net (loss)                                               |  |              |            |                           |   |                           |  |   |           |  |   | (142,636    | ) |  |   | (142,636    | )
|                                                         |  |              |             |                           |   |                            |  |   |            |  |   |             |   |  |   |             |  
|Balance, December 31, 2001                               |  |              | 145,117,200 |                           |   | 145,117                    |  |   | 122,715    |  |   | (145,580    | ) |  |   | 122,252     |  
|Issuance of shares for cash                              |  |              | 7,903,967   |                           |   | 7,904                      |  |   | 1,031,221  |  |   |            |   |  |   | 1,039,125   |  
|Issuance of shares for services                          |  |              | 750,826     |                           |   | 751                        |  |   | 84,843     |  |   |            |   |  |   | 85,594      |  
|Issuance of stock options for services                   |  |              |            |                           |   |                           |  |   | 21,476,000 |  |   |            |   |  |   | 21,476,000  |  
|Net income (loss)                                        |  |              |            |                           |   |                           |  |   |           |  |   | (22,961,160 | ) |  |   | (22,961,160 | )
|                                                         |  |              |             |                           |   |                            |  |   |            |  |   |             |   |  |   |             |  
|Balance, December 31, 2002                               |  |              | 153,771,993 |                           |   | 153,772                    |  |   | 22,714,779 |  |   | (23,106,740 | ) |  |   | (238,189    | )
|Issuance of shares for cash                              |  |              | 16,497,519  |                           |   | 16,498                     |  |   | 2,531,854  |  |   |            |   |  |   | 2,548,352   |  
|Issuance of shares for services                          |  |              | 437,500     |                           |   | 437                        |  |   | 80,813     |  |   |            |   |  |   | 81,250      |  
|Issuance of stock options for services                   |  |              |            |                           |   |                           |  |   | 34,170,000 |  |   |            |   |  |   | 34,170,000  |  
|Net income (loss)                                        |  |              |            |                           |   |                           |  |   |           |  |   | (36,771,607 | ) |  |   | (36,771,607 | )
|                                                         |  |              |             |                           |   |                            |  |   |            |  |   |             |   |  |   |             |  
|Balance, December 31, 2003                               |  |              | 170,707,012 |                           |   | 170,707                    |  |   | 59,497,446 |  |   | (59,878,347 | ) |  |   | (210,194    | )
|Issuance of shares for cash                              |  |              | 2,828,932   |                           |   | 2,829                      |  |   | 1,556,355  |  |   |            |   |  |   | 1,559,184   |  
|Net income (loss)                                        |  |              |            |                           |   |                           |  |   |           |  |   | (2,764,255  | ) |  |   | (2,764,255  | )
|                                                         |  |              |             |                           |   |                            |  |   |            |  |   |             |   |  |   |             |  
|Balance, December 31, 2004                               |  | $            | 173,535,944 |                           | $ | 173,536                    |  | $ | 61,053,801 |  | $ | (62,642,602 | ) |  | $ | (1,415,265  | )
|                                                         |  |              |             |                           |   |                            |  |   |            |  |   |             |   |  |   |             |  



See
notes to the financial statements.



37



---



e-Smart Technologies, Inc. and Subsidiary

(A Development Stage Company)

Statements of Cash Flows



|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|----------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ------------------------------------------------------------------- | - | ----------- | ---- |  | - | ----------- | -
|                                                                              |  | Year Ended December 31, |            |   | For the Period from July 15,1997 (Date ofInception) to December 31, |  
|                                                                              |  | 2004                    |            |   | 2003                                                                |   |             | 2004 | 
|Cash Flows From Operating Activities                                          |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Net Loss                                                                      |  | $                       | (2,764,255 | ) |                                                                     | $ | (36,771,607 | )    |  | $ | (62,642,602 | )
|Adjustments to reconcile net loss to net cash (used in) operating activities: |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Issuance of stock options for services                                        |  |                         |           |   |                                                                     |   | 34,170,000  |      |  |   | 55,646,000  |  
|Issuance of common stock for services                                         |  |                         |           |   |                                                                     |   | 81,250      |      |  |   | 166,844     |  
|Depreciation expense                                                          |  |                         | 476        |   |                                                                     |   |            |      |  |   | 476         |  
|Amortization expense                                                          |  |                         | 3,590      |   |                                                                     |   | 6,430       |      |  |   | 22,880      |  
|Changes in Assets and Liabilities:                                            |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Increase in prepaid expenses                                                  |  |                         | (42,361    | ) |                                                                     |   |            |      |  |   | (42,361     | )
|Increase in deposits                                                          |  |                         | (58,139    | ) |                                                                     |   |            |      |  |   | (58,139     | )
|Increase (decrease) in accounts payable                                       |  |                         | (24,821    | ) |                                                                     |   | 166,685     |      |  |   | 372,260     |  
|Increase in accrued expenses                                                  |  |                         | (42,361    | ) |                                                                     |   | 24,250      |      |  |   | 284,773     |  
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Net Cash (Used in) Operating Activities                                       |  |                         | (2,639,590 | ) |                                                                     |   | (2,322,992  | )    |  |   | (6,249,869  | )
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Cash Flows From Investing Activities                                          |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Cash used for intangible assets                                               |  |                         |           |   |                                                                     |   |            |      |  |   | (128,600    | )
|Acquisition of equipment                                                      |  |                         | (42,994    | ) |                                                                     |   |            |      |  |   | (42,994     | )
|Cash advances to Biosensor, LLC                                               |  |                         | (324,500   | ) |                                                                     |   |            |      |  |   | (324,500    | )
|Utilization of (investment in) deposit                                        |  |                         | 151,000    |   |                                                                     |   | (151,000    | )    |  |   |            |  
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Net Cash (Used in) Investing Activities                                       |  |                         | (216,494   | ) |                                                                     |   | (151,000    | )    |  |   | (496,094    | )
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Cash Flows From Financing Activities                                          |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Proceeds from borrowings - other                                              |  |                         | 37,500     |   |                                                                     |   |            |      |  |   | 117,500     |  
|Repayments of borrowings - other                                              |  |                         |           |   |                                                                     |   | (120,000    | )    |  |   |            |  
|Proceeds from common stock issuances                                          |  |                         | 1,559,184  |   |                                                                     |   | 2,548,352   |      |  |   | 5,414,493   |  
|Proceeds from borrowings - related party                                      |  |                         | 1,244,400  |   |                                                                     |   | 58,667      |      |  |   | 1,444,400   |  
|Proceeds from related party advances                                          |  |                         | 43,761     |   |                                                                     |   |            |      |  |   | 12,427      |  
|Repayment of borrowings - related party                                       |  |                         |           |   |                                                                     |   |            |      |  |   | (200,000    | )
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Net Cash Provided by Financing Activities                                     |  |                         | 2,884,845  |   |                                                                     |   | 2,487,019   |      |  |   | 6,788,820   |  
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Net Increase in Cash                                                          |  |                         | 28,761     |   |                                                                     |   | 13,027      |      |  |   | 42,857      |  
|Cash at Beginning of Year                                                     |  |                         | 14,096     |   |                                                                     |   | 1,069       |      |  |   |            |  
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Cash at End of Year                                                           |  | $                       | 42,857     |   |                                                                     | $ | 14,096      |      |  | $ | 42,857      |  
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Supplemental Disclosures of Cash Flow Information                             |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Cash paid during the year for:                                                |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Interest                                                                      |  | $                       |           |   |                                                                     | $ | 12,101      |      |  | $ | 63,735      |  
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Income taxes                                                                  |  | $                       | 1,000      |   |                                                                     | $ | 2,500       |      |  | $ | 3,750       |  
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Supplemental Schedule of Non-Cash Investing Activities                        |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Issuance of common stock for services                                         |  | $                       |           |   |                                                                     | $ | 81,250      |      |  | $ | 166,844     |  
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  
|Issuance of stock options for services                                        |  | $                       |           |   |                                                                     | $ | 34,170,000  |      |  | $ | 55,646,000  |  
|                                                                              |  |                         |            |   |                                                                     |   |             |      |  |   |             |  



38



---



e-Smart Technologies, Inc. and Subsidiary

(A Development Stage Company)

Notes to the Financial Statements



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



Nature of Organization



e-Smart Technologies, Inc. (the Company) is a Nevada corporation organized in July 1997 under the name of Boppers Holdings, Inc. (Boppers).
The Company changed its name to e-Smart Technologies, Inc. on December 22, 2000.



Prior to the change in name, and pursuant to an Acquisition Agreement and Plan of Merger dated as of August 16, 2000 between Boppers and Plainview Laboratories, Inc. (PLI), all of the outstanding shares of
common stock of PLI were exchanged for 20,000 shares of common stock of Boppers in a transaction in which Boppers was the successor corporation.



On October 20, 2000, Boppers, Boppers Acquisition Corp., a then newly-formed Nevada Corporation and wholly owned subsidiary of Boppers (BAC),
and e-Smart Systems, Inc., a Nevada corporation (e-Smart Systems) and wholly owned subsidiary of InterMarket Ventures, Inc., a Utah corporation (IVI), entered into an Agreement and Plan of Merger (the Merger
Agreement). Pursuant to the terms of the Merger Agreement: (i) Boppers acquired all of the issued and outstanding shares of common stock of e-Smart Systems; (ii) BAC merged with and into e-Smart Systems such that e-Smart Systems was the
survivor; (iii) e-Smart Systems became a wholly owned subsidiary of Boppers; and (iv) IVI, the sole shareholder of e-Smart Systems, acquired control of Boppers.



