**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549




**FORM
      10-QSB**




**x** **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
      SECURITIES**


**EXCHANGE
      ACT OF 1934**




For
      the
      quarterly period ended: March 31, 2007




or




**o
      TRANSITION REPORT
      PURSUANT TO SECTION 13 0R 15(D) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**




For
      the
      transition period from _____________ to ____________




*Commission
      File Number: 000-51260*




**INNOVATIVE
      CARD TECHNOLOGIES, INC.**


(Exact
      name of small business issuer as specified in its charter)




Delaware
            90-0249676(State
                or Other jurisdiction of
              incorporation
                or organization)
            (IRS
                Employer
              Identification
                No.)





10880
                Wilshire Boulevard, Suite 950
            90024Los
                Angeles, California
              (Address
                of principal executive offices)
            (Zip
                Code)





(310)
      312-0700


(Issuer's
      telephone number including area code)




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




Yes x No o




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




Yes o No x




State
      the
      number of shares outstanding of each of the issuer's classes of common stock,
      as
      of the latest practicable date.




Common
      Stock Outstanding as of May 8, 2007: 28,420,616 shares




Transitional
      Small Business Disclosure Format: Yes o No x





**INNOVATIVE
      CARD TECHNOLOGIES, INC.**





INDEX
      TO
      FORM 10QSB





PAGEPART
                I
            
            FINANCIAL
                INFORMATION
            
            3Item
                1.
            
            Financial
                Statements
            
            3Consolidated
                Balance Sheets at March 31, 2007 (unaudited)and
                December 31, 2006
            
            3Consolidated
                Statements of Operations for the threemonths
                ended March 31, 2007 (unaudited) and March 31, 2006 (unaudited)
            
            4Consolidated
                Statements of Stockholders' Equity for the three months ended March
                31,
                2007 (unaudited)
            
            5Consolidated
                Statements of Cash Flows for the three monthsended
                March 31, 2007 (unaudited) and March 31, 2006 (unaudited)
            
            6Notes
                to Unaudited Consolidated Financial Statements
            
            7Item
                2.
            
            Management's
                Discussion and Analysis of FinancialCondition
                and Results of Operations
            
            19Item
                3.
            
            Controls
                and Procedures
            
            22PART
                II
            
            OTHER
                INFORMATION
            
            23Item
                1.
            
            Legal
                Proceedings
            
            23Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            23Item
                3.
            
            Defaults
                Upon Senior Securities
            
            23Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            23Item
                5.
            
            Other
                Information
            
            23Item
                6.
            
            Exhibits
            
            23SIGNATURES
            
            23





2





**PART
      I - FINANCIAL INFORMATION**


**ITEM
      1. FINANCIAL STATEMENTS**




**INNOVATIVE
      CARD TECHNOLOGIES, INC.**


**CONSOLIDATED
      BALANCE SHEETS**




March
                31,
              2007
            
            December
                31,
              2006(unaudited)ASSETSCURRENT
                ASSETSCash
                and cash equivalents
            
            $
            6,887,875
            
            $
            8,270,096Accounts
                receivable
            
            
            24,381
            
            
            14,836Prepaids
                and other current assets
            
            
            47,657
            
            
            42,658Deposits
                on raw materials held for production
            
            
            1,151,212
            
            
            1,199,453Work
                in progress inventory
            
            
            1,292,778
            
            
            1,098,553Total
                current assets
            
            
            9,403,903
            
            
            10,625,596PROPERTY
                AND EQUIPMENT, NET
            
            
            336,224
            
            
            360,920DEPOSITS
            
            
            174,125
            
            
            71,244INTANGIBLE
                ASSETS, NET
            
            
            3,490,375
            
            
            3,666,343Total
                assets
            
            $
            13,404,627
            
            $
            14,724,103LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIESAccounts
                payable and accrued expenses
            
            $
            821,034
            
            $
            460,162Accounts
                payable - related parties
            
            
            1,184,112
            
            
            1,322,159Short
                term portion of capital lease
            
            
            5,906
            
            
            8,355Deferred
                revenue
            
            
            692,835
            
            
            340,010Total
                current liabilities
            
            
            2,703,887
            
            
            2,130,686Total
                liabilities
            
            
            2,703,887
            
            
            2,130,686STOCKHOLDERS'
                EQUITYPreferred
                stock $0.001 par value, 5,000,000 sharesAuthorized,
                0 (unaudited) and 0 shares issued and outstanding
            
            
            —
            
            
            —Common
                stock $0.001 par value, 50,000,000 sharesAuthorized,
                28,420,616 (unaudited) and28,372,308
                shares issued and outstanding
            
            
            28,420
            
            
            28,372Additional
                paid-in capital
            
            
            26,612,688
            
            
            26,298,606Accumulated
                deficit
            
            
            (15,940,368
            )
            
            (13,733,561
            )Total
                stockholders' equity
            
            
            10,700,740
            
            
            12,593,417Total
                liabilities and stockholders' equity
            
            $
            13,404,627
            
            $
            14,724,103




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


3





**INNOVATIVE
      CARD TECHNOLOGIES, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





Three
                months
              ended
              March
                31,
              2007
            
            Three
                months
              ended
              March
                31,
              2006(unaudited)
            
            (unaudited)Revenues
            
            $
            1,420
            
            $
            250Cost
                of Goods Sold
            
            
            —
            
            
            —Gross
                Margin
            
            
            1,420
            
            
            250Operating
                expensesAdministrative
            
            
            1,605,717
            
            
            424,926Consulting
                Fees
            
            
            21,250
            
            
            21,250Professional
                Fees
            
            
            363,523
            
            
            182,379Research
                and development
            
            
            296,329
            
            
            163,678Total
                operating expenses
            
            
            2,286,819
            
            
            792,233Loss
                from operations
            
            
            (2,285,399
            )
            
            (791,983
            )Other
                income (expense)Interest
                income
            
            
            79,540
            
            
            24,011Interest
                expense
            
            
            (148
            )
            
            (512
            )Total
                other income (expense)
            
            
            79,392
            
            
            (768,484
            )Loss
                before provision for income taxes
            
            
            (2,206,007
            )
            
            (768,484
            )Provision
                for income taxes
            
            
            (800
            )
            
            —Net
                loss
            
            $
            (2,206,807
            )
            $
            (768,484
            )Basic
                and diluted loss per share
            
            $
            (0.08
            )
            $
            (0.04
            )Weighted-average
                common shares outstanding
            
            
            28,410,689
            
            
            17,981,788




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


4





**INNOVATIVE
      CARD TECHNOLOGIES, INC.**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2007**


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITY**


(unaudited)




Series
                A Preferred
              Stock
            
            Common
                Stock
            
            Additional
              Paid-in
            
            AccumulatedShares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Deficit
            
            TotalBalance,
                December 31, 2006
            
            
            —
            
            $
            —
            
            
            28,372,308
            
            $
            28,372
            
            $
            26,298,606
            
            $
            (13,733,561
            )
            $
            12,593,417Exercise
                of warrants (unaudited)
            
            
            —
            
            
            —
            
            
            19,500
            
            
            19
            
            
            24,356
            
            
            —
            
            
            24,375Stock
                compensation expense (unaudited)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            289,755
            
            
            
            
            
            289,755Cashless
                exercise of employee stock options (unaudited)
            
            
            
            
            
            
            
            
            28,808
            
            
            29
            
            
            (29
            )
            
            
            
            
            —Net
                loss (unaudited)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,206,807
            )
            
            (2,206,807
            )Balance,
                March 31, 2007 (unaudited)
            
            
            —
            
            $
            —
            
            
            28,420,616
            
            $
            28,420
            
            $
            26,612,688
            
            $
            (15,940,368
            )
            $
            10,700,740




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


5





**INNOVATIVE
      CARD TECHNOLOGIES, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




For
                the Three Months Ended
              March
                31,2007
            
            2006(unaudited)
            
            (unaudited)Cash
                flows from operating activitiesNet
                loss
            
            $
            (2,206,807
            )
            $
            (768,484
            )Adjustments
                to reconcile net loss to net cashused
                in operating activitiesDepreciation
                and amortization
            
            
            220,643
            
            
            24,360Stock
                compensation expense
            
            
            289,755
            
            
            73,750(Increase)
                decrease in Accounts receivable
            
            
            (9,545
            )
            
            18,297(Increase)
                decrease in Prepaid expenses and other current assets
            
            
            (4,999
            )
            
            (184
            )(Increase)
                decrease in Deposits on raw materials held for production
            
            
            48,241
            
            
            (23,400
            )(Increase)
                decrease in Raw materials held for production
            
            
            (194,225
            )
            
            (56,420
            )(Increase)
                decrease in Deposits, Rent and other
            
            
            (102,881
            )
            
            —Increase
                (decrease) in Accounts payable and accrued expenses
            
            
            360,872
            
            
            13,215Increase
                (decrease) in Accounts payable - related parties
            
            
            (138,047
            )
            
            29,471Increase
                (decrease) in Deferred revenue
            
            
            352,825
            
            
            (251
            )Net
                cash used in operating activities
            
            
            (1,384,168
            )
            
            (689,646
            )Cash
                flows from investing activitiesPurchase
                of Property and Equipment
            
            
            (19,979
            )
            
            (31,544
            )Net
                cash used in investing activities
            
            
            (19,979
            )
            
            (31,544
            )Cash
                flows from financing activitiesProceeds
                from exercise of warrants
            
