**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: September 30, 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 November 12, 2007: 28,433,116 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 September 30, 2007 (unaudited)
                and
                  December 31, 2006
            
            3Consolidated
                  Statements of Operations for the three and nine month periods
                ended
                  September 30, 2007 (unaudited) and September 30, 2006
                  (unaudited)
            
            4Consolidated
                Statement of Stockholders’
                Equity for
                the nine months ended September 30, 2007 (unaudited)
            
            5Consolidated
                  Statements of Cash Flows for the nine months
                ended
                  September 30, 2007 (unaudited) and September 30, 2006
                  (unaudited)
            
            6Notes
                to Unaudited Consolidated Financial Statements
            
            7Item
                2.
            
            Management’s
                Discussion
                and Analysis of Financial
              Condition
                  and Results of Operations
            
            18Item
                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
            
            24SIGNATURES
            
            24













**PART
      I - FINANCIAL INFORMATION**  **ITEM**





**1.
      FINANCIAL STATEMENTS**





**INNOVATIVE
      CARD TECHNOLOGIES, INC.**


**CONSOLIDATED
      BALANCE SHEETS**





September
                30,
              2007
            
            December
                31,
              2006(unaudited)ASSETSCURRENT
                ASSETSCash
                and cash equivalents
            
            $
            1,498,234
            
            $
            8,270,096Accounts
                receivable
            
            
            30,781
            
            
            14,836Prepaids
                and other current assets
            
            
            46,642
            
            
            42,658Deposits
                on raw materials held for production
            
            
            702,206
            
            
            1,199,453Work
                in progress inventory
            
            
            2,112,302
            
            
            1,098,553Total
                current assets
            
            
            4,390,165
            
            
            10,625,596PROPERTY
                AND EQUIPMENT, NET
            
            
            312,986
            
            
            360,920DEPOSITS
            
            
            177,747
            
            
            71,244INTANGIBLE
                ASSETS, NET
            
            
            3,132,574
            
            
            3,666,343Total
                assets
            
            $
            8,013,472
            
            $
            14,724,103LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIESAccounts
                payable and accrued expenses
            
            $
            2,375,083
            
            $
            460,162Accounts
                payable - related parties
            
            
            703,721
            
            
            1,322,159Short
                term portion of capital lease
            
            
            860
            
            
            8,355Deferred
                revenue
            
            
            820,080
            
            
            340,010Total
                current liabilities
            
            
            3,899,744
            
            
            2,130,686Total
                liabilities
            
            
            3,899,744
            
            
            2,130,686COMMITMENTS
                AND CONTINGENCIES
            
            
            —
            
            
            —STOCKHOLDERS'
                EQUITYPreferred
                  stock $0.001 par value, 5,000,000 shares
                Authorized,
                  0 (unaudited) and 0 shares issued and outstanding
            
            
            —
            
            
            —Common
                    stock $0.001 par value, 50,000,000 shares
                  Authorized,
                    28,420,616 (unaudited) and
                  28,372,308
                    shares issued and outstanding
            
            
            28,420
            
            
            28,372Additional
                paid-in capital
            
            
            27,125,515
            
            
            26,298,606Accumulated
                deficit
            
            
            (23,040,207
            )
            
            (13,733,561
            )Total
                stockholders' equity
            
            
            4,113,728
            
            
            12,593,417Total
                liabilities and stockholders' equity
            
            $
            8,013,472
            
            $
            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
                  monthsendedSeptember
                  30,2007
            
            
            Three
                  months
                ended
                September
                  30,
                2006
            
            
            Nine
                  months
                ended
                September
                  30,
                2007
            
            
            Nine
                months
              ended
              September
                30,
              2006(unaudited)
            
            
            (unaudited)
            
            
            (unaudited)
            