On November 27, 2000, Boppers management resigned and the Registrants present management took control. The
Companys name was changed from Boppers Holdings, Inc. to e-Smart Technologies, Inc., effective as of December 22, 2000.



The Company (with its 77% shareholder, IVI) is engaged in the business of creating, marketing, manufacturing, installing, operating and maintaining
proprietary systems that are designed to positively authenticate each and every end user of any networked or local access system while protecting at all times all information residing on or transported by the system.



Principles of Consolidation



The consolidated financial statements include the accounts of e-Smart
Technologies, Inc. and its wholly owned subsidiary, e-Smart Korea, which was incorporated during 2004. All significant intercompany balances and transactions have been eliminated in consolidation.



Basis of Financial Statement Presentation



The financial statements of the Company have been prepared assuming the
Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has never been profitable and has incurred substantial losses from operations of
$2,764,255 and $36,771,607 for the years ended December 31, 2004 and 2003, respectively and $62,642,602 for the period from July 15, 1997 (date of inception) through December 31, 2004. Furthermore, the Company has negative working capital amounting
to $(1,015,742) and $(470,504) at December 31, 2004 and 2003, respectively. The Company expects that losses from operations will continue through 2005 and anticipates that it will require additional financing in 2005, which may not be readily
available. The Company is dependent upon the efforts of its management to raise proceeds from continued debt or equity placement to sustain the research and development and ultimate commercialization of their respective interests in the Super Smart
Card TM technology. The Companys ability to continue to receive new investment proceeds is uncertain. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



39



---

e-Smart Technologies, Inc. and Subsidiary

(A Development Stage Company)

Notes
to the Financial Statements



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- | ------------------------------------------------------



Use of Estimates



The preparation of financial statements in conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.



Net Loss Per Share



Loss per
share, in accordance with the provisions of Financial Accounting Standards Board No. 128, Earnings Per Share, is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Any common
stock equivalents outstanding during the period would have had an anti-dilutive effect.



Research and Development Costs



Research and development costs are charged to operations as incurred and amounted to $634,474 and $730,750 in 2004 and 2003, respectively, and $1,675,224
from July 15, 1997 (date of inception) through December 31, 2004.



License Costs



On November 20,
2000, the Company acquired certain technology licenses. The technology was purchased from IVI, a related party, for an aggregate of 128,600,000 common shares of the Company valued at $0.001 per share or $128,600 as the total agreed upon
consideration, which sum approximates the Licensors allocable costs. The cost of the license is being amortized over its twenty year term on a straight line basis. Amortization expense amounted to $6,420 for each of the years ended December
31, 2004 and 2003, and $25,720 for the period July 15, 1997 (date of inception) through December 31, 2004.



Securities Issued for Services



The Company accounts for stock issued for services under the intrinsic value method. For stock issued for services, the fair market value of the
Companys stock on the date of stock issuance is used. The Company has adopted Statement of Financial Accounting Standard (SFAS) No. 123, Accounting for Stock-Based Compensation. The statement generally suggests, but does not
require, stock-based compensation transactions to be accounted for based on the fair value of the services rendered or the fair value of the equity instruments issued, whichever is more reliably measurable. Securities issued for services to a
related party amounted to $0 in 2004, $81,250 in 2003, and $166,844 for the period July 15, 1997 (date of inception) through December 31, 2004. The underlying fair value of the common shares amounted to $0 and $0.186 per share in 2004 and 2003,
respectively.



Equipment and Depreciation



The cost of equipment is depreciated for financial reporting
purposes on a straight-line basis over the estimated useful lives of the assets: 3-8 years for equipment. Repairs and maintenance expenditures which do not extend the useful lives of the related assets are expensed as incurred.



40



---

e-Smart Technologies, Inc. and Subsidiary

(A Development Stage Company)

Notes
to the Financial Statements



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|-- | ------------------------------------------------------



Income Taxes



In accordance with the provisions of Financial Accounting Standards No. 109, Accounting for Income Taxes
(SFAS No. 109), deferred taxes are recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized. The Company incurred net operating losses for financial-reporting and tax-reporting purposes. Accordingly, the benefit from income taxes has been offset by a valuation allowance against the related deferred tax asset.



Foreign Currency Translation



The functional currency for the foreign operations of e-Smart Korea is the
local currency. The translation of foreign currencies into U.S. dollars is performed for the 2004 balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange
rate during the 2004 year.



Fair Value of
Financial Instruments



Cash, related party receivable, accrued
expenses and notes payable are subject to fair value adjustments.



The carrying amount approximates fair value because of the short term maturity of these instruments.



Limitations



Fair value estimates are made at a specific point in time, based on relevant information and information about the financial instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.



|2. | CONCENTRATIONS OF CREDIT RISK
|-- | -----------------------------



The Company maintains cash balances in financial institutions which are insured by the Federal Deposit Insurance Corporation up to $100,000. Balances in
these accounts may, at times, exceed the federally insured limits.



|3. | DEPOSITS
|-- | --------



At December 31, 2003, the Company had advanced $151,000 to South Korean counsel for the purpose of forming and capitalizing a South Korean corporation (e-Smart Korea, Inc.) to facilitate its planned new business
operations in the Pacific Rim during 2004. During 2004, these funds were used to establish the Companys South Korean subsidiary.



|4. | EQUIPMENT AND DEPRECIATION
|-- | --------------------------



Equipment at cost, less accumulated depreciation consists of the following:



|                                               |  |                    |        |      |   |  
|---------------------------------------------- |  | ------------------ | ------ | ---- | - | -
|                                               |  | As of December 31,
|                                               |  | 2004               |        | 2003
|Equipment                                      |  | $                  | 42,994 |      | $ | 
|Less accumulated depreciation and amortization |  |                    | 476    |      |   | 
|                                               |  |                    |        |      |   |  
|Total                                          |  | $                  | 42,518 |      | $ | 
|                                               |  |                    |        |      |   |  



Depreciation expense
charged to operations was $476, $0, and $476, in 2004, 2003, and the period July 15, 1997 (date of inception) through December 31, 2004.



41



---



e-Smart Technologies, Inc.
and Subsidiary

(A Development Stage Company)

Notes to the Financial Statements



|5. | NOTES PAYABLE
|-- | -------------



Notes payable consist of the following:



|                                                                                                        |  |      |         |      |   |       
|------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------
|                                                                                                        |  | 2004 |         | 2003
|Unsecured obligations bearing interest at 20% initially due January 31, 2004, extended to July 31, 2004 |  | $    | 77,500  |      | $ | 30,000
|This obligation is presently in default.                                                                |  |      |         |      |   |       
|Unsecured demand obligation with interest at 10%                                                        |  |      | 40,000  |      |   | 50,000
|                                                                                                        |  |      |         |      |   |       
|Total                                                                                                   |  | $    | 117,500 |      | $ | 80,000
|                                                                                                        |  |      |         |      |   |       



|6. | ACCRUED EXPENSES
|-- | ----------------



Accrued expenses are as follows:



|                |  |      |        |      |   |       
|--------------- |  | ---- | ------ | ---- | - | ------
|                |  | 2004 |        | 2003
|Interest        |  | $    | 68,265 |      | $ | 36,103
|Franchise taxes |  |      | 3,750  |      |   | 2,750 
|                |  |      |        |      |   |       
|Total           |  | $    | 72,015 |      | $ | 38,853
|                |  |      |        |      |   |       



|7. | INCOME TAXES
|-- | ------------



The income tax provision is comprised of the following:



|                        |  |                         |       |                                                                     |   |      |  |   |      
|----------------------- |  | ----------------------- | ----- | ------------------------------------------------------------------- | - | ---- |  | - | -----
|                        |  | Year Ended December 31, |       | For the Period from July 15,1997 (Date ofInception) to December 31,
|                        |  | 2004                    |       | 2003                                                                |   | 2004
|State current provision |  | $                       | 1,000 |                                                                     | $ | 250  |  | $ | 3,750
|                        |  |                         |       |                                                                     |   |      |  |   |      



The Companys
total deferred tax asset and valuation allowance are as follows:



|                                  |  |      |            |   |      |   |          
|--------------------------------- |  | ---- | ---------- | - | ---- | - | ---------
|                                  |  | 2004 |            |   | 2003
|Total deferred tax asset, current |  | $    | 2,000,000  |   |      | $ | 1,040,000
|Less valuation allowance          |  |      | (2,000,000 | ) |      |   | 1,040,000
|                                  |  |      |            |   |      |   |          
|Net deferred tax assets, current  |  | $    |           |   |      | $ |         
|                                  |  |      |            |   |      |   |          



42



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e-Smart Technologies, Inc. and Subsidiary

(A Development Stage Company)

Notes
to the Financial Statements



|7. | INCOME TAXES (Continued)
|-- | ------------------------



The differences between income tax benefits in the financial statements and the tax benefit computed
at the U.S. Federal statutory rate of 34% at December 31, 2004 and 2003 are as follows:



|                    |  |      |   |  |      |  
|------------------- |  | ---- | - |  | ---- | -
|                    |  | 2004 |   |  | 2003 |  
|Tax benefit         |  | 34   | % |  | 34   | %
|Valuation allowance |  | (34  | ) |  | (34  | )
|                    |  |      |   |  |      |  
|Effective tax rate  |  |     | % |  |     | %
|                    |  |      |   |  |      |  



At December 31, 2004,
the Company has available approximately $6,800,000 of net operating losses to carryforward which may be used to reduce future federal taxable income through December 31, 2024.



|8. | STOCK OPTIONS AND WARRANTS
|-- | --------------------------



At December 31, 2004, of the Companys 200,000,000 authorized shares, $.001 par value, there were 173,535,944 shares outstanding and options to
purchase 93,050,000 shares at an exercise price of $10 per share. Additionally, there were warrants outstanding to purchase 2,900,000 common shares at a price ranging from $.50 to $1.00 expiring through February 2006.