            
            24,375
            
            
            50,000Payments
                on capital lease
            
            
            (2,449
            )
            
            (2.264
            )Net
                cash provided by financing activities
            
            
            21,926
            
            
            47,736Net
                decrease in cash and cash equivalents
            
            
            (1,382,221
            )
            
            (673,454
            )Cash
                and cash equivalents, beginning of year
            
            
            8,270,096
            
            
            3,277,532Cash
                and cash equivalents, end of period
            
            $
            6,887,875
            
            $
            2,604,078


Supplemental
                  disclosures of cash flow informationInterest
                  paid
              
              $
              148
              
              $
              512Income
                  tax paid
              
              $
              800
              
              $
              800


Supplemental
        disclosures of non-cash investing and financing activities:
 
 ·
              On
                  January 12, 2007, option holders cashlessly exercised 35,002 options
                  resulting in the issuance of 28,808 shares of common
                  stock.
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  6




**INNOVATIVE
      CARD TECHNOLOGIES, INC.**




**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**




**NOTE
      1 - ORGANIZATION AND LINE OF BUSINESS**




**GENERAL**




The
      accompanying consolidated financial statements of Innovative Card Technologies,
      Inc. ("ICTI") include the amounts of its wholly-owned subsidiary, PSA Co. and
      LensCard US, LLC ("LensCard US"), formerly Universal Magnifier, LLC, organized
      under the laws of the State of Delaware on January 7, 1999 and LensCard
      International Limited ("LensCard International"), formerly Universal Magnifier
      International Limited ("UMIL"), incorporated as an International Business
      Company under the laws of the British Virgin Islands on August 21, 1995. On
      January 7, 1999, LensCard US merged with Universal Magnifier LLC ("UMUS"),
      a
      California limited liability company founded in January, 1998, for the purpose
      of changing the place of organization of UMUS.





LensCard
      Corporation ("LCC") was incorporated in the State of Delaware on November 22,
      2002 and had no financial activity from that date until January 1, 2004. PSACo.,
      Inc. ("PSAC") was incorporated in the State of Delaware on August 27,
      2003.




**COMPANY
      OVERVIEW**




The
      Company researches, develops and markets technology-based card enhancements
      primarily for the enterprise and on-line banking markets that are designed
      to
      enable enterprise and financial institutions to increase their acquisition
      rates
      of customers and improve security. It commenced sales of its first product,
      the
      LensCard, or a card embedded with a small magnifying lens, in 1998. Since 2002,
      its core focus has been and continues to be on research and development and
      marketing of its power inlay technology that is designed to bring power-based
      applications, including light, sound and display screens, to cards. Power inlay
      technology consists of a battery, circuit, and switch that can power
      applications on credit cards and other information-bearing plastic cards. It
      has
      devoted a significant majority of its efforts to completing the development
      of
      its power inlay technology, initiating marketing and raising the financing
      required to do so and funding its expenses. It has generated limited revenues
      that derive from licensing agreements of its LensCard product, most of which
      have terminated.




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




**BASIS
      OF PRESENTATION**




The
      consolidated interim financial statements of Innovative Card Technologies,
      Inc.,
      its wholly owned subsidiary, PSA Co. (the "Company"), Lens Card US, LLC,
      and Lens Card International Limited have been prepared in conformity
      with accounting principles generally accepted in the United States and are
      consistent in all material respects with those applied in the Company's annual
      report on Form 10-KSB for the year ended December 31, 2006. The preparation
      of
      consolidated financial statements in conformity with U.S. generally accepted
      accounting principles requires management to make estimates and judgments that
      affect the amounts reported in the consolidated financial statements and
      accompanying notes. The actual results experienced by the Company may differ
      from management's estimates.




7




The
      interim financial information is unaudited, but reflects all normal recurring
      adjustments that are, in the opinion of management, necessary to fairly present
      the information set forth therein. The interim financial statements should
      be
      read in conjunction with the audited financial statements and related notes
      included in the Company's 2006 audited financial statements contained in Form
      10-KSB filed with the Securities and Exchange Commission on April 2, 2007.
      Interim results are not necessarily indicative of the results for a full year.





**PRINCIPLES
      OF CONSOLIDATION**





The
      consolidated financial statements include the accounts of Innovative Card
      Technologies, its wholly owned subsidiary, PSA Co., Lens Card US, LLC and Lens
      Card International, (the "Company"). All significant inter-company accounts
      and
      transactions are eliminated in consolidation.




**REVENUE
      RECOGNITION**





The
      Company recognize revenues in accordance with SEC Staff Accounting Bulletin
      No.
      104, or SAB 104. Revenues are recognized when persuasive evidence of an
      arrangement exists, delivery has occurred or services have been rendered, the
      price is fixed and determinable and collectibility is reasonably assured. The
      Company recognize certain long-term contracts using the complete-contract method
      in accordance to SOP 81-1, “Accounting for Performance of Construction-Type and
      Certain Production-Type of Contracts.”





**COMPREHENSIVE
      INCOME**





The
      Company utilizes Statement of Financial Accounting Standards ("SFAS") No. 130,
      "Reporting Comprehensive Income." This statement establishes standards for
      reporting comprehensive income and its components in a financial statement.
      Comprehensive income as defined includes all changes in equity (net assets)
      during a period from non-owner sources. Examples of items to be included in
      comprehensive income, which are excluded from net income, include foreign
      currency translation adjustments, minimum pension liability adjustments, and
      unrealized gains and losses on available-for-sale securities. Comprehensive
      income is not presented in the Company's financial statements since the Company
      did not have any changes in equity from non-owner sources.





**INVENTORY**





The
      Company values its inventory at the lower of cost (first-in, first-out) or
      market. Under certain market conditions, the Company uses estimates and
      judgments regarding the valuation of inventory to properly value inventory.
      Inventory adjustments are made for the difference between the cost of the
      inventory and the estimated market value and charged to operation in the period
      in which the facts that give rise to the adjustments become known.





**INTANGIBLE
      ASSETS AND LONG-LIVED ASSETS**





The
      cost
      incurred to acquire intangible assets, which are active and relate to products
      with a definitive life cycle, are amortized over the estimated useful life
      of
      three to five years. The Company assesses the carrying value of long-lived
      assets in accordance with SFAS No. 144, “Accounting for the Impairment or
      Disposal of Long-Lived Assets.” The Company assesses the impairment of
      identifiable intangibles and long-lived assets whenever events or changes in
      circumstances indicate that the carrying value may not be recoverable. Factors
      considered important that could trigger an impairment review include, but are
      not limited to, the following: a significant underperformance to expected
      historical or projected future operating results, a significant change in the
      manner of the use of the acquired asset or the strategy for the overall
      business, or a significant negative industry or economic trend. Based on
      anticipated future income and cash flows and other factors relevant in the
      opinion of the Company’s management, there has been no
      impairment.





**CASH
      AND CASH EQUIVALENTS**




For
      the
      purpose of the statements of cash flows, the Company considers all highly liquid
      investments purchased with original maturities of three months or less to be
      cash equivalents.





**MAJOR
      SUPPLIERS**





The
      Company obtains the battery, a key component for the Company’s power inlay
      technology, from a single source, Solicore, Inc., on a purchase order basis.
      The
      Company believes that alternative sources for this component in the event of
      a
      disruption or discontinuation in supply would not be available on a timely
      basis, which could disrupt Company operations, delay production for up to nine
      months and impair the Company’s ability to manufacture and sell
      products.




8





The
      Company obtains the display, a key component for the Company’s ICT DisplayCard,
      from a single source, SmartDisplayer, pursuant to the Company’s agreement with
      SmartDisplayer. The Company believes that alternative sources for this component
      in the event of a disruption or discontinuation in supply would not be available
      on a timely basis, which could disrupt Company operations relating to the ICT
      DisplayCard, delay production of the ICT DisplayCard for up to twelve months
      and
      impair the Company’s ability to manufacture and sell the ICT
      DisplayCard.





The
      Company assembles its ICT DisplayCard using a single source, NagraID pursuant
      to
      a written agreement. The Company believes that alternative sources for this
      component in the event of a disruption or discontinuation in supply would not
      be
      available on a timely basis, which could disrupt Company operations relating
      to
      the ICT DisplayCard, delay production of the ICT DisplayCard for up to twelve
      months and impair the Company’s ability to manufacture and sell the ICT
      DisplayCard.




**PROPERTY
      AND EQUIPMENT**




Property
      and equipment are stated at cost. The Company provides for depreciation and
      amortization using the double-declining method over estimated useful lives
      of
      five to seven years. Expenditures for maintenance and repairs are charged to
      operations as incurred while renewals and betterments are capitalized. Gains
      or
      losses on the sale of property and equipment are reflected in the statements
      of
      operations.




**FAIR
      VALUE OF FINANCIAL INSTRUMENTS**





The
      Company's financial instruments include cash and cash equivalents, prepaid
      expenses and other current assets, due from related parties, accounts payable
      and accrued expenses, advances payable, and deferred revenue. The book value
      of
      all other financial instruments are representative of their fair
      values.





**RESEARCH
      AND DEVELOPMENT**




Research
      and development costs are charged to operations as incurred.




**LOSS
      PER SHARE**




The
      Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per share is
      computed by dividing loss available to common shareholders by the
      weighted-average number of common shares outstanding. Diluted loss per share
      is
      computed similar to basic loss per share except that the denominator is
      increased to include the number of additional common shares that would have
      been
      outstanding if the potential common shares had been issued and if the additional
      common shares were dilutive. Common equivalent shares are excluded from the
      computation if their effect is anti-dilutive.