            
            (unaudited)Revenues
            
            $
            159
            
            $
            32,389
            
            $
            2,669
            
            $
            34,617Cost
                of Goods Sold
            
            
            —
            
            
            —
            
            
            —
            
            
            —Gross
                Margin
            
            
            159
            
            
            32,389
            
            
            2,669
            
            
            34,617Operating
                expensesAdministrative
            
            
            1,779,763
            
            
            778,005
            
            
            4,910,397
            
            
            2,713,545Professional
                fees
            
            
            285,928
            
            
            202,905
            
            
            853,146
            
            
            757,200Research
                and development
            
            
            442,130
            
            
            181,782
            
            
            911,540
            
            
            525,429Inventory
                writeoffs and reserves
            
            
            179,621
            
            
            40,042
            
            
            575,017
            
            
            40,042Unrecoverable
                payments to suppliers
            
            
            1,546,428
            
            
            —
            
            
            1,546,428
            
            
            —Depreciation
                and Amortization Expense
            
            
            228,816
            
            
            35,514
            
            
            674,139
            
            
            81,658Total
                operating expenses
            
            
            4,462,686
            
            
            1,238,248
            
            
            9,470,667
            
            
            4,117,874Loss
                from operations
            
            
            (4,462,527
            )
            
            (1,205,859
            )
            
            (9,467,998
            )
            
            (4,083,257
            )Other
                income (expense)Interest
                income
            
            
            31,609
            
            
            135,796
            
            
            174,301
            
            
            224,180Interest
                expense
            
            
            (11,899
            )
            
            (242
            )
            
            (12,148
            )
            
            (1,043
            )Total
                other income (expense)
            
            
            19,710
            
            
            135,554
            
            
            162,153
            
            
            223,137Loss before
                  provision
                for
                  income taxes
            
            
            (4,442,817
            )
            
            (1,070,305
            )
            
            (9,305,845
            )
            
            (3,860,120
            )Provision
                for income taxes
            
            
            (800
            )
            
            —
            
            
            (800
            )
            
            (2,400
            )Net
                loss
            
            $
            (4,443,617
            )
            $
            (1,070,305
            )
            $
            (9,306,645
            )
            $
            (3,862,520
            )Basic
                and diluted loss per share
            
            $
            (0.16
            )
            $
            (0.04
            )
            $
            (0.33
            )
            $
            (0.18
            )Basic
                  and diluted weighted-average
                common
                  shares outstanding
            
            
            28,420,616
            
            
            27,945,455
            
            
            28,416,981
            
            
            21,909,690




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





4





**INNOVATIVE
      CARD TECHNOLOGIES, INC.**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 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)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            806,257
            
            
            
            
            
            806,257Cashless
                exercise of employee stock options (unaudited)
            
            
            
            
            
            
            
            
            28,808
            
            
            29
            
            
            (29
            )
            
            
            
            
            —Offering
                cost (unaudited)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,675
            )
            
            
            
            
            (3,675
            )Net
                loss (unaudited)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (9,306,645
            )
            
            (9,306,645
            )Balance,
                September 30, 2007 (unaudited)
            
            
            —
            
            $
            —
            
            $
            28,420,616
            
            $
            28,420
            
            $
            27,125,515
            
            $
            (23,040,206
            )
            $
            4,113,729




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





5





**INNOVATIVE
      CARD TECHNOLOGIES, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




For
                the Nine Months Ended
              September
                30,2007
            
            2006(unaudited)
            
            (unaudited)Cash
                flows from operating activitiesNet
                loss
            
            $
            (9,306,645
            )
            $
            (3,862,520
            )Adjustments
                to reconcile net loss to net cashused
                in operating activitiesDepreciation
                and amortization
            
            
            674,139
            
            
            81,658Stock
                compensation expense
            
            
            806,257
            
            
            316,827Warrant
                compensation expense
            
            
            —
            
            
            838,845(Increase)
                decrease in Accounts receivable
            
            
            (15,945
            )
            
            13,297(Increase)
                decrease in Prepaid expenses and other current assets
            
            
            (3,984
            )
            
            (34,852
            )(Increase)
                decrease in Deposits on raw materials held for production
            
            
            497,247
            
            
            (1,006,465
            )(Increase)
                decrease in Work in progress inventory
            
            
            (1,013,749
            )
            
            (648,509
            )(Increase)
                decrease in Deposits
            
            
            (106,503
            )
            
            (71,244
            )Increase
                (decrease) in Accounts payable and accrued expenses
            