A summary of the stock option activity for the years ended December 31, 2004
and 2003 is set forth below:



|                                         |  |                  |  |                              |     
|---------------------------------------- |  | ---------------- |  | ---------------------------- | ----
|                                         |  | Number ofOptions |  | WeightedAverageExercisePrice
|Options in thousands                     |  |                  |  |                              |     
|Options outstanding at January 1, 2003   |  | 63,050,000       |  | $                            | 0.41
|Granted                                  |  | 30,000,000       |  |                              | 1.00
|Exercised                                |  |                 |  |                              |    
|Expired                                  |  |                 |  |                              |    
|                                         |  |                  |  |                              |     
|Options outstanding at December 31, 2003 |  | 93,050,000       |  |                              | 0.61
|Granted                                  |  |                 |  |                              |    
|Exercised                                |  |                 |  |                              |    
|Expired                                  |  |                 |  |                              |    
|                                         |  |                  |  |                              |     
|Options outstanding at December 31, 2004 |  | 93,050,000       |  | $                            | 0.61
|                                         |  |                  |  |                              |     



No options were
granted in 2004. The fair value of the options granted in 2003 was $34,170,000 determined as of the date of the grant using the Black-Scholes stock option pricing model, based on the following assumptions: annual expected return of 0%, annual
volatility of 188%, and a risk-free interest rate of 2.4%.



The per share fair value of stock options granted during 2003 was $1.14. The per share contractual remaining life of the options outstanding at December 31, 2004 and 2003 were 4 years and 5 years, respectively.



Of 93,050,000 options outstanding at December 31, 2004, 83,000,000 have been
issued to the Companys President and Chief Executive Officer, its Chief Technology Officer and its Consultant. These three individuals control IVI, the Companys 77% shareholder.



43



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e-Smart Technologies, Inc.
and Subsidiary

(A Development Stage Company)

Notes to the Financial Statements



|9. | RELATED PARTY TRANSACTIONS
|-- | --------------------------



The Company is the owner of three technology licenses. Each license has been granted pursuant to an Exclusive Use and Distribution Agreement,
each of which grants the Company exclusivity to the technology covered in a particular territory. The three territories covered are the Peoples Republic of China, the remainder of Asia and the United States of America. The licenses, which have
a term of twenty years, commencing November 20, 2000, grant the exclusive manufacturing and rights to certain Smart Card technology and were granted to the Company by IVI, a 77% shareholder of the Company.



On November 15, 2003 the Company entered into a Compensation and Settlement
Agreement with Mary A. Grace, its President and Chief Executive Officer. Pursuant to this agreement the Company agreed to pay Ms. Grace a salary of $250,000 per year for a five year term. The financial statements of the Company include an accrued
liability of $212,758 at December 31, 2004.



Further, in
settlement of certain indebtedness of the Company to Ms. Grace, the Company has agreed to pay an amount equal to fifty percent (50%) of any net profit earned by the Company in any year during the term of this agreement until such time as Ms. Grace
has received aggregate payments of $600,000.



Effective
January 1, 2001 and dated May 29, 2003 the Company entered into a Research and Development Services Agreement with Big Bang Technologies, Inc. (Big Bang), an entity controlled by Tamio Saito, the Companys Chief Technology Officer.
Mr. Saito is an Executive Officer of Big Bang. Pursuant to this agreement, the Company engaged Big Bang as its research development coordinator, among other duties. Amounts paid by the Company to Big Bang for such services amounted to $634,474 in
2004, and $730,750 in 2003. Of the above sums, $3,000 per month represents facility rental payments pursuant to a verbal month-to-month agreement.



On January 1, 2001 the Company entered into an Advisory and Occupancy Services Agreement with Associated Business Group (ABG), an entity
controlled by Jerry Drizin, the father of Wayne Drizin, consultant to the Company. Pursuant to this agreement, the Company engaged ABG to provide administrative support services to the Company. Amounts paid for such services amounted to $43,761 in
2004, and $120,000 in 2003. Additionally, the Company owed this entity $12,427 at December 31, 2004 and was due $31,334 from this entity at December 31, 2003.



At December 31, 2004 the Company was indebted to IVI in the amount of $1,244,400. These obligations are unsecured and bear an interest rate of six
percent. Of the above, $314,000 is due on demand, $300,000 is due June 30, 2007 and $630,400 is due December 27, 2007. Additionally, IVI is the sole licensor of the Companys technology. IVI, which owns 77% of the Companys issued and
outstanding common shares is controlled by the Companys President and Chief Executive Officer Mary A. Grace, its Chief Technology Officer Tamio Saito and its Consultant Wayne Drizin. Ms. Grace and Mr. Saito are Executive Officers of IVI.



At December 31, 2004 the Company was owed $324,500 from
Biosensor, LLC. This Company is a wholly-owned subsidiary of IVI, the owner of 77% of the Companys issued and outstanding common stock. Further, as of May 1, 2003, IVI Smart (a wholly-owned subsidiary of IVI) granted to Biosensor, LLC the
exclusive right to utilize certain of IVI Smarts patent pending biometric fingerprint sensor technology to develop into a commercial sensor and Biosensor granted to IVI Smart the exclusive rights to any sensor developed, produced and
manufactured by Biosensor.



44



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e-Smart Technologies, Inc. and Subsidiary

(A Development Stage Company)

Notes
to the Financial Statements



|9. | RELATED PARTY TRANSACTIONS (continued)
|-- | --------------------------------------



The Company has sublicensed the rights to market its technology to state and federal agencies to its
presently inactive forty-five percent (45%) affiliate, Homeland Defense, Inc. (Homeland). The remaining fifty-five percent (55%) interest in Homeland is owned by the Companys President and Chief Executive Officer.



|10. | DEPENDENCE UPON CONTROL PERSONS
|--- | -------------------------------



InterMarket Ventures, Inc. and its majority-owned subsidiary, IVI Smart Technologies, Inc., (IVI), collectively own 77% of the Companys
outstanding common shares. Accordingly, IVI is in a position to materially influence the direction of the Company, its efforts in raising the additional capital critical to its success, and the strategies employed in commercialization of the
licensed technology, assuming the Companys mission is ultimately successful. IVI is controlled by the Companys President and Chief Executive Officer, its Chief Technology Officer and its Consultant.



|11. | RECENT ACCOUNTING PRONOUNCEMENTS
|--- | --------------------------------



In December 2004, the FASB issued SFAS Statement No. 123(R) on Share-Based Payments which is a revision of FASB Statement No. 123, Accounting for
Stock-Based Compensation. This Statement established standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in
exchange for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. This statement is effective for public entities that file as small business issuers as of the beginning of the first interim or annual reporting period that begins after December
15, 2005.



|12. | COMMITMENTS
|--- | -----------



The Company has entered into certain contractual arrangements requiring financial commitments as follows:



The China Agreement - Pursuant thereto, commencing March 1, 2004 the Company is required to pay a non-accountable expense allowance of $10,000 per month
to its proposed joint venture partner. Further, upon information of a contemplated joint venture entity, the Company is required to provide approximately $3,000,000 of formation capital over a two year period.



The Kyrgyzstan Agreement - Pursuant thereto, the Company is required to
secure requisite funding against guarantees to be provided by the government of Kyrgyzstan. In light of a change in government as a result of political dissent, there can be no assurance that the successor governmental authority will respect this
agreement and its guaranty obligation.



The Uzbekistan
Agreement - Pursuant thereto, the Company is required to secure requisite financing against guarantees to be provided by the government of Uzbekistan.



45



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



None.



ITEM 8-A. CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures



As of the end of the period covered by this Annual Report on Form 10-KSB, Mary Grace, our principal executive officer and our principal financial officer
carried out an



46



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evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act). Ms. Grace concluded that our disclosure controls and procedures, are being upgraded in light of our anticipated move from the Pink Sheets to the OTC Bulletin Board, and as a result of our bringing our filings up to date. Ms. Grace
further concluded that we have moved forward to make disclosure controls and procedures effective: (i) in timely alerting us to material information required to be included in our periodic SEC reports; and (ii) to ensure that information required to
be disclosed by us in reports that we intend to file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. It should be noted that the design of any system of
controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.



Changes in Internal Controls



We are in the process of making significant changes in our evolving internal
controls or in other factors that could significantly affect these controls including any corrective actions with regard to significant deficiencies and material weaknesses, subsequent to the date of the evaluation of those controls by our Chief
Executive and Chief Financial Officer.