Since
      their effect would have been anti-dilutive, common stock equivalents of
      4,627,098 warrants and 2,315,998 stock options were excluded from the
      calculation of diluted loss per share for the three months ended March 31,
      2007.
      Since their effect would have been anti-dilutive, common stock equivalents
      of
      6,783,135 warrants and 1,585,000 stock options were excluded from the
      calculation of diluted loss per share for the three months ended March 31,
      2006.




**INCOME
      TAXES**




The
      Company accounts for income taxes in accordance to SFAS No. 109, “Accounting for
      Income Taxes”. Also, the Company adopted the provisions of the Financial
      Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes- an Interpretation of FASB Statement No. 109” (“FIN
      48”), effective January 1, 2007. As
      a
      result of the implementation of FIN 48, the Company made a comprehensive review
      of its portfolio of uncertain tax positions in accordance with recognition
      standards established by FIN 48. As a result of this review, the Company
      concluded that at this time there are no uncertain tax positions. As a result
      of
      applying the provisions of FIN 48, there was no cumulative effect on retained
      earnings.





Deferred
      income taxes are provided using the liability method whereby deferred tax assets
      are recognized for deductible temporary differences and operating loss and
      tax
      credit carryforwards and deferred tax liabilities are recognized for taxable
      temporary differences. Temporary differences are the differences between
      the reported amounts of assets and liabilities and their tax bases. 
Deferred tax assets are reduced by a valuation allowance when, in the opinion
      of
      management, it is more likely than not that some portion or all of the deferred
      tax assets will not be realized. Deferred tax assets and liabilities are
      adjusted for the effects of the changes in tax laws and rates of the date of
      enactment.




When
      tax
      returns are filed, it is highly certain that some positions taken would be
      sustained upon examination by the taxing authorities, while others are subject
      to uncertainty about the merits of the position taken or the amount of the
      position that would be ultimately sustained. The benefit of a tax position
      is recognized in the financial statements in the period during which, based
      on
      all available evidence, management believes it is more likely than not that
      the
      position will be sustained upon examination, including the resolution of appeals
      or litigation processes, if any. Tax positions taken are not offset or
      aggregated with other positions. Tax positions that meet the
      more-likely-than-not recognition threshold are measured as the largest amount
      of
      tax benefit that is more than 50 percent likely of being realized upon
      settlement with the applicable taxing authority. The portion of the
      benefits associated with tax positions taken that exceeds the amount measured
      as
      described above is reflected as a liability for unrecognized tax benefits in
      the
      accompanying balance sheet along with any associated interest and penalties
      that
      would be payable to the taxing authorities upon examination. Interest and
      penalties associated with unrecognized tax benefits are classified as additional
      income taxes in the statement of income.




9




**STOCK
      INCENTIVE PLAN**





The
      Company accounts for its stock incentive plan under SFAS No. 123R, "Share-Based
      Payments" using the fair value based method. Under this method, compensation
      cost is measured at the grant date based on the value of the award and is
      recognized over the service period, which is usually the vesting
      period.





**ESTIMATES**




The
      preparation of financial statements 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 revenue and expenses during the reporting
      period. Actual results could differ from those estimates.




**CONCENTRATIONS
      OF CREDIT RISK**





Financial
      instruments which potentially subject the Company to concentrations of credit
      risk consist of cash and cash equivalents. The Company places its cash and
      cash
      equivalents with high credit, quality financial institutions. Such cash and
      cash
      equivalents may be in excess of the Federal Deposit Insurance Corporation
      insurance limit of $100,000. Cash balances are in excess of the insured
      limit.





**RECLASSIFICATION**





Certain
      amounts included in the prior year financial statements have been reclassified
      to conform with the current year presentation. Such reclassification did not
      have any effect on the reported net loss.




**RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS**





In
      May
      2005, the FASB issued Statement of Financial Accounting Standards ("SFAS")
      No.
      154, "Accounting Changes and Error Corrections. SFAS No. 154 replaces Accounting
      Principles Board ("APB") Opinion No. 20, "Accounting Changes" and SFAS No.
      3,
      "Reporting Accounting Changes in Interim Financial Statements", and changes
      the
      requirements for the accounting for and reporting of a change in accounting
      principle. This Statement applies to all voluntary changes in accounting
      principle. It also applies to changes required by an accounting pronouncement
      in
      the unusual instance that the pronouncement does not include specific transition
      provisions. When a pronouncement includes specific transition provision, those
      provisions should be followed.





Opinion
      20 previously required that most voluntary changes in accounting principle
      be
      recognized by including in net income of the period of the change the cumulative
      effect of changing to the new accounting principle. This Statement requires
      retrospective application to prior periods' financial statements of changes
      in
      accounting principle, unless it is impracticable to determine either the
      period-specific effects or the cumulative effect of the change. When it is
      impracticable to determine the period-specific effects of an accounting change
      on one or more individual prior periods presented, this Statement requires
      that
      the new accounting principle be applied to the balances of assets and
      liabilities as of the beginning of the earliest period for which retrospective
      application is practicable and that a corresponding adjustment be made to the
      opening balance of retained earnings (or other appropriate components of equity
      or net assets in the statement of financial position) for that period rather
      than being reported in an income statement. When it is impracticable to
      determine the cumulative effect of applying a change in accounting principle
      to
      all prior periods, this Statement requires that the new accounting principle
      be
      applied as if it were adopted prospectively from the earliest date
      practicable.





The
      correction of an error in previously issued financial statements is not an
      accounting change. However, the reporting of an error correction involves
      adjustments to previously issued financial statements similar to those generally
      applicable to reporting an accounting change retrospectively. Therefore, the
      reporting of a correction of an error by restating previously issued financial
      statements is also addressed by this Statement. The adoption of SFAS 154 did
      not
      have a material impact on the Company's financial position, results of
      operations or cash flows.





10





In
      February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments" ("SFAS 155"), which amends SFAS No. 133, "Accounting
      for
      Derivatives Instruments and Hedging Activities" ("SFAS 133") and SFAS No. 140,
      "Accounting for Transfers and Servicing of Financial Assets and Extinguishment
      of Liabilities" ("SFAS 140"). SFAS 155 amends SFAS 133 to narrow the scope
      exception for interest-only and principal-only strips on debt instruments to
      include only such strips representing rights to receive a specified portion
      of
      the contractual interest or principle cash flows. SFAS 155 also amends SFAS
      140
      to allow qualifying special-purpose entities to hold a passive derivative
      financial instrument pertaining to beneficial interests that itself is a
      derivative instruments. The adoption of SFAS 155 did not have a material impact
      on the Company's financial position, results of operations or cash
      flows.





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets” (“SFAS 156”). SFAS 156 addresses the accounting for recognized servicing
      assets and servicing liabilities related to certain transfers of the servicer’s
      financial assets and for acquisitions or assumptions of obligations to service
      financial assets that do not relate to the financial assets of the servicer
      and
      its related parties. SFAS 156 requires that all recognized servicing assets
      and
      servicing liabilities are initially measured at fair value, and subsequently
      measured at either fair value or by applying an amortization method for each
      class of recognized servicing assets and servicing liabilities. SFAS 156 is
      effective in fiscal years beginning after September 15, 2006. The adoption
      of
      SFAS 156 did not have a material impact on the Company’s financial
      position, results of operations or cash flows.




In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
      No. 157 clarifies the principle that fair value should be based on the
      assumptions market participants would use when pricing an asset or liability
      and
      establishes a fair value hierarchy that prioritizes the information used to
      develop those assumptions. Under the standard, fair value measurements would
      be
      separately disclosed by level within the fair value hierarchy. SFAS No. 157
      is effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years, with
      early adoption permitted. The Company is currently determining the effect,
      if
      any, the adoption of SFAS No. 157 will have on the Company’s financial
      statements.




In
      September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plan - an amendment of FASB
      Statement No. 87, 88, 106 and 132(R). SFAS No. 158 requires an
      employer to recognize the overfunded or underfunded status of a defined benefit
      postretirement plan as an asset or liability in its statement of financial
      position and recognize changes in the funded status in the year in which the
      changes occur. SFAS No. 158 is effective for fiscal years ending after
      December 15, 2006. The adoption of SFAS No. 158 did not have a
      material impact on the Company’s financial position, results of operations or
      cash flows.





In
      September 2006, the SEC issued SAB No. 108, Considering the Effects of
      Prior Year Misstatements when Quantifying Misstatements in Current Year
      Financial Statements (“SAB 108”). SAB 108 requires that registrants quantify
      errors using both a balance sheet and income statement approach and evaluate
      whether either approach results in a misstated amount that, when all relevant
      quantitative and qualitative factors are considered, is material. The adoption
      of SAB 108 did not have a material impact on the Company’s consolidated
      financial statements.





In
      February 2007, the FASB issued Statement of Financial Accounting Standard No.
      159, "The Fair Value Option for Financial Assets and Financial Liabilities"
      ("SFAS 159"). SFAS 159 permits entities to choose to measure many financial
      instruments and certain other items at fair value. Unrealized gains and losses
      on items for which the fair value option has been elected are reported in
      earnings. SFAS 159 is effective for fiscal years beginning after November 15,
      2007. The Company is currently evaluating the impact of implementing SFAS 159
      on
      our consolidated financial statements, however the Company anticipates that
      SFAS
      159 will not have a material impact on the Company’s financial position, results
      of operations or cash flows.