            
            1,914,921
            
            
            (125,574
            )Increase
                (decrease) in Accounts payable - related parties
            
            
            (618,439
            )
            
            50,224Increase
                (decrease) in Deferred revenue
            
            
            480,070
            
            
            105,383Net
                cash used in operating activities
            
            
            (6,692,631
            )
            
            (4,342,930
            )Cash
                flows from investing activitiesPurchase
                of Property and equipment
            
            
            (92,436
            )
            
            (65,752
            )Net
                cash used in investing activities
            
            
            (92,436
            )
            
            (65,752
            )Cash
                flows from financing activitiesProceeds
                from exercise of warrants
            
            
            24,375
            
            
            280,625Proceeds
                from 5/30/06 Common Stock offering
            
            
            —
            
            
            11,356,500Offering
                costs 5/30/06 Common Stock offering
            
            
            —
            
            
            (582,825
            )Offering
                costs
            
            
            (3,675
            )
            
            —Payments
                on capital lease
            
            
            (7,495
            )
            
            (
                6,928
            )Net
                cash provided by financing activities
            
            
            13,205
            
            
            11,047,372Net
                increase (decrease) in cash and cash equivalents
            
            
            (6,771,862
            )
            
            6,638,689Cash
                and cash equivalents, beginning of year
            
            
            8,270,096
            
            
            3,277,532Cash
                and cash equivalents, end of period
            
            $
            1,498,234
            
            $
            9,916,221





Supplemental
                disclosures of cash flow informationInterest
                paid
            
            $
            50
            
            $
            243Income
                tax paid
            
            $
            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**


**SEPTEMBER
      30, 2007**






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




**GENERAL**




The
      accompanying consolidated financial statements of ICTI include the amounts
      of
      its wholly-owned subsidiaries, 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 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.





As
      further discussed in Item 2 to this Form 10-QSB, the Company believes that
      it
      currently has enough cash to meet its short term needs and continue current
      operations through December 2007. The Company anticipates that it will not
      now
      be able to generate sales of the ICT DisplayCard in substantial quantities
      until
      2008 to support its cash needs since the sales cycle for that product is longer
      than originally anticipated. Under the agreements to maintain exclusivity under
      its supplier contracts, the Company purchased inventory and made deposits prior
      to orders being received from customers. These inventory purchases and deposits
      along with the Company's operating expenses have collectively reduced the
      Company’s cash resources since the Company has not been able to sell its
      acquired inventory or utilize its deposits with suppliers or otherwise replenish
      such cash. As such, the Company will be required to raise operating capital
      in
      order to continue its current operations and/or to pursue any acquisitions
      of products. The Company has engaged an investment advisor to explore capital
      raising opportunities.





7


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




**BASIS
      OF PRESENTATION**




The
      consolidated interim financial statements of Innovative Card Technologies,
      Inc.,
      and its wholly owned subsidiaries, PSA Co., Lens Card US, LLC,
      and Lens Card International Limited (the "Company") 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 Forms 10-KSB and 10-KSB/A 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.


**INTERIM
        FINANCIAL STATEMENTS**
 
 The
        interim financial statements included herein for Innovative Card Technologies,
        Inc. (“ICTI”) have been prepared by ICTI, without audit, pursuant to the rules
        and regulations of the Securities and Exchange Commission. In the opinion
        of
        management, financial statements included in this report reflect all normal
        recurring adjustments which ICTI considers necessary for the fair statement
        of
        the results of operations for the interim periods covered and of the financial
        position of ICTI at the date of the interim balance sheet. Certain information
        and footnote disclosures normally included in the annual financial statements
        prepared in accordance with generally accepted accounting principles have
        been
        condensed or omitted pursuant to such rules and regulations. However, ICTI
        believes that the disclosures are adequate to understand the information
        presented. The operating results for interim periods are not necessarily
        indicative of the operating results for the entire year. These financial
        statements should be read in conjunction with ICTI’s audited consolidated
        financial statements and notes thereto included in ICTI’s annual report on Forms
        10-KSB and 10-KSB/A filed for the fiscal year ended December 31, 2006.




**PRINCIPLES
      OF CONSOLIDATION**