PART III



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



Directors and
Executive Officers



The following table sets forth: (1)
names and ages of all persons who presently are and who have been selected as our directors; (2) all positions and offices with us held by each such person; (3) the term or office of each person named as a director; and (4) any period during which
he or she has served as such:



|                     |  |                                                 |  |                                                                          |  |                       
|-------------------- |  | ----------------------------------------------- |  | ------------------------------------------------------------------------ |  | ----------------------
|Name                 |  | Duration and Date of Expiration of Present Term |  | Position and Office with our
Company                                     |  | Age and Director Since
|Mary A. Grace        |  | One year 12/31/05                               |  | President, Chief Executive Officer, Chief Financial
Officer and Director |  | 59 March 2001         
|Tamio Saito          |  | One year 12/31/05                               |  | Chief Technical Officer and Director                                     |  | 56 October 2003       
|Terry N. Christensen |  | One year 11/30/03(1)                            |  | Director                                                                 |  | 62 July 2001          
|F. Bo Zarnegin       |  | One year 11/30/03(1)                            |  | Director                                                                 |  | 43 March 2001         
|David C. Williams    |  | One year 12/31/05                               |  | Director                                                                 |  | 54 March 2001         
|Thomas J. Volpe      |  | One year 12/31/05(2)                            |  | Director                                                                 |  | April 7, 2005         
|Elliot H. Cole       |  | One year 12/31/05(2)                            |  | Director                                                                 |  | April 7, 2005         

---

|(1) | Messrs. Christensen and Zarnegin, who were elected to our Board of Directors in November 2001, have refused to communicate with us to either confirm their status with our company or
to resign as members of our Board. Since we have not held an annual meeting of our stockholders since present management assumed control, we continue to list Messrs. Christensen and Zarnegin as members of our Board despite the fact that neither has
participated in any meetings.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



47



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|(2) | On April 7, 2005, subsequent to the period covered by this Report, and at a special meeting of our Board of Directors, Thomas J. Volpe and Elliot H. Cole, the Chairman and a member,
respectively, of our Advisory Board were nominated and elected as members of our Board of Directors to fill two remaining vacancies thereon.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



There is no understanding or arrangement between any directors or any other person or persons pursuant to which such individual, was or is to be, selected as one of our
directors or as a nominee.



Employment Agreements



During the period covered by this Report, we did not enter into any employment agreements
with any of our executive officers or directors.



Business Experience



The following is a brief account of the experience of each of
our directors and executive officers:



Mary A. Gracehas been one of our directors since March 2001, and has also served as our President, Chief Executive Officer and Chief Financial Officer since that date. Between April 2001 and October 2000, Ms. Grace has served in the same capacities for IVI
-Smart Technologies, Inc., a privately owned Delaware corporation and our parent. Between December 1997 and the current date, Ms. Grace served as Chairman, President and Chief Executive Officer of Intermarket Ventures, Inc., a publicly owned Utah
corporation and parent of IVI-Smart Technologies, Inc. From July 1996, until its acquisition in November 1996, Ms. Grace served as the founder and a director of China Hi Tech American Telecommunications Ltd., a corporation engaged in international
telecommunications. Between 1995 and 1996, Ms. Grace was one of the founders and an executive officer of Asia American Tele-Communications Corporation, a corporation engaged in telephony infrastructure development in Sichuan Province of the Peoples
Republic of China. This company was sold to Metromedia Asia Corporation, a subsidiary of Metromedia International Group, Inc., in 1997. Between 1993 and 1995, Ms. Grace was a founding partner and director of Asian Infrastructure Development Co.,
Ltd. and Solution Technologies, Ltd., corporations that became engaged in infrastructure development in the Peoples Republic of China.



48



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David C. Williamshas been one of our directors since March 2001. Mr. Williams, has been a
practicing attorney since 1976. From 1976 until 1979 he was employed by the US Department of the Treasury. Subsequently he was engaged in the private practice of law in the state of New York with an emphasis on various aspects of international
commercial transactions and international business operations. From 1988 through 2001, Mr. Williams was a founding and managing partner of the law firm, Neville, Petersen & Williams, a New York law firm specialized in international transactions.
He has substantial knowledge of U.S. and foreign import and export controls and requirements. He has assisted clients in establishing foreign operations in various industries including the textile, apparel, automotive, telecommunication, electronic
and retailing industries. He has personally negotiated joint venture agreements with foreign partners and structured domestic and foreign operations to comply with governmental requirements and to minimize taxes and duties. He has substantial
experience in all aspects of international commercial transactions including logistics, finance and intellectual property rights. Mr. Williams received a Bachelor of Arts degree from Union College in 1973, and a Juris Doctor degree from Albany Law
School, Union University School of Law in 1976.



Tamio Saitohas been one of our directors since October 2003, and will serve only until the election of the next director to our board. Mr. Saito also served and continues to serve as our Chief Technical Officer, since inception. Mr. Saito is also the Chief
Technical Officer of our parent, Intermarket Ventures, Inc., and its affiliates. Mr. Saito joined the group with over 21 years of experience at Toshiba where he served in various positions, including Marketing Manager in the Semiconductor Division,
Group Leader and Senior Research Scientist in the R&D Center as well as Manager of Technology for the Computer Division. Mr. Saito was the leading inventor at Toshiba with over 400 inventions and 50 US patents. Mr. Saitos inventions
include, among other things: the Smart Card, the Thermal Printer, the 3-D Display, the 5th generation CT Scanner, the 3-D CT Scanner, the Image Sensor, Amorphous Silicon TFT/Sensor devices, Poly-Silicon TFT devices, the Digital Camera, Ti etching,
Plasma Deposition Equipment, Switching Regulator, and Liquid Cooling System. Mr. Saito pioneered Sub-Nano-Second Signal Propagation, reflection theory and Fractal-Entropy interconnection theory in MPU, Memory, PCB and computers and he performed
groundbreaking R&D work in high-end supercomputer technology including high speed circuitry analysis and Gallium Arsenic cross talk analysis and in semiconductor R&D work including simultaneous noise analysis. Mr. Saito has published over 50
papers at IEEE and other conferences and has published over 24 industrial professional books. Mr. Saito has a degree in Physics from Tohoku University in Japan.



Terry N. Christensenhas been one of our directors since July 2001. In 1969, Christensen joined the Los Angeles law firm, Wyman, Bautzer,
Finell, Rothman & Kuchel, as an associate. In 1971, Christensen became a partner and during the period, 1985-1986, Christensen served as the managing partner of the firm. In 1987, Christensen left the law firm and became President of Kirk
Kerkorians wholly owned company, Tracinda Corporation. Tracinda owned the majority interest in MGM/UA Communications and while Christensen was President, Tracinda entered into a number of transactions including the formation of MGM Grand Air
and the planning and formation of the new MGM Grand, Inc. In May, 1988, Christensen formed the law firm, now known as Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP. Starting with 14 attorneys, the firm has grown to 120 attorneys
with departments in all areas normally associated with a general business practice. Christensen has been managing partner of the firm since its inception. Christensens other activities include serving on the board of directors of four public
companies, including Mr. Kerkorians MGM Mirage, Inc. Christensen received his



49



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Bachelor of Arts Degree, with honors, from Stanford University in 1962 and his Juris Doctorate from the University of California in 1965. At USC, he served
on the Law Review and graduated Order of the Coif. After law school, Christensen went on active duty in the Marine Corps. He rose to the rank of Captain and served primarily in the Judge Advocate General Corps with the Fifth Marine Division. Mr.
Christensen became ineligible for re-election to our Board in December, 2003, as he failed to attend any board meetings during 2003.



F. Bo Zarneginhas been one of our directors since March of 2001. Mr. Zarnegin began his career as a real estate developer in West Los Angeles and
Beverly Hills. Over time, Mr. Zarnegin was able to acquire parcels of land and functionally obsolete properties and turn these properties into lucrative investments. Among his many accomplishments, Mr. Zarnegin together with his family, developed
and own the Peninsula Hotel in Beverly Hills, one of fewer than a handful of Five Star, Five Diamond Hotels in the United States. Mr. Zarnegin became ineligible for re-election to our Board in December, 2003, as he failed to attend any Board
meetings during 2003.



Directorships



Except as disclosed, and except for Messrs. Christensen and Zarnegin with
respect to whom we have no information, each of our directors has indicated to us that he is not presently a director in any other company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the
requirements of Section 15(d) of such act or any investment company registered under the Investment Company Act of 1940.



Certain Significant Employees



We do not presently employ any person as a significant employee who is not an executive officer but who makes or is expected to make a significant
contribution to our business. Notwithstanding the foregoing, Mr. Wayne Drizin, who has been a consultant to our Company since its inception, has and continues to make a significant contribution to our business, especially in connection with the
developments that have taken place since the end of 2003. The following is brief account of the experience of Mr. Drizin. Additional information concerning our business relationship with Mr. Drizin is set forth under Item 12. Certain Relationships
and Related Transactions.