Effective
      January 1, 2007, the Company adopted FSP No. FIN 48-1, “Definition of Settlement
      in FASB Interpretation No. 48,” (FSP FIN 48-1), which was issued on May 2, 2007.
      FSB FIN 48-1 amends FIN 48 to provide guidance on how an entity should determine
      whether a tax position is effectively settled for the purpose of recognizing
      previously unrecognized tax benefits. The term “effectively settled” replaces
      the term “ultimately settled” when used to describe recognition, and the terms
“settlement” or “settled” replace the terms “ultimate settlement” or “ultimately
      settled” when used to describe measurement of a tax position under FIN 48. FSP
      FIN 48-1 clarifies that a tax position can be effectively settled upon the
      completion of an examination by a taxing authority without being legally
      extinguished. For tax positions considered effectively settled, an entity would
      recognize the full amount of tax benefit, even if the tax position is not
      considered more likely than not to be sustained based solely on the basis of
      its
      technical merits and the statute of limitations remains open. The adoption
      of
      FSP FIN 48-1 did not have an impact on the accompanying financial
      statements.




11





**NOTE
      3 - DEPOSITS ON RAW MATERIALS HELD FOR PRODUCTION**




Deposits
      for raw materials held for production at March 31, 2007 and December 31, 2006
      consisted of the following and are stated at the amount deposited:




March
                31,
              2007
            
            December
                31,
              2006(unaudited)Deposits
                on raw materials held for production(display
                & manufacturing component)
            
            $
            1,151,212
            
            $
            1,199,453TOTAL
            
            $
            1,151,212
            
            $
            1,199,453





These
      deposits for raw materials are held by two vendors.




**NOTE
      4 - RAW MATERIALS AND WORK IN PROGRESS INVENTORY HELD FOR
      PRODUCTION**




Work
      in
      progress inventory held for production at March 31, 2007 and December 31, 2006
      consisted of the following and is stated at the lower of cost or
      market:




March
                31,
              2007
            
            December
                31,
              2006(unaudited)Work
                in progress inventory
            
            $
            1,292,778
            
            $
            1,098,553TOTAL
            
            $
            1,292,778
            
            $
            1,098,553




**NOTE
      5 - PROPERTY AND EQUIPMENT**




Property
      and equipment at March 31, 2007 and December 31, 2006 consisted of the
      following:




March
                31,
              2007
            
            December
                31,
              2006(unaudited)Computer
                equipment
            
            $
            68,050
            
            $
            55,672Office
                equipment
            
            
            8,168
            
            
            8,168Furniture
                and fixtures
            
            
            19,878
            
            
            19,878Production
                equipment, capital lease
            
            
            32,598
            
            
            32,598Leasehold
                improvements
            
            
            5,610
            
            
            5,610Production
                equipment
            
            
            481,337
            
            
            473,736615,641
            
            
            595,662Less
                accumulated depreciation and amortization
            
            
            (279,417
            )
            
            (234,742
            )TOTAL
            
            $
            336,224
            
            $
            360,920




Depreciation
      and amortization expense was $44,675 (unaudited) and $24,360 (unaudited), for
      the three months ended March 31, 2007 and 2006, respectively.




12




**NOTE
      6 - INTANGIBLE ASSETS**




For
      the
      acquisition of nCryptone on June 28, 2006, the Company allocated the purchase
      price by assigning a value of $3,030,000 to intangible assets and $1,000,010
      to
      a patent license fee. The $1,000,010 patent license fee will be amortized over
      the remaining life of the patent (12 years through November 2018). The total
      purchase price allocation of the DisplayCard assets of nCryptone is summarized
      as follows:




Common
                Stock:
            
            $
            3,468,405Total
                Purchase Price:
            
            $
            3,468,405




The
      Company’s allocation of the purchase price is summarized as
      follows:





Assets:Intangible
                Assets
            
            $
            3,030,000Accounts
                Receivable
            
            
            14,830Equipment
            
            
            25,619Inventory
            
            
            397,956Total
                Assets
            
            $
            3,468,405




$2,900,000
      of acquired intangibles has been assigned to developed technologies and $130,000
      has been assigned to a non-competition agreement, which are subject to periodic
      amortization over the estimated useful life of five and three years,
      respectively.





Amortizaiton
      expense for the three months ended March 31, 2007 and March 31, 2006 was
      $175,968 (unaudited) and $0 (unaudited), respectively. Estimated amortization
      expense for each of the ensuing years through December 31, 2011 is,
      respectively, $527,903, $703,871, $682,204, $660,538 and $370,538.




**NOTE
      7 - PROVISION FOR INCOME TAXES**




Income
      taxes are accounted for using an asset and liability approach that requires
      the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of temporary differences between the financial statement and the
      tax bases of assets and liabilities at the applicable tax rates. A valuation
      allowance is provided when it is more likely than not that some portion or
      all
      of the deferred tax assets will not be realized.





The
      provision for income taxes consisted of the following:





Three
                Months
            
            Three
                MonthsEnded
              March
                31,
            
            Ended
              March
                31,2007
            
            2006(unaudited)
            
            (unaudited)Current
                Provision:Federal
            
            
            —
            
            
            —State
            
            $
            800
            
            $
            2,400Total
                Current Provision
            
            $
            800
            
            $
            2,400Deferred
                provision (benefit)Federal
            
            
            —
            
            
            —State
            
            
            —
            
            
            —Total
                deferred portion (benefit)
            
            
            —
            
            
            —Total
                provision for income taxes
            
            $
            800
            
            $
            2,400





Reconciliations
      between the statutory federal income tax rate and the Company’s effective income
      tax rate were as follows:


Three
                  Months Ended
                March
                  31,
              
              Three
                  Months Ended
                March
                  31,2007
              
              2006(unaudited)
              
              (unaudited)Federal
                  income tax at statutory rates
              
              
              34
              %
              
              34
              %State
                  income taxes, net of federal benefit
              
              
              6
              %
              
              6
              %Change
                  in valuation allowance
              
              
              (41
              %)
              
              (45
              %)Tax
                credits
              
              
              0
              %
              
              4
              %Other
              
              
              1
              %
              
              1
              %Effective
                  income tax rate
              
              
              0
              %
              
              0
              %




13




Deferred
      tax assets and liabilities are measured based on the difference between the
      financial statement and tax bases of assets and liabilities at the applicable
      tax rates. The significant components of the Company’s net deferred tax assets
      and (liabilities) consisted of the following:


Three
                  Months
                Ended
                  March 31,
              
              Year
                  Ended
                December
                  31,2007
              
              2006(unaudited)Benefits
                  from NOL carryforwards
              
              $
              3,713,074
              
              $
              3,472,511Tax
                  credit carryforward
              
              
              61,788
              
              
              61,788Differences
                  in financial statement and tax accounting for:Stock
                  compensation
              
              
              669,839
              
              
              549,037Accrued
                  vacation
              
              
              16,497
              
              
              10,358Inventory
              
              
              260,410
              
              
              260,140Deferred
                  Revenue
              
              
              340,053
              
              
              145,660Depreciation
                  and amortization
              
              
              283,747
              
              
              237,830State
                  income tax
              
              
              (404,547
              )
              
              (331,068
              )Total
                  Deferred tax assets (gross)
              
              $
              4,940,861
              
              $
              4,406,526Less
                  Valuation allowance
              
              
              (4,940,861
              )
              
              (4,406,526
              )Total
                  Deferred Tax assets, net
              
              $
              —
              
              $
              —






A
      valuation allowance has been established due to the uncertainty of realizing
      certain net operating loss (NOL) carryforwards and the other deferred tax
      assets. The Company had NOL carryforwards at March 31, 2007 of approximately
      $9.5 million for federal income tax purposes and $5.5 million for state
      income tax purposes. The company also has Federal research tax credit
      carryforward of $61,788. The Company’s Federal and State NOL carryforwards will
      be available to offset taxes through December 31, 2027 and 2013,
      respectively.





The
      Company or one of its subsidiaries files income tax returns in the U.S. federal
      jurisdiction, and various states.




The
      Company adopted the provisions of FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* ,
      on
      January 1, 2007.  As a result of the implementation of Interpretation 48,
      the Company recognized $0 in the liability for unrecognized tax benefits. At
      March
      31, 2007, there were no unrecognized tax benefits.




The
      Company recognizes interest accrued related to unrecognized tax benefits in
      interest expense and penalties in operating expenses.  During the three
      months ended March 31, 2007, the Company recognized approximately $0 (unaudited)
      and $0 (unaudited) in interest and penalties, respectively.




14





**NOTE
      9 - COMMITMENTS AND CONTINGENCIES**




**LEASE**





Until
      September 30, 2006, the Company subleased its office space under a
      non-cancelable operating lease agreement from a stockholder. The lease required
      minimum monthly payments of $2,568, and required the Company to pay 15.03%
      of any additional rents and/or charges of any kind due from Bemel & Ross.
      Since May 2005, the lease became a month to month tenancy cancelable by either
      party with thirty days notice. The additional rents and/or charges that may
      be
      due consist of direct costs passed through the master landlord to Bemel &
Ross. The direct costs are based on operating costs during the calendar year
      ending December 31, 2003, or the base year. Thereafter, if the direct costs
      in a
      subsequent year exceed the direct costs in the base year, the master landlord
      bills Bemel & Ross its proportionate share of the excess of direct costs,
      which may include tax costs related to real estate and/or costs and expenses
      incurred by the master landlord in connection with common areas of the building,
      the parking structure or the cost of operating the building. Through September
      30, 2006, Bemel & Ross has charged the Company for additional rents and/or
      charges in the amount of $2,165. Future minimum lease payments under this
      operating lease agreement at September 30, 2006 are $0. The company terminated
      this lease on September 30, 2006.