Wayne Drizin. In December
1996, IVI, the parent of IVI Smart, our parent, entered into a five year business, marketing, technology and corporate finance consulting and advisory agreement with Emerald Sea Investments S.A., a non-affiliated corporation, that provides, among
other terms, that Mr. Drizin perform various services to IVI. Since that time, Mr. Drizin has served in a number of different capacities for IVI and its affiliates and subsidiaries, including but not limited to, Head of Business Development, Chief
Negotiator, System Architect and Chief Representative. In addition, Mr. Drizin is the co-inventor of the Super Smart Card technology and the principal creator of the BVS2 platform and related applications. This agreement has been transferred to Mr. Drizin and extended for an additional five years and now runs through
2006. Prior thereto since 1990, Mr. Drizin has been a business consultant providing advice and relationships on a worldwide basis to diverse companies seeking technical, financial, structuring and business advice across a broad range of industries,
including but not limited to telecommunications, manufacturing, power generation and finance. In 1996, Mr. Drizin was a founder of Telpac International, Ltd., then, an international telecommunications company. In



50



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1982, Mr. Drizin was one of the founders of Welfin S.A., a Swiss based, merchant bank, specialized in the without recourse financing of exports on a global
basis. Mr. Drizin served as Welfins managing director until 1990. While with Welfin S.A., Mr. Drizin expanded its business activities from merely financing to include shipping and trading (physical commodities). By combining these three
enterprises under one umbrella and operating them as an integrated business, Mr. Drizin caused Welfin S.A. to rapidly grow into a highly profitable, multinational organization that maintained offices in nine countries. In 1988, Mr. Drizin
orchestrated the sale of Welfin S.A. to a Swiss-based multi-national banking group.



In September of 2000, the U.S. Attorneys Office in Phoenix, Arizona charged Mr. Drizin with six counts of wire fraud in connection with certain share transactions involving the predecessors of IVI that allegedly
took place during 1996 and 1997. In October 2003, and after a trial by jury, Mr. Drizin was found not guilty of four counts and found guilty of two counts of aiding and abetting a wire fraud. A law firm has been retained to file a timely appeal in
this matter.



Advisory Board



We have formed an advisory board to aid, assist and advise our Board of
Directors regarding the smart card industry, technological developments, and related matters. The committee is currently made up of four members. No member of the Advisory Board is presently receiving any monetary compensation from us. However, and
as indicated herein under Item 10, Executive Compensation, we have granted options to members of the Advisory Board under the 2003 Long Term Plan. The following is a brief summary of the experience of the members of the Advisory Board.



Thomas J. Volpeis our Advisory Board Chairman. Mr. Volpe until
recently was Senior Vice President, Financial Operations, of The Interpublic Group of Companies, Inc., Vice President and Treasurer of Colgate-Palmolive Company and a Principal of Deloitte, Haskins & Sells. At Interpublic, Mr. Volpe was
responsible for the worldwide treasury management of this $7 billion company, including financial analysis, budgeting, approval of all investments, and the financing of mergers and acquisitions worldwide. He performed corporate controller functions,
and conducted comprehensive strategic analyses and plans for the successful integration of acquired companies into the parent company. Mr. Volpe was in charge of Interpublics global enterprise Y2K security risk analysis, as well as the
implementation and coordination of the Y2K security protection needed throughout the companys operations in 160 countries. During his tenure at Colgate, Mr. Volpe forged domestic and international banking relationships, negotiated unique
global credit and financing arrangements, supervised an investment portfolio of $500 million, restructured $750 million of pension assets, and designed an international risk program constituting captive insurance operations including safety,
security and loss prevention.



Elliot H. Coleis a
senior partner with the firm of Patton Boggs, LLP (Washington, DC), Mr. Cole has practiced corporate law in the nations capitol for over 40 years, more than 30 of those years as a partner at Patton Boggs. Patton Boggs, through nearly four
decades of practice, has established a reputation for cutting-edge advocacy by working closely with the US Congress and regulatory agencies in Washington. Patton Boggs, for example, has participated in the formation of every major multilateral trade
agreement considered by Congress. The firm is a leader in merging public policy expertise getting results in both Washington and throughout the



51



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world. The firm is led by partners with extensive backgrounds in government service and with strong ties to both major political parties in order to be
effective on Capitol Hill. In addition, Mr. Coles expertise includes the representation of early-stage companies. As a counselor of start-ups through mezzanine and later-stage financing, he assists with bringing along to maturity companies in
a wide range of businesses. His broad-based contacts with financiers and investors have provided capital and management assistance to a number of firms clients over the years. Mr. Cole serves on the boards of numerous business, community and
social organizations, and has been a trustee of his alma mater, Boston University, for over 20 years.



Eugene P. Beardrecently retired as Vice Chairman, Finance and Operations, of The Interpublic Group of Companies, Inc., a worldwide advertising and
marketing communications group with 400 offices in 120 countries, over 50,000 employees and revenues of more than $6 billion. A former Interpublic Group board member, and Chairman of its Finance Committee, Mr. Beards retirement is effective at
the end of 2003. Mr. Beard also serves on the boards of directors of Brown Brothers Harriman; Bessemer Trust Company; Mattel & Company and the Mattel Foundation; as well as MARC USA. As a member of the Advisory Council for Ethics and the
Professions at Harvards John F. Kennedy School of Government, Mr. Beard established the Beard Graduate and Faculty Fellowship programs for Ethics in the Professions. He also founded the Beard Center for Leadership and Ethics in Business at
Pittsburghs Duquesne University. Mr. Beard has been featured as an expert commentator and profiled in a number of media outlets, including Global Finances CFO Superstars, Investor Relations, Treasury Magazine, Forbes, Corporate Finance,
Institutional Investor and BusinessWeek. He has also appeared on CNBC News and PBSs Nightly Business Report.



Ronald E. Blaylockis the founder, Chairman and Chief Executive Officer of Blaylock & Partners, L.P, a New York City based financial service
firm offering institutions expertise in equity sales and trading, asset management, equity research, fixed income sales and trading, and investment banking. The firm also has offices in San Francisco, Austin, Chicago and Atlanta. Mr. Blaylock, who
earned his MBA at the New York University Stern School of Business, held senior management positions with Paine Webber Group and CitiGroup before launching Blaylock & Partners in 1993. In his 20-year career on Wall Street, Mr. Blaylock has
worked with a diverse range of corporate clients and institutional investors. As CEO of Blaylock & Partners, his leadership resulted in a number of unique industry achievements including being listed as the Corporate Capital Raiser of the Year
by Corporate Finance Magazine in 1999.In 2003, Black Enterprise Magazine listed the firm in the top women/minority investment banks. In addition, the firm was ranked among the top 20 investment banking firms in the United States for
underwriting investment grade debt for 1999, 2000 and 2001. Blaylock also has a strong presence in the equity markets having been a co-manager of the four largest U.S. IPOs to date. Blaylock & Partners is also well regarded for its experience
and highly ranked research analysts. Mr. Blaylock earned his BS at Georgetown University where he was a member of the first NCAA Final Four basketball team. He serves on the Board for the National Association of Basketball Coaches, the New York
University Board of Trustees, and serves on the board of the American General Life Insurance Company of New York, Radio One, and W.R. Berkley. His other charitable board work includes the American Ballet Theatre, the Inner-City Scholarship Fund, and
Prep for Prep.



John J. DeLuccais currently Executive
Vice President and CFO or the REL Consultancy Group, a private international consulting company. Previously, he served as Executive Vice President, Finance and Administration, and CFO of Coty Inc., where he was responsible for all



52



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global finance and administration operations, including accounting, strategic planning, corporate development, all treasury, audit and control functions,
legal information technology systems, tax and administration. Prior to that he served as RJR Nabisco, Inc.s Senior Vice President and Treasurer where he was responsible for all corporate finance and treasury activities, including capital
markets, banking, derivatives/swaps, foreign exchange, risk management, pension fund management and cash management. Prior thereto, he served as Managing Director and CFO of Hascoe & Associates, President and CFO of the Lexington Group and Sr.
VP, Finance and Managing Director of The Trump Group. Mr. DeLucca is a member of the boards of directors and serves as Chairman of the Audit Committees of the Elliott Company, Horizon Natural Resources and ITC Deltacom. He is also currently on the
board of directors of Enzo Biochem, Inc and formerly a member of the boards of directors and Chairman of the Audit Committee of Edison Controls Corporation. Former directorships include Kash n Karry (sold to Food Lion); Natures Food Centers
(sold to General Nutrition Centers); Emperor Clock Company; and RKO Century Warner Theaters (sold to Cinema Odeon). Mr. DeLucca is active as a guest speaker/lecturer for many financial institutions, including Merrill Lynch, Bank of America, Deutsche
Bank, Sumitomo Bank, Ltd., Banque Paribas, Canadian Imperial Bank of Commerce, Pace University, Standard & Poors and NYU Stern School of Business.



Family Relationships



No family relationship exists between any of our directors or executive offices.



Involvement in Certain Legal Proceedings



Except as indicated above, and except for Messrs. Christensen and Zarnegin with respect to whom we have no information, no event listed in Sub-paragraphs
(1) through (4) of Subparagraph (d) of Item 401 of Regulation S-B, has occurred with respect to any of our present executive officers or directors or any nominee for director during the past five years which is material to an evaluation of the
ability or integrity of such director or officer.



Compliance with Section
16(a) of the Exchange Act



Section 16(a) of the Exchange
Act, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and
annual reports concerning their ownership, of common stock and other of our equity securities on Forms 3, 4, and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by SEC regulations to furnish us with
copies of all Section 16(a) reports they file. To the best of our knowledge, none of our executive officers or directors has complied with all Section 16(a) filing requirements applicable to them during our most recent fiscal year. However, and in
connection with bringing ourselves current in our reporting obligations under the Exchange Act, each of our directors, executive officers and 5% stockholders have agreed to make all requisite Exchange Act filings as promptly as possible.