On
      September 14, 2006, the Company entered into a sublease for 6,500 square feet
      of
      office space with Bergman & Dacey, Inc. which commenced on October 1, 2006
      and expires on July 31, 2009. The Company paid a security deposit of $71,244.
      The lease requires monthly payments of $16,789 plus 32.5% of triple net costs
      charged to Bergman & Dacey, such as common area operating expenses, taxes
      and insurance. The rent increases 3% on October 1st of each year. Minimum lease
      payments will be $152,608 from April 1, 2007 through December 31, 2007, $209,063
      and $124,677 in calendar years 2008 and 2009, respectively.





Rent
      expense was $52,673 (unaudited) and $8,993 (unaudited) for the three months
      ended March 31, 2007 and 2006, respectively.





**REVENUE
      SHARING AGREEMENTS**




The
      Company entered into an agreement with its wholly owned subsidiary, PSACo.,
      Inc., a Delaware corporation, whereby if the Company receives payments from
      royalty rights related to the LensCard that the Company would be obligated
      to
      make payments related to these rights to PSACo, the Company’s wholly owned
      subsidiary. As of March 31, 2007, sales have not been sufficient to require
      any payments pursuant to the above agreements to PSACo. Any future payments
      that
      may be required will be recorded as a reduction of revenue.




**PATENT
      AND TRADEMARK LICENSE AGREEMENTS**





The
      Company has entered into various Patent and Trademark License Agreements with
      financial institutions granting a limited, non-exclusive right and license
      to
      make, distribute, market, sell, and use credit cards or debit cards containing
      a
      magnifying lens (the "Licensed Products"). These agreements are as
      follows:




·
            An
                agreement dated January 16, 2002 and expiring on March 31, 2004,
                providing
                for royalties to the Company at the rate of $1.50 per LensCard issued
                to a
                customer. Royalties were due and payable quarterly within 30 days
                after
                the last day of each calendar quarter. The Company receives sales
                reports
                within thirty days following the end of a calendar quarter from this
                customer. On April 1, 2004, the agreement was extended requiring
                a $12,500
                payment by the customer with the Company receiving a royalty of $0.25
                per
                licensed product and $0.50 for each additional LensCard sold thereafter.
                The revised agreement is effective until April 1,
                2008.





**EMPLOYMENT
      AGREEMENT**




The
      Company entered into an Employment Agreement with Alan Finkelstein, its Director
      and President; the initial term of three years, began January 1, 1998 and has
      since January 1, 2000 renewed for successive one year terms. As of March 31,
      2007, the termination date is December 31, 2007. However, the agreement
      automatically renews if not terminated by December 31, 2007. Mr. Finkelstein
      earns $16,667 as a monthly salary.




**LITIGATION**





To
      date,
      the Company has never been a party to and has never been involved with any
      litigation. However, in the future, the Company, like any other business or
      individual, may become subject to litigation some of which the Company can
      control and other litigation that the Company cannot control. If the Company
      were to become involved in any litigation, management would have to assess
      whether or not such litigation would likely have a material adverse effect
      on
      the Company’s consolidated financial condition or results of
      operations.





15





**NOTE
      10 - STOCKHOLDERS' EQUITY**




**PREFERRED
      STOCK**





The
      Company has 5,000,000 authorized shares of $0.001 par value preferred stock.
      The
      preferred stock may be issued in series, from time to time, with such
      designations, rights, preferences, and limitations as the Board of Directors
      may
      determine by resolution.




**COMMON
      STOCK**





During
      the year ended December 31, 2006, the Company completed the
      following:





On
      May
      30, 2006, the Company issued 3,785,500 shares of common stock at a price of
      $3.00 per share to accredited investors pursuant to a private placement for
      total gross proceeds of $11,356,500 and a warrant to purchase 113,565 shares
      of
      our common stock at an exercise price of $3.30 per share that expire on May
      30,
      2011.





On
      June
      28, 2006 the Company exchanged 4,500,000 shares of its common stock for certain
      assets of nCryptone. The assets acquired were intangible assets of $3,030,000,
      accounts receivable of $14,830, fixed assets of $25,619, and deposits on raw
      materials inventory of $397,956.





**WARRANTS**




The
      following summarizes the warrant transactions:





Warrants
              Outstanding
            
            Weighted-Average
              Exercise
                PriceOutstanding,December
                31, 2006
            
            
            4,646,598
            
            $
            1.43Granted
                during 2007  (unaudited)
            
            
            —
            
            
            —Exercised
                during 2007  (unaudited)
            
            
            (19,500
            )
            $
            1.25Outstanding,
                March 31, 2007  (unaudited)
            
            
            4,627,098
            
            $
            1.42




During
      the three months ended March 31, 2007, warrant holders exercised 19,500 warrants
      resulting in the issuance of 19,500 shares of common stock and proceeds to
      the
      Company of $24,375 (unaudited).




**2004
      STOCK INCENTIVE PLAN**




The
      Company's Board of Directors and stockholders approved the 2004 Stock Incentive
      Plan in August 2004. The 2004 Stock Incentive Plan provides for the grant of
      incentive stock options to the Company's employees, and for the grant of
      non-statutory stock options, restricted stock, stock appreciation rights and
      performance shares to the Company's employees, directors and
      consultants.




The
      Company reserved a total of 2,351,000 shares of its common stock for issuance
      pursuant to the 2004 Stock Incentive Plan. The board of directors, or a
      committee of the board, administers the 2004 Stock Incentive Plan. Stock options
      are generally granted with terms of up to ten years and vest over a period
      of
      five years under the 2004 Stock Incentive Plan. The administrator determines
      the
      exercise price of options granted under the 2004 Stock Incentive Plan, but
      the
      exercise price must not be less than 85% of the fair market value of the
      Company's common stock on the date of grant. In the event the participant owns
      10% or more of the voting power of all classes of the Company's stock, the
      exercise price must not be less than 110% of the fair market value per share
      of
      the Company's common stock on the date of grant. With respect to all incentive
      stock options, the exercise price must at least be equal to the fair market
      value of the Company's common stock on the date of grant. The term of an
      incentive stock option may not exceed 10 years, except that with respect to
      any
      participant who owns 10% of the voting power of all classes of the Company's
      outstanding stock or the outstanding stock of any parent or subsidiary of the
      Company, the term must not exceed five years an the exercise price must equal
      at
      least 110% of the fair market value on the grant date. The administrator
      determines the term of all other options; however, no option will have a term
      in
      excess of 10 years from the date of grant.




16




The
      2004
      Stock Incentive Plan will automatically terminate on August 5, 2014, unless
      it
      terminates sooner because all shares available under the Plan have been issued
      or all outstanding options terminate in connection with a change of control.
      In
      addition, the board of directors has the authority to amend the 2004 Stock
      Incentive Plan provided its action does not impair the rights of any
      participant.




The
      following summarizes stock option transactions for the period shown:




**Three
                  Months Ended**
                **March
                  31, 2007****(unaudited)****WEIGHTED****AVERAGE**
                **EXERCISE****PRICE****ALL
                OPTIONS**Outstanding
                  at beginning of period
              
              
              2,351,000
              
              $
              2.10Options
                  granted
              
              
              —
              
              $Options
                  forfeited
              
              
              —
              
              
              —Options
                  expired
              
              
              —
              
              
              —Options
                  exercised
              
              
              (35,002
              )
              $
              1.00Outstanding
                  at end of period
              
              
              2,315,998
              
              $
              2.12Exercisable
                  at end of period
              
              
              819,998
              
              $
              1.06






**Three Months Ended**
                **March
                  31, 2007****(unaudited)****NON
                VESTED OPTIONS**
              
              
              
              
              
              **WEIGHTED****AVERAGE**
                **EXERCISE****PRICE**Non-
                  vested at beginning of period
              
              
              1,516,000
              
              $
              2.68Options
                  granted
              
              
              
              
              $Options
                  forfeited
              
              
              —
              
              
              —Options
                  expired
              
              
              —
              
              
              —Options
                  vested
              
              
              (20,000
              )
              $
              1.00Non-
                  vested at end of period
              
              
              1,496,000
              
              $
              2.71




The
      weighted average grant-date fair value of options granted during the three
      month
      periods ended March 31, 2007 and 2006 was $0.00 (unaudited), as no options
      were
      granted.




The
      weighted average remaining contractual lives of the options outstanding and
      options exercisable at March 31, 2007, were as follows:





**Options
                outstanding**
            
            **Options
                exercisable**March
                31, 2007 (unaudited)
            
            
            7.89
                years
            
            
            6.94
                years





17





The
      Company recorded $289,755 (unaudited) and $73,750 (unaudited) of compensation
      expense for employee stock options during the three month periods ending March
      31, 2007 and March 31, 2006, respectively which is included in the
      administrative expense category. At March 31, 2007, there was a total of
      $3,080,827 of unrecognized compensation costs related to the non-vested
      share-based compensation arrangements under the 2004 Plan. The cost is expected
      to be recognized over a weighted average period of 2.44 years. The total fair
      value of shares vested during the three month period ended March 31, 2007 was
      approximately $20,000 (unaudited). The aggregate intrinsic value of total
      outstanding options and total exercisable options was $5,685,593 (unaudited)
      and
      $2,807,093(unaudited), respectively as of March 31, 2007.




The
      Black
      Scholes assumptions used are listed below:





**Three
                Months Ended March 31, 2007**
            
            **Three
                Months Ended March 31, 2006**(unaudited)
            
            (unaudited)Risk
                free interest rate
            
            
            4.97
            %
            
            2.34
            %Dividends
            
            
            —
            
            
            —Volatility
                factor
            
            
            200
            %
            
            200
            %Expected
                life
            
            
            10
                years
            
            
            10
                yearsAnnual
                forfeiture rate
            
            
            0
            %
            
            0
            %





**NOTE
      11 - RELATED PARTY TRANSACTIONS**




**ACCOUNTS
      PAYABLE - RELATED PARTIES**




Accounts
      payable - related parties at March 31, 2007 and December 31, 2006 consisted
      of
      amounts due for legal, expense reimbursement, and for a licensing fee and were
      $1,184,112 (unaudited) and $1,322,159 respectively. As of March 31, 2007 and
      December 31, 2006, $12,730 (unaudited) and $61,173 is owed to Blakely, Sokoloff,
      Taylor & Zafman, LLP (BSTZ), a law firm in which, George Hoover, a director
      of the Company, is a partner, $13,765 (unaudited) and $0 is owed to Alan
      Finkelstein, a related party, and $1,157,617 (unaudited) and $1,260,987 is
      owed
      to nCryptone, S.A., respectively. The amounts are currently due to BSTZ and
      Alan
      Finkelstein while the amount due to nCryptone S.A. is not payable until June
      27,
      2007.





**CONSULTING
      AGREEMENTS**




The
      Company was a party to a Consulting Agreements with Forest Finkelstein, the
      son
      of Alan Finklestein and during the three months ended March 31, 2007 and 2006,
      the Company paid $21,250 (unaudited) and $21,250 (unaudited),
      respectively.





**LEGAL
      SERVICES**




The
      Company receives legal services from Blakely, Sokoloff, Taylor and Zafman,
      LLP,
      a law firm that George Hoover, a director of the Company, is a partner in.
      During the three months ended March 31, 2007 and 2006, the Company paid $62,074
      (unaudited) and $30,981 (unaudited), respectively, to this entity for legal
      services rendered.




**NOTE
      12 - SUBSEQUENT EVENTS (UNAUDITED)**




On
      April
      26, 2007, Robert Sutcliffe submitted his resignation as a director of the
      Company, effective as of April 26, 2007.





On
      May 8,
      2007, the Company issued a press release announcing that the Company received
      written notice from Nasdaq Listing Qualifications on May 1, 2007 stating that
      solely as a result of the resignation of Robert Sutcliffe from the Company’s
      Board of Directors, effective as of April 26, 2007, the Company is currently
      not
      in compliance with Nasdaq’s independent director and audit committee
      requirements as set forth in Marketplace Rule 4350.





18




Pursuant
      to Marketplace Rules 4350(c)(1) and 4350(d)(4), Nasdaq is providing the Company
      a cure period in order to regain compliance with the independent director and
      audit committee requirements as follows: (1) until the earlier of the Company’s
      next annual shareholders’ meeting or April 26, 2008; or (2) if the next annual
      shareholders’ meeting is held before October 23, 2007, then the Company must
      evidence compliance no later than October 23, 2007.





As
      stated
      in the press release, the Company has begun to search for a replacement
      independent director and the Company believes that it will regain compliance
      with Marketplace Rule 4350(c)(1) and 4350(d)(4) within the cure period set
      forth
      by the Nasdaq.





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




The
      following Management's Discussion and Analysis of our Financial Condition and
      Results of Operations should be read in conjunction with the consolidated
      financial statements and notes thereto included as part of this Quarterly
      Report. This report contains forward-looking statements that are based upon
      current expectations. We sometimes identify forward-looking statements with
      such
      words as "may", "will", "expect", "anticipate", "estimate", "seek", "intend",
      "believe" or similar words concerning future events. The forward-looking
      statements contained herein, include, without limitation, statements concerning
      future revenue sources and concentration, gross profit margins, selling and
      marketing expenses, research and development expenses, general and
      administrative expenses, capital resources, additional financings or borrowings
      and additional losses and are subject to risks and uncertainties including,
      but
      not limited to, those discussed below and elsewhere in this Form 10-QSB,
      particularly in "Factors That May Affect Results," that could cause actual
      results to differ materially from the results contemplated by these
      forward-looking statements. We also urge you to carefully review the risk
      factors set forth in other documents we file from time to time with the
      Securities and Exchange Commission.




**OVERVIEW**




Since
      2002, we have developed our power inlay technology that is designed to bring
      power-based applications to the enterprise market and on-line banking market.
      Our present focus is the ICT DisplayCard Power inlay technology consists of
      a
      battery, circuit, and switch that can power applications on credit sized cards
      and other information-bearing plastic cards. We have devoted a majority of
      our
      efforts to complete the development of our power inlay technology, initiate
      marketing and raise the financing required to do so and fund our expenses.
      We
      have generated limited revenues that derive from licensing agreements of our
      LensCard product, most of which have terminated. At this time, we have no plans
      to renew the LensCard licensing agreements or to further market or sell the
      LensCard, unless requested by a customer.





Since
      inception, we have been unprofitable. We incurred a net loss of $2,232,839
      during the three months ended March 31, 2007. As of March 31, 2007, we had
      an
      accumulated deficit of $15,966,400. Our continued existence will be dependent
      upon our ability to obtain additional financing, if we are unable to
      successfully sell the ICT DisplayCard in substantial quantities. We further
      anticipate that after such introduction of the ICT DisplayCard we will continue
      to incur net losses due to our costs exceeding our revenues for an indefinite
      period of time. Our capital requirements for the next 12 months for retention
      and hiring of key personnel, implementation of a sales force for our products,
      and further research and development relating to the production of our power
      inlay technology, have been and will continue to be significant. To date, our
      operations have been funded primarily through equity financings totaling
      $21,803,691. We believe that we currently have enough cash to meet our needs
      and
      continue our operations for the next twelve months assuming that we will be
      able
      to sell the ICT DisplayCard in substantial quantities.




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




Our
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the U.S. The
      preparation of these financial statements requires us to make estimates and
      judgments that affect the reported amounts of assets, liabilities, revenues
      and
      expenses for each period. The following represents a summary of our critical
      accounting policies, defined as those policies that we believe are the most
      important to the portrayal of our financial condition and results of operations
      and that require management's most difficult, subjective or complex judgments,
      often as a result of the need to make estimates about the effects of matters
      that are inherently uncertain.





Revenue
      Recognition. We recognize revenues in accordance with SEC Staff Accounting
      Bulletin No. 104, or SAB 104. Revenues are recognized when persuasive evidence
      of an arrangement exists, delivery has occurred or services have been rendered,
      the price is fixed and determinable and collectibility is reasonably assured.
      We
      recognize certain long-term contracts using the complete-contract method in
      accordance to SOP 81-1, “Accounting for Performance of Construction-Type and
      Certain Production-Type of Contracts.”





We
      have
      generated revenue from two sources: licensing of the LensCard to various credit
      card issuers and selling the Light Card to a credit card issuer. The LensCard
      is
      composed of a credit card with a small magnifying lens embedded into the card.
      The LightCard is composed of a credit card that when a button is pressed a
      small
      LED light is activated. We sell time-based licenses to various credit card
      issuers for the LensCard. We recognize royalties attributable to these
      time-based licenses as they are sold to the credit card issuers' customers.
      Royalty revenue is recognized when each LensCard is sold by an issuer in
      accordance with SAB 104.




19





We
      anticipate that the majority of our revenues in the coming year will come from
      the ICT DisplayCard. We intend to sell these cards through
      resellers.





To
      date
      we have entered into nine reseller agreements whereby the resellers agree to
      sell our ICT DisplayCard to their customers. We have one agreement with a bank
      that issues financial cards for the LensCard product. The revenue generated
      from
      the LensCard agreements is negligible, and we expect that the sales of the
      LensCard will have no impact on our results of operations.





Deferred
      revenue is recorded when the payments from a reseller by us prior to the sale
      of
      a ICT DisplayCard are received by us prior to the sale of the ICT DisplayCard
      to
      the resellers’ customer.





Accounts
      Receivable Allowances. Because our sales to date have been to large credit
      card
      issuers, we have successfully collected for products and services. Consequently,
      we have no allowances for doubtful accounts. We perform a regular review of
      our
      customer activity and associated credit risks and do not require collateral
      from
      our customers.





Inventory.
      Our inventories are valued at the lower of cost or market. Under certain market
      conditions, we use estimates and judgments regarding the valuation of inventory
      to properly value inventory. Inventory adjustments are made for the difference
      between the cost of the inventory and the estimated market value and charged
      to
      operations in the period in which the facts that give rise to the adjustments
      become known.




Research
      and Development. Costs of research and development, principally the design
      and
      development of hardware and software prior to the determination of technological
      feasibility, are expensed as incurred.





Valuation
      of Intangible Assets and Long-Lived Assets. We assess the impairment of
      identifiable intangibles and long-lived assets whenever events or changes in
      circumstances indicate that the carrying value may not be recoverable. Factors
      considered important that could trigger an impairment review include, but are
      not limited to, the following: a significant underperformance to expected
      historical or projected future operating results, a significant change in the
      manner of the use of the acquired asset or the strategy for the overall
      business, or a significant negative industry or economic trend.