Audit Committee Financial Expert



During 2004, the Company did not maintain an Audit Committee because we had
an insufficient number of qualified outside directors. Moreover, the Company had not designated an Audit Committee Financial Expert. Mr. Thomas Volpe, the Chairman of our Advisory Board, has agreed to be nominated to our Board of Directors, and has
also agreed to serve as our Audit Committee Financial Expert.



53



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Code of Ethics



The Company has not yet adopted a Code of Ethic that applies to its principle executive officer, principal financial officer, principle accounting officer
or controller, or persons performing similar functions, but intends to do so in the near future.



ITEM 10. EXECUTIVE COMPENSATION



Aggregate Compensation Covered



During the
three fiscal years ended December 31, 2004, the aggregate compensation paid to, accrued or set aside for any of our executive officers or directors was $250,000.



Summary Compensation Table



Summary Compensation Table



|                                                |  |                     |  |        |             |           |         |          |       |         |  |         |                        |         |         |         |      |         |       |        
|----------------------------------------------- |  | ------------------- |  | ------ | ----------- | --------- | ------- | -------- | ----- | ------- |  | ------- | ---------------------- | ------- | ------- | ------- | ---- | ------- | ----- | -------
|                                                |  |                     |  |        |             |           |         |          |       |         |  |         | Long Term Compensation
|                                                |  | Annual Compensation |  |        |             | Awards    |         | Payments
|Name and Position                               |  | Year                |  | Salary |             |           | Bonuses |          | Other |         |  |         | Stock                  |         | Options |         | LTIP |         | Other
|Mary A. Grace, President, CEO, CFO and Director |  | 200220032004        |  | $      | 250,000   | (1)(1)(1) |         |       |       |      |  |      |                        |      |         |      |      |      |       |     
|Tamio Saito, CTO, and Director                  |  | 200220032004        |  |        |          | (2)(2)(2) |         |       |       |      |  |      |                        |      |         |      |      |      |       |     
|David Williams, Director                        |  | 200220032004        |  |        |          |           |         |       |       |      |  |      |                        |      |         |      |      |      |       |     
|Thomas J. Volpe, Advisory Board member          |  | 200220032004        |  |        |          |           |         |       |       |      |  |      |                        |      |         |      |      |      |       |     
|Terry N. Christensen, Director                  |  | 200220032004        |  |        |          |           |         |       |       |      |  |      |                        |      |         |      |      |      |       |     
|F. Bo Zarnegin, Director                        |  | 200220032004        |  |        |          |           |         |       |       |      |  |      |                        |      |         |      |      |      |       |     
|Totals                                          |  | 200220032004        |  | $      |   250,000 |           |         |       |       |      |  |      |                        |      |         |      |      |      |       |     

---

|(1) | Does not include a settlement payment of $450,000 referenced in a November 15, 2003, written Compensation Settlement Agreement with Mary A. Grace, our President, Chief Executive
Officer and Chief Financial Officer. Pursuant to this agreement, we agreed to pay Ms. Grace a salary of $250,000 per year commencing on January 1, 2004. In consideration for Ms. Graces
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



54



---

| | releasing us from our obligation to accrue her former salary of $250,000 per year net of approximately $300,000 of expenses paid on Ms. Graces behalf
during the period or $750,000 for the three years ending December 31, 2004, we agreed to pay to Ms. Grace a preferred distribution of 50% of future profits limited to $450,000. In addition, and in consideration for our return to Ms. Grace of certain
of her marketable securities, Ms. Grace released us from any prior obligations under a contemplated agreement to purchase such securities. Finally, we agreed that the approximate $300,000 in expenses we paid on Ms. Graces behalf would be
deemed to be a loan and deductible only from the amount she is entitled to receive under the Compensation Settlement Agreement up to a maximum of $100,000 per year, commencing in the first year following the year in which we first receive sufficient
income from operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Does not include an aggregate of $634,474 and $730,740, paid to Big Bang Technologies, Inc., a California corporation controlled by and under common control of Tamio Saito
(BBT), respectively, during the fiscal years ended December 31, 2004 and 2003. The payments were made pursuant to a Research and Development Services Agreement dated May 29, 2003 (the BBT Agreement). Additional information
concerning the BBT Agreement is set forth herein under the caption Certain Relationships and Related Transactions.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Option/SAR Grant Table



During the fiscal year ended December 31, 2004, no options were granted to any of our officers or directors.



Aggregate Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table



During the fiscal year ended December 31, 2004, no stock options or freestanding SARs were exercised.



Long-Term Incentive Plans  Awards in Last Two Fiscal Years



|                  |  |                 |  |                                                    |  |                                                               |  |         |  |  
|----------------- |  | --------------- |  | -------------------------------------------------- |  | ------------------------------------------------------------- |  | ------- |  | -
|                  |  | Number ofShares |  | Performanceor otherPeriod UntilMaturationor Payout |  | Estimated Future Payouts Under Non-Stock Price-Based Plans(#)
|Name              |  |                 |  | Threshold                                          |  | Target                                                        |  | Maximum
|Mary A. Grace     |  | 12,075,000      |  | 5 Years                                            |  | 0                                                             |  | 0       |  | 0
|Wayne Drizin      |  | 6,925,000       |  | 5 Years                                            |  | 0                                                             |  | 0       |  | 0
|Tamio Saito       |  | 9,500,000       |  | 5 Years                                            |  | 0                                                             |  | 0       |  | 0
|Three Consultants |  | 1,500,000       |  | 5 Years                                            |  | 0                                                             |  | 0       |  | 0



55



---

Warrants



During the fiscal year ended December 31, 2004, no warrants to purchase shares of our common stock were issued or exercised.



Compensation of Directors



During the fiscal year ended December 31, 2004, no compensation was paid to
any member of our Board of Directors or to our Advisory Board members.



Employment Contracts and Termination of Employment, and Change in Control Arrangements



Except for our President, Mary A. Grace, none of our executive officers was employed pursuant to the terms of an employment agreement with us.



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



Security Ownership of Certain
Beneficial Owner



The information is furnished as of December
31, 2004, as to the number of shares of our Common Stock, $.001 par value per share, owned beneficially, or known by us to own beneficially, more than 5% of any class of such security:



|                                                                                |  |                                         |     |  |                     |    
|------------------------------------------------------------------------------- |  | --------------------------------------- | --- |  | ------------------- | ---
|Name and Address of Beneficial
Owner                                            |  | Amount andNature of BeneficialOwnership |     |  | Percentage of Class |    
|IVI Smart Technologies, Inc. 7225 Bermuda Road, Suite C Las Vegas, Nevada 89119 |  | 126,590,052                             |     |  | 77                  | (1)
|                                                                                |  |                                        
|Wayne Drizin 7225 Bermuda Road, Suite C Las Vegas, Nevada 89119                 |  | 31,575,000                              | (2) |  | 19                  | (2)
|                                                                                |  |                                        
|Mary A. Grace 117 East 57th Street, Apt 24G New York, NY 10022                  |  | 34,150,000                              | (3) |  | 21                  | (3)
|                                                                                |  |                                        
|Tamio Saito 1810 Old Oakland Road, #F San Jose, California 95131                |  | 22,500,000                              | (4) |  | 13                  | (4)

---

|(1) | Does not include options granted to management and the co-inventor of our Super Smart Card technology to acquire an aggregate of 83,000,000 shares of our common stock granted on February 13, 2002 and December
1, 2003. Attributable to such individuals by virtue of their being executive officers and or principal (i.e., 10%) stockholders of IVI Smart. As subsequently indicated, an aggregate of 30,000,000 of these options will not vest or become exercisable
until the 20th day after an Information Statement has been sent to stockholders.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes options to acquire an aggregate of 31,425,000 shares of our common stock
|--- | ---------------------------------------------------------------------------------



56



---

granted on February 13, 2002 and December 1, 2003. Does not include an aggregate of 23,146,209 shares of
our common stock which may be attributable to Mr. Drizin by virtue of his 18% equity ownership of IVI, the parent of IVI Smart. As previously indicated, an aggregate of 6,925,000 of Mr. Drizins options will not vest or become exercisable until
the 20th day after an Information Statement has been sent to stockholders.

|(3) | Includes options to acquire an aggregate of 31,575,000 shares of our common stock granted on February 13, 2002 and December 1, 2003. As subsequently indicated, an aggregate of
12,075,000 of these options will not vest or become exercisable until the 20th day after an Information Statement has been sent to stockholders. Does not include an aggregate of 30,861,612 shares of our common stock which may be attributable to Ms.
Grace by virtue of her 30% equity ownership of IVI, the parent of IVI Smart.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes options to acquire an aggregate of 20,000,000 shares of our common stock granted on February 13, 2002 and December 1, 2003. As subsequently indicated, an aggregate of
9,500,000 of these options will not vest or become exercisable until the 20th day after an Information Statement has been sent to stockholders. Does not include an aggregate of 11,573,105 shares of our common stock which may be attributable to Mr.
Saito by virtue of his 10% ownership of IVI, the parent of IVI Smart.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Security Ownership of Management