We
      assess
      the carrying value of long-lived assets in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” During the
      year ended December 31, 2006, we did not recognize any impairment to intangible
      assets and property and equipment.




Stock
      Based Compensation. On January 1, 2006, we adopted SFAS No. 123 (R), “Share
      Based Payment,” which establishes standards for the accounting of
      transactions in which an entity exchanges its equity instruments for goods
      or
      services, primarily focusing on accounting for transactions where an entity
      obtains employee services in share-based payment transactions. SFAS No.123(R)
      requires a public entity to measure the cost of employee services received
      in
      exchange for an award of equity instruments, including stock options, based
      on
      the grant-date fair value of the award and to recognize it as compensation
      expense over the period the employee is required to provide service in exchange
      for the award, usually the vesting period. We have selected the modified
      prospective method of transition. SFAS No.123(R) supersedes our previous
      accounting under Accounting Principles Board (APB) Opinion No. 25, *Accounting
      for Stock Issued to Employees* for
      periods beginning in fiscal year 2006. In March 2005, the SEC issued Staff
      Accounting Bulletin (“SAB”) No. 107 relating to SFAS No. 123(R). We have
      applied the provisions of SAB No.107 in our adoption of SFAS No.
      123(R).




**RESULTS
      OF OPERATIONS**




**COMPARISON
      OF THE THREE MONTH PERIODS ENDED MARCH 31, 2007 AND MARCH 31,
      2006**




**OVERVIEW**




Our
      financial results for the three months ended March 31, 2007 reflect a net loss
      of $2,206,807, or $0.08 per share (basic and diluted), compared to a net loss
      of
      $768,484, or $0.04 per share (basic and diluted), for the three months ended
      March 31, 2006.




The
      major
      factors contributing to our increased net loss of $2,206,807 during the first
      quarter of 2007 were administrative expenses, professional fees and research
      and
      development expenses relating to new products and improving existing products.




Revenue.
      Revenue consists of royalties from the LensCard.




20




Total
      revenue increased from $250 for the three months ended March 31, 2006 to $1,420
      for the three months ended March 31, 2007. The increase resulted primarily
      from
      additional LensCard royalties received during the three months ended March
      31,
      2007. We believe that future revenue will be primarily from the sales of the
      ICT
      DisplayCard; we anticipate that such revenues will begin in the third quarter
      of
      2007.




Administrative.
      Administrative expense consists of travel and marketing expenses, compensation
      expense, administrative fees and depreciation and amortization
      expense.




Administrative
      expense increased from $424,926 for the three months ended March 31, 2006 to
      $1,605,717 for the three months ended March 31, 2007. Administrative expense
      increased primarily due to the hiring of additional employees, insurance costs,
      compensation expenses relating to the vesting of employee and director's stock
      options, and travel expenses relating to business development. We anticipate
      that administrative expenses will increase in 2007 as we incur increased costs
      associated with establishing our operations.




Consulting
      expense. Consulting expense consists of payments made to an independent
      contractor that provided services to us.




Consulting
      expense remained constant at $21,250 for the three months ended March 31, 2007
      and 2006. We anticipate that our consulting expense will remain constant as
      we
      do not presently have the intention of hiring additional outside consultants.




Professional
      fees expense. Professional fees consist of amounts paid to our outside counsel,
      auditors and other outside services rendered to us.




Professional
      fees expense increased from $182,379 for the three months ended March 31, 2006
      to $363,523 for the three months ended March 31, 2007. Professional fees expense
      increased due to legal fees for the legal and accounting fees relating to our
      requirements to operate as a public company. We anticipate that professional
      fees will continue to increase as we will have to assess our internal controls
      relating to Sarbanes-Oxley and the related legal costs associated with being
      a
      public company.




Research
      and Development. Research and development expense consists primarily of costs
      relating to the development of new credit card enhancements.




Research
      and development costs increased from $163,678 for the three months ended March
      31, 2006 to $296,329 for the three months ended March 31, 2007 due to increased
      expenses as they related to the further development of our ICT DisplayCard.
      We
      expect our research and development expenses to increase as we continue to
      invest in developing enhancements of our ICT DisplayCard with one time
      password.




Interest
      income. Interest income increased from $24,011 for the three months ended March
      31, 2006 to $79,540 for the three months ended March 31, 2007 due to an
      increased operating cash balance that was earning interest during the three
      months ended March 31, 2007.




Interest
      expense. Interest expense decreased from $512 for the three months ended March
      31, 2006 to $148 for the three months ended March 31, 2007.





**LIQUIDITY
      AND CAPITAL RESOURCES**




Our
      principal sources of liquidity had been cash and cash equivalent balances,
      which
      were $8,270,096 at December 31, 2006 and $6,887,875 as of March 31, 2007. Since
      our inception, we have incurred significant losses, and as of December 31,
      2006
      and March 31, 2007 we had an accumulated deficit of $13,733,561 and $15,940,368,
      respectively.




Net
      cash
      used in operating activities was $1,384,168 for the three months ended March
      31,
      2007 as compared with $689,646 for the three months ended March 31, 2006. This
      significant increase in cash used was primarily due to a greater net loss as
      we
      continue to further establish our operations.




Net
      cash
      used in investing activities was $19,979 for the three months ended March 31,
      2007 as compared with $31,544 for the three months ended March 31, 2006. The
      decrease was due to less production equipment being purchased during the three
      months ended March 31, 2007.




21




Net
      cash
      provided by financing activities was $21,926 for the three months ended March
      31, 2007 as compared to $47,736 for the three months ended March 31, 2006.
      The
      decrease occurred because fewer warrants were exercised during the three months
      ended March 31, 2007.




**EQUITY
      AND DEBT FINANCINGS AND ACCOUNTS PAYABLE**




To
      date,
      our operations have been funded primarily through equity financings totaling
      $21,803,691. We believe that we will have enough funding to meet our cash needs
      and continue our operations for the next twelve months assuming (1) that we
      will
      be able to successfully sell the ICT DisplayCard in substantial quantities
      and
      (2) that we make no acquisitions. For example, if we choose to exercise our
      right to acquire control of a supplier, then we will need financing both for
      that transaction and for the supplier’s operating expenses. Our significant
      equity and debt financings from January 1, 2006 through May 14, 2007 are
      described below.





On
      May
      30, 2006, we issued 3,785,500 shares of common stock at a price of $3.00 per
      share to accredited investors pursuant to a private placement for total gross
      proceeds of $11,356,500. T.R. Winston & Company served as placement agent
      for the securities sold in this transaction and received a net commission of
      5%
      of the total gross proceeds and a warrant to purchase 113,565 shares of our
      common stock at an exercise price of $3.30 per share that expire on May 30,
      2011. The shares of common stock we issued and the shares of common stock
      underlying warrants issued on May 30, 2006 have full ratchet anti-dilution
      protection for 12 months if we issue securities for a price less than $3.00
      per
      share. If during 12 months following May 30, 2006, we obtain additional capital
      through the issuance of equity securities, other than the issuance of shares
      of
      common stock or securities convertible into or exchangeable for common stock
      of
      InCard in connection with (i) any mergers or acquisitions of securities,
      business, property or other assets (ii) joint ventures or other strategic
      corporate transactions, (iii) any other transaction, the primary purpose of
      which is not to raise capital for the company, (iv) the exercise of an option
      or
      warrant or the conversion of a security outstanding as of May 30, 2006, or
      (v)
      any employee benefit plan that has been adopted by our board and our
      shareholders, the holders of these then-existing shares will receive full
      ratchet anti-dilution protection.





On
      June
      28, 2006, we purchased rights relating to the ICT DisplayCard from nCryptone
      for
      4,500,000 shares of our common stock and acquired a license to use a patent
      for
      $1,000,010 USD that is due by June 27, 2007. We intend to pay this note using
      our existing cash balance.





**FUTURE
      NEEDS**




We
      believe that our current cash of $5,370,799 as of May 9, 2007, will provide
      us
      with sufficient resources for the next twelve months at our anticipated level
      of
      operations that assumes we will be able to successfully sell the ICT DisplayCard
      in substantial quantities. This capital would not be sufficient to finance
      any
      acquisition or additional activity. If we needed additional capital for
      acquisitions or otherwise, we do not have any binding commitments for, or
      readily available sources of, additional financing. Additional financing,
      whether through public or private equity or debt financing, arrangements with
      stockholders or other sources to fund operations, may not be available, or
      if
      available, may be on terms unacceptable to us. If we issue additional equity
      securities to raise funds, the ownership percentage of our existing stockholders
      would be reduced. New investors may demand rights, preferences or privileges
      senior to those of existing holders of our common stock. Debt incurred by us
      would be senior to equity in the ability of debt holders to make claims on
      our
      assets. The terms of any debt issued could impose restrictions on our
      operations. If adequate funds are not available to satisfy our capital
      requirements, our operations and liquidity could be materially adversely
      affected.




**ITEM
      3. CONTROLS AND PROCEDURES**




(a)
      Evaluation of disclosure controls and procedures. As of the end of the period
      covered by this report, we carried out an evaluation, under the supervision
      and
      with the participation of our management, including our Chief Executive Officer
      and Chief Financial Officer, 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 Securities Exchange Act of 1934, as amended. Based upon
      that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures were effective as of the end of
      the
      applicable period to ensure that information required to be disclosed by us
      in
      reports that we file or submit under the Exchange Act (i) is recorded,
      processed, summarized and reported within the time periods specified in
      Securities and Exchange Commission rules and forms and (ii) is accumulated
      and
      communicated to our management, including our Chief Executive Officer and Chief
      Financial Officer, as appropriate to allow timely decisions regarding required
      disclosures.




(b)
      Changes in internal controls over financial reporting. There was no change
      in
      our internal control over financial reporting during our most recent fiscal
      quarter that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.




22




**PART
      II - OTHER INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**




Not
      Applicable




**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





Not
      Applicable





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




Not
      Applicable




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




Not
      Applicable




**ITEM
      5. OTHER INFORMATION**




Not
      Applicable





**ITEM
      6. EXHIBITS**




(a)
      Exhibits




The
      exhibits listed in the Exhibit Index are filed as a part of this
      report.




**SIGNATURES**




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




**INNOVATIVE
                CARD TECHNOLOGIES, INC.**Date:
                May 15, 2007
            
            /s/ John
                A. Ward, IIIJohn
                A. Ward, IIIChairman and
                CEO





Date:
                May 15, 2007
            
            /s/ Bennet
                P. TchaikovskyBennet
                P. TchaikovskyChief
                Financial Officer





**EXHIBIT
      INDEX**





2.1
            (2)
            
            Exchange
                agreement by and among the registrant, LensCard US, LLC, Alan Finkelstein,
                Forest Finkelstein, Bradley Ross and Luc Berthoud, dated April 1,
                20042.2
            (2)
            
            Exchange
                agreement by and among the registrant, Alan Finkelstein,  Bradley
                Ross and Michael Paradise, dated April 1, 20042.3
            (2)
            
            Exchange
                agreement between the registrant and its wholly-owned subsidiary,
                PSACo,
                Inc., dated April 1, 2004




23




2.4
            (2)
            
            Merger
                agreement between the registrant and LensCard International Limited,
                a
                British Virgin Islands International Business Company, dated April
                6,
                20043.1
            (2)
            
            Amended
                and Restated Certificate of incorporation of the registrant, as currently
                in effect3.2
            (2)
            
            Amended
                and Restated Bylaws of the registrant, as currently in
                effect10.1
            (2)
            
            2004
                stock incentive plan10.2
            (2)
            
            Sublease
                agreement between registrant and Bemel & Ross for premises at 11601
                Wilshire Blvd., #2160, Los Angeles, California 90025, dated January
                5,
                200310.3
            (2)
            
            Guaranty
                of lease between Alan Finkelstein and Bemel & Ross, dated January 5,
                200310.4
            (3)
            
            Form
                of common stock warrant, as amended on September 7,
                2005.10.5
            (2)
            
            Securities
                purchase agreement between registrant and Bristol Capital, LLC dated
                December 23, 200310.5
            (a)
                (2)
            
            Waiver
                of section 2.3 of the securities purchase agreement between registrant
                and
                Bristol Capital, LLC10.6
            (2)
            
            Shares
                for debt agreement between registrant and Alan Finkelstein, dated
                June 22,
                200410.7
            (2)
            
            Shares
                for debt agreement between registrant and Bradley Ross, dated June
                22,
                200410.8
            (2)
            
            Shares
                for debt agreement between registrant and Luc Berthoud, dated June
                22,
                200410.9
            (2)
            
            Promissory
                note (loan no. 00003) between registrant and City National Bank,
                dated May
                24, 200410.10
            (2)
            
            Promissory
                note (loan no. 00005) between registrant and City National Bank,
                dated May
                24, 2004 10.11** Promissory note (loan no. 00004) between registrant
                and
                City National Bank, dated May 24, 200410.12
            (2)
            
            Promissory
                note (loan no. 00006) between registrant and City National Bank,
                dated May
                24 ,2004




10.13
            (2)
            
            Commercial
                guaranty between Alan Finkelstein and City National Bank dated May
                24,
                200410.14
            (2)
            
            Commercial
                guaranty between Bradley Ross and City National Bank dated May 24,
                200410.15
            (2)
            
            Commercial
                guaranty between Luc Berthoud and City National Bank dated May 24,
                200410.16
            (2)
            
            Offer
                letter between registrant and Murdoch Henretty dated July 28,
                200410.17
            (2)
            
            Employment
                agreement between registrant and Alan Finkelstein dated January
                199810.18
            (2)
            
            Strategic
                Alliance Agreement between registrant and Visa International Service
                Association dated May 26, 200410.19
            (2)
            
            Secured
                Demand Promissory Note between registrant and Union Finance International
                Corp. dated March 31, 200510.20
            (2)
            
            Secured
                Demand Promissory Note between registrant and Bristol Investment
                Fund,
                Ltd. dated March 30, 200510.21
            (2)
            
            Capital
                Lease Agreement between registrant and CNC Associates, Inc. dated
                November
                30, 200410.22
            (2)
            
            Guaranty
                between Alan Finkelstein and CNC Associates, Inc. dated November
                30,
                200410.23
            (2)
            
            Security
                Agreement between registrant and Union Finance International Corp.
                dated
                March 31, 2005 (See Exhibit 10.19)10.24
            (2)
            
            Security
                Agreement between registrant and Bristol Investment Fund, Ltd. dated
                March
                30, 2005 (See Exhibit 10.20)10.25
            (2)
            
            Secured
                Demand Promissory Note between registrant and Bradley Ross dated
                August
                31, 200510.26
            (2)
            
            Secured
                Demand Promissory Note between registrant and Rodger Bemel dated
                August
                31, 2005




24




10.27
            (2)
            
            Joint
                Development Agreement between registrant and nCryptone dated July
                25,
                200510.28
            (2)
            
            Agreement
                between registrant and SmartDisplayer Technology, Inc. dated July
                25,
                200510.29
            (5)
            
            Form
                of Lock-Up agreement by and between registrant's directors and executive
                officers pursuant to the private placement dated October 19,
                200510.30
            (4)
            
            Form
                of Warrant pursuant to private placement dated October 19,
                200510.31
            (4)
            
            Registration
                Rights Agreement by and between the registrant and each investor
                pursuant
                to the private placement dated October 19, 200510.32
            (4)
            
            Side
                Letter Agreement between the registrant, T.R. Winston & Company and
                investors pursuant to the private placement dated October 19,
                2005





10.33
            (6)
            
            Letter
                of Intent by and between VASCO Data Security, nCryptone and Registrant,
                dated October 28, 2005.10.34
            (9)
            
            Form
                of Warrant to TR Winston dated as of May 30, 2006.10.35
            (9)
            
            Form
                of Securities Purchase Agreement dated May 30, 2006.10.36
            (9)
            
            Form
                of Registration Rights Agreement dated May 30, 2006.10.37
            (10)
            
            Asset
                Agreement dated June 28, 2006 by and between Registrant NCryptone,
                SA and
                its shareholders.10.38
            (10)
            
            Registration
                Rights Agreement dated June 28, 2006 by and between Registrant and
                NCrytone, SA10.39
            (10)
            
            License
                Agreement dated June 28, 2006 by and between Registrant as licensor
                and
                NCryptone, SA as licensee10.40
            (10)
            
            License
                Agreement dated June 28, 2006 by and between NCryptone, SA as licensor
                and
                Registrant as licensee.10.41
            (11)
            
            Sublease
                between Registrant as sublessee and Bergman and Dacey, Inc. as sublessor.10.42
            (8)
            
            Idemnification
                Agreement10.43
            (7)
            
            Code
                of Ethics21.1
            (2)
            
            List
                of subsidiaries31.1
            (1)
            
            Certification
                of Chief Executive Officer, as required by Rule 13a-14(a) or Rule
                15d-14(a) of the Securities Exchange Act of 193431.2
            (1)
            
            Certification
                of Chief Financial Officer, as required by Rule 13a-14(a) or Rule
                15d-14(a) of the Securities Exchange Act of 193432
            (1)
            
            Certification
                of Chief Executive Officer and Chief Financial Officer, as required
                by
                Section 1350 of Chapter 63 of Title 18 of the United States Code
                (18
                U.S.C. 1350)




(1)
            
            Filed
                herewith.(2)
            
            Previously
                filed by the registrant on Form SB-2 (File No. 333-119814), as amended,
                with the Securities and Exchange Commission.(3)
            
            Previously
                filed by the registrant on Form 8-K with the Securities and Exchange
                Commission on September 7, 2005.(4)
            
            Previously
                filed by the registrant on Form 8-K, as amended, with the Securities
                and
                Exchange Commission on October 25, 2005.(5)
            
            Previously
                filed by the registrant on Form SB-2 (File No. 333-129564) with the
                Securities and Exchange Commission on November 8, 2005.(6)
            
            Previously
                filed by the registrant on Form 8-K with the Securities and Exchange
                Commission on November 18, 2005.




25




(7)
            
            Previously
                filed by the registrant on Form 10-KSB with the Securities and Exchange
                Commission on March 20, 2006.(8)
            
            Previously
                filed by the registrant on Form 8-K with the Securities and Exchange
                Commission on March 23, 2007.(9)
            
            Previously
                filed by the registrant on Form 8-K filed with the Securities and
                Exchange
                Commission on May 31, 2006.(10)
            
            Previously
                filed by the registrant on Form SB-2 (File No. 333-135715) with the
                S EC
                on July 12, 2006.(11)
            
            Previously
                filed by the registrant on Form 10QSB with the S EC on November 13,
                2006.




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