The
following information is furnished as of December 31, 2004, as to the number of shares of our Common Stock, $.001 par value per share owned beneficially by each of our executive officers and directors and by all of our executive officers and
directors as a group:



|                                                                                |  |                                         |     |  |                    |          
|------------------------------------------------------------------------------- |  | --------------------------------------- | --- |  | ------------------ | ---------
|Name and Address of Beneficial
Owner                                            |  | Amount andNature of BeneficialOwnership |     |  | Percentage ofClass |          
|Mary A. Grace 117 East 57th Street, Apt 24G New York, NY 10022                  |  | 2,575,000                               | (1) |  | 1.5                | (2)      
|                                                                                |  |                                        
|Tamio Saito 1810 Old Oakland Road, #F San Jose, California 95131                |  | 2,500,000                               | (3) |  | 1.5                | (3)      
|                                                                                |  |                                        
|David C. Williams 8 Brook Lane Courtland Manor, NY 10567                        |  | 300,000                                 |     |  |                   |          
|                                                                                |  |                                        
|Terry N. Christensen 10250 Constellation Blvd. 19th Floor Los Angeles, CA 90076 |  |                                        |     |  |                   |          
|                                                                                |  |                                        
|F. Bo Zarnegin 9882 S. Santa Monica Blvd. Beverly Hills, CA 90211               |  | 800,000                                 | (4) |  |                   |          
|                                                                                |  |                                        
|All Officers and Directors as a Group of five persons                           |  | 4,975,000                               |     |  | 3                  | (2)(3)(4)

---

|(1) | Does not include: (i) an aggregate of 1,100,000 shares owned of record by James Michael Phelan; or (ii) an aggregate of 1,300,000 shares owned of record by John Daniel Phelan, each
adult sons of Mary Grace, neither of whom reside with her; or
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



57



---

(iii) an aggregate of 200,000 shares owned of record by David N. Phelan, Ms. Graces former spouse
from whom she has been divorced since 1975. Ms. Grace disclaims beneficial ownership of the shares owned by her former husband and her adult children. Does not include an aggregate of 30,861,612 shares of our common stock which may be attributable
to Ms. Grace by virtue of her 24% equity ownership of IVI, the parent of IVI Smart.

|(2) | Does not include options to acquire an aggregate of 31,575,000 shares of our common stock granted on February 13, 2002 and December 1, 2003. As subsequently indicated, an aggregate
of 9,500,000 of these options will not vest or become exercisable until the 20th day after an Information Statement has been sent to stockholders.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Does not include options to acquire an aggregate of 20,000,000 shares of our common stock granted on February 13, 2002 and December 1, 2003. As subsequently indicated, an aggregate
of 9,500,000 of these options will not vest or become exercisable until the 20th day after an Information Statement has been sent to stockholders. Does not include an aggregate of 11,573,105 shares of our common stock which may be attributable to
Mr. Saito by virtue of his 0% equity ownership IVI, the parent of IVI Smart.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Comprised of shares owned of record by the F. Bo Zarnegin Family Trust, of which Mr. Zarnegin serves as the Trustee. Mr. Zarnegin disclaims beneficial ownership of the shares owned
by the F. Bo Zarnegin Family Trust. A person is deemed to be the beneficial owner of securities that can be acquired by such a person within 60 days from Record Date, upon exercise of options, warrants or convertible securities. Each beneficial
owners percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such a person (but not those held by any other person) and are exercisable within 60 days from that date have been
exercised. Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all shares of our voting securities beneficially owned by them.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Wayne Drizin, the co-inventor of our Super Smart Card technology, is a consultant and not a member of our management team. Notwithstanding
the foregoing, the following is information concerning Mr. Drizins equity ownership in our Company:



|                                                                |  |                                         |     |  |                     |    
|--------------------------------------------------------------- |  | --------------------------------------- | --- |  | ------------------- | ---
|Name and Address of Beneficial
Owner                            |  | Amount andNature of BeneficialOwnership |     |  | Percentage of Class |    
|Wayne Drizin 7225 Bermuda Road, Suite C Las Vegas, Nevada 89119 |  | 150,000                                 | (1) |  |                    | (1)

---

|(1) | Does not include options to acquire an aggregate of 31,425,000 shares of our common stock granted on February 13, 2002 and December 1, 2003. As subsequently indicated, an aggregate
of 6,925,000 of these options will not vest or become exercisable until the 20th day after an Information Statement has been sent to stockholders. Does not include an aggregate of 23,146,209 shares of our common stock which may be attributable to
Mr. Drizin by virtue of his 18% equity ownership of IVI, the parent of IVI Smart.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



58



---

Changes in Control



There have been no changes in control of the Company during the fiscal year years ended December 31, 2004.



Securities Authorized for Issuance Under Equity Compensation Plans



The following table sets forth information as of December 31, 2004, with
respect to compensation plans (including individual compensation arrangements) under which our common stock is authorized for issuance, aggregated as follows: (i) all compensation plans previously approved by security holders; and (ii) all
compensation plans not previously approved by security holders.



Equity Compensation Plan Information



|                                                       |  |                                                                                                |  |                                                                               |     |                                                                                                                                           |           
|------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------- | --- | ----------------------------------------------------------------------------------------------------------------------------------------- | ----------
|                                                       |  | NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS,WARRANTS, AND
RIGHTS(b) |  | WEIGHTEDAVERAGE EXERCISE PRICE OF OUTSTANDINGOPTIONS, WARRANTS, AND RIGHTS(b) |     | NUMBER OFSECURITIES REMAINING AVAILABLEFOR FUTUREISSUANCES UNDER EQUITYCOMPENSATION PLANS (EXCLUDING SECURITIESREFLECTED IN COLUMN (a)(c)
|Equity compensation plans approved by security holders |  | 85,000,000                                                                                     |  | $                                                                             | .62 |                                                                                                                                           | 45,000,000



ITEM 12. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS



Approximately 77% of our common
shares are owned by IVI Smart, which is the sole owner of all of the Super Smart Card technology licensed to us in November 2000 for a 20 year term for commercialization throughout Asia and the United States. Mary A. Grace, our President, Chief Executive Officer and Chief Financial Officer, is
a director, executive officer and principal stockholder of IVI Smart. Tamio Saito, our Chief Technology Officer, is also an executive officer and principal stockholder of IVI Smart.



The biometric fingerprint sensor incorporated in the Super Smart Card was developed by BioSensor LLC, a Hawaiian limited liability company
(BioSensor), pursuant to a Confidential Technology Assignment and License Agreement dated as of May 1, 2003, with IVI Smart (the License Agreement). Pursuant to the License Agreement, IVI Smart granted to BioSensor the
exclusive right to utilize certain of IVI Smarts patent pending biometric fingerprint sensor technology to develop into a commercial sensor; and BioSensor granted to IVI Smart the exclusive rights to any sensor developed, produced and
manufactured by BioSensor. In consideration for the licenses, IVI Smart agrees to pay a royalty to BioSensor equal to $.35 for each Super Smart Card sold or distributed by IVI Smart; and BioSensor issued 50,000,000 Common Units to IVI Smart. No other Common Units were issued by Biosensor.
Accordingly, Biosensor is a wholly owned subsidiary of IVI Smart and an affiliate of our company.



59



---

Wayne Drizin, the co-inventor of our Super Smart Card technology and of our BVS2 platform and associated applications, has been serving as a consultant to us since our
inception. In lieu of salary and other remuneration, we have agreed to issue options to Mr. Drizin to purchase an aggregate of 31,425,000 shares of our common stock. On February 13, 2002, 31,425,000 options were granted at $.41 per share; and
6,925,000 were granted on December 1, 2003 at $1.00 per share. None of the options granted in 2003 will vest or become exercisable until the 20th day after we file an Information or Proxy Statement with the SEC, comply with any and all comments
raised by the SEC, and mail the same to our stockholders. Accordingly, there can be no assurance that any of the 2003 options will ever become exercisable.



Pursuant to a Research and Development Services Agreement effective January 1, 2001, and dated May 29, 2003 (the BBT Agreement), the Company
engaged Big Bang Technologies, Inc., a California corporation controlled by and under common control of Tamio Saito, a co-inventor of the Super Smart Card technology and the BVS2 platform (BBT), as our research and development co-coordinator, administrator and personnel provider. BBT was also engaged to provide us
with state of the art software development, testing, laboratory and other services related to our smart card technology, and the services of Tamio Saito as our Chief Technology Officer.



The BBT Agreement, which provides for mutual confidentiality and non-compete protection, is for a term of one year, and is
thereafter automatically renewed for successive one year terms unless sooner terminated in accordance with its provisions. In consideration for BBTs services, we agreed to promptly pay monthly invoices submitted by BBT. During the fiscal year
ended December 31, 2004, we paid BBT an aggregate of $310,000 and $730,750, respectively, under the BBT Agreement.



Pursuant to an Advisory and Administrative Services Agreement effective January 1, 2001, and dated May 29, 2003 (the ABG Agreement), we engaged
Associated Business Group, Inc., a Nevada corporation controlled by the father of Wayne Drizin, a co-inventor of our Super Smart Card technology and the BVS2 platform (ABG), as the principal administrative services provider for us. Pursuant to the ABG Agreement, we engaged ABG to administer the
receipt of investors funds, to pay expenses and to perform other necessary and related administrative services. ABG also agreed to utilize its best efforts to and has covered temporary shortfalls in our cash receipts.



The ABG Agreement, which provides for mutual confidentiality and non-compete
protection, is for a term of one year, and is thereafter automatically renewed for successive one year terms unless sooner terminated in accordance with its provisions. In consideration for ABGs services, we agreed to pay ABG a fee of $10,000
per month subject to ABGs right to convert the same into restricted shares of our common stock at a conversion price equal to 75% of the mean between the closing bid and asked prices for our common stock on the day before the date ABG elects
to convert.



60



---

On November 15, 2003, we entered into a written Compensation Settlement Agreement with Mary A. Grace, our
President, Chief Executive Officer and Chief Financial Officer. Pursuant to the agreement, we agreed to pay Ms. Grace a salary of $250,000 per year commencing on January 1, 2004. In consideration for Ms. Graces releasing us from our obligation
to accrue her former salary of $250,000 per year or $750,000 net of $300,000 in expenses that we paid on Ms. Graces behalf for the three years ending December 31, 2004, we agreed to pay to Ms. Grace a preferred distribution of 50% of future
profits limited to $600,000. In addition, and in consideration for our return to Ms. Grace of certain of her marketable securities, Ms. Grace released us from any prior obligations under a contemplated agreement to purchase such securities.



We sublease approximately 7,000 square feet of research and development
industrial/warehouse space at 1810 Old Oakland Road, #F, San Jose, California 95131 form BBT. We pay $3,000 per month and have the use of a conference room, office equipment, paved parking spaces, telephone and computer equipment. We sublease this
space on a month to month basis without the benefit of a written sublease. We believe that our rental expense is equal or better than we could have negotiated for at arms length with a non-affiliated landlord for similarly situated space. Our space
is adequate for our current needs and being utilized to approximately 80% of its capacity.



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K



Exhibits:



|       |  |                                                                                                                                                                                                       
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|3(i)*  |  | Articles of Incorporation of Boppers Holdings, Inc., filed July 15, 1997, as amended August 11, 2000, as further amended December 22, 2000.                                                           
|       | 
|3(ii)* |  | Bylaws of e-Smart Technologies, Inc.                                                                                                                                                                  
|       | 
|10(a)* |  | Exclusive Use and Distribution Agreement, dated as of October 26, 2001, by and between IVI Smart Technologies, Inc. & e-Smart Technologies, Inc.                                                      
|       | 
|10(b)* |  | Exclusive Use and Distribution Agreement, dated as of September 1, 2000, between Intermarket Ventures, Inc. and e-Smart Systems, Inc.                                                                 
|       | 
|10(c)* |  | Notice and Consent, dated as of January 1, 2001, to that certain Exclusive Use and Distribution Agreement, dated as of September 1, 2000, between Intermarket Ventures, Inc. and e-Smart
Systems, Inc.
|       | 
|10(d)* |  | Exclusive Use and Distribution Agreement, dated as of September 6, 2001, by and between IVI Smart Technologies, Inc. and e-Smart Technologies, Inc.                                                   
|       | 
|10(e)* |  | Exclusive Use and Distribution Agreement, dated August 27, 2000, by and between e-Smart Systems, Inc. and Newco (i.e., e-Smart City Card Co. Ltd., a Chinese JV company).                             
|       | 
|10(f)* |  | Advisory and Occupancy Services Agreement, dated May 29, 2003, but retroactively effective to January 1, 2001, by and between Associated Business Group, Inc. and e-Smart Technologies,
Inc.          



61



---

|        |  |                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|10(g)*  |  | Compensation Settlement and Employment Agreement, dated as of November 15, 2003, by and between e-Smart Technologies, Inc. and Mary A. Grace.                                                                    
|        | 
|10(h)*  |  | Research and Development Services Agreement, dated as of January 1, 2001, and reduced to writing on May 29, 2003, by and between Big Bang Technologies, Inc and e-Smart Technologies,
Inc.                       
|        | 
|10(i)*  |  | E-Smart Technologies, Inc. 2003 Long Term Incentive Plan adopted December 1, 2003.                                                                                                                               
|        | 
|10(j)*  |  | Master Teaming Agreement, dated as of February 27, 2004, by and between Samsung SDS Co., Ltd. and e-Smart Korea, Inc.                                                                                            
|        | 
|10(k)*  |  | Cooperation Agreement, dated February 27, 2004, by and among e-Smart Technologies, Inc., Guo Xin Well-tel Technology Co., Ltd., and EarthNetMedia Trading Corporation.                                           
|        | 
|10(l)*  |  | Mutual Cooperation Agreement, dated February 25, 2004, by and between Daewoo International Corporation and e-Smart Korea, Inc.                                                                                   
|        | 
|10(m)** |  | Agreement with the Ministry of Transportation and Communication and the Republic of Kyrgyzstans Supervisory Institute for e-Government dated April 4, 2004 (the Kyrgyzstan
Agreement).                         
|        | 
|10(n)** |  | Agreement with the Ministry of Economy of the Republic of Uzbekistan, Uzbekistan Uzbekprom Association and the Bank Association of the Republic of Uzbekistan dated August 13, 2004 (the
Uzbekistan Agreement).
|        | 
|10(o)** |  | Agreement with P.T. Primrose Gantari Indonesia dated November 8, 2004 (the Indonesia Agreement).                                                                                                               
|        | 
|10(p)** |  | Agreement with the Samsung Student Card Project Agreement with Samsung SDS Co., LTD., and Kobile Inc. dated December 3, 2004 (the Student Card Agreement),                                                     
|        | 
|10(q)** |  | Agreement with Mybi Co, Ltd. dated December 3, 2004 (the Mybi Agreement)                                                                                                                                        
|        | 
|23.1**  |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                        
|        | 
|31.1**  |  | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                        
|        | 
|32.1**  |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                         

---

|* | Previously filed
|- | ----------------

|** | Filed herewith
|-- | --------------



Reports on Form 8-K



During the last quarter of the fiscal year ended December 31, 2004, we did not file any reports on Form 8-K.



ITEM 14. PRINCIPLE ACCOUNTANT FEES AND SERVICES



Audit Fees



On November 30, 2003, we engaged Rosenberg Rich Baker Berman & Company (RRBB) as our principal accountants to audit our annual financial
statements for the fiscal years ended December 31, 2002 and 2003. Subsequently, we paid RRBB an aggregate of $39,425 in fees for professional services rendered in connection with these audits. On February 11, 2005, we engaged RRBB as our principal
accountants to audit our annual financial statements for the fiscal year ended December 31, 2004. We expect to incur approximately $15,000 in fees for professional services rendered in connection with this audit.



Audit-Related Fees



There were no fees billed to us during the two fiscal year ended December 31, 2004, for professional services of RRBB for
assurance and related services reasonably related to the performance of audit or review of our financial statements and not reported in the previous paragraph.



62



---

Tax Fees



There were no fees billed to us during the two fiscal year ended December 31, 2004, for professional services of RRBB for tax compliance and related tax
services.



All Other Fees



There were no fees billed to us during the two fiscal year ended December
31, 2004, for services rendered by RRBB other than the services described in the previous three paragraphs.



The engagement of RRBB to render audit or non-audit services requires the prior approval of our Board of Directors since we do not yet have an audit
committee of our Board of Directors.



SIGNATURES



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



Dated: May 5, 2005



e-Smart Technologies, Inc.



|    |  |                             
|--- |  | ----------------------------
|By: |  | /s/ Mary A. Grace           
|    |  | Mary A. Grace, President,   
|    |  | Chief Executive Officer, and
|    |  | Chief Financial Officer     



Pursuant to the
requirements of the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                   |  |                            
|------------------ |  | ---------------------------
|By:                |  | /s/ Mary A. Grace          
|                   |  | Mary A. Grace, Director    
|                  
|Dated: May 5, 2005
|                   | 
|By:                |  | /s/ Tamio Saito            
|                   |  | Tamio Saito, Director      
|                  
|Dated: May 5, 2005
|                   | 
|By:                |  | /s/ David C. Williams      
|                   |  | David C. Williams, Director
|                  
|Dated: May 5, 2005



63



---

Exhibit Index



|               |  |                                                                                                                                                                                                                  
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                      
|10(m)          |  | Agreement with the Ministry of Transportation and Communication and the Republic of Kyrgyzstans Supervisory Institute for e-Government dated April 4, 2004 (the Kyrgyzstan
Agreement).                         
|               | 
|10(n)          |  | Agreement with the Ministry of Economy of the Republic of Uzbekistan, Uzbekistan Uzbekprom Association and the Bank Association of the Republic of Uzbekistan dated August 13, 2004 (the
Uzbekistan Agreement).
|               | 
|10(o)          |  | Agreement with P.T. Primrose Gantari Indonesia dated November 8, 2004 (the Indonesia Agreement).                                                                                                               
|               | 
|10(p)          |  | Agreement with the Samsung Student Card Project Agreement with Samsung SDS Co., LTD., and Kobile Inc. dated December 3, 2004 (the Student Card Agreement).                                                     
|               | 
|10(q)          |  | Agreement with Mybi Co, Ltd. dated December 3, 2004 (the Mybi Agreement).                                                                                                                                       
|               | 
|23.1           |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                        
|               | 
|31.1           |  | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                        
|               | 
|32.1           |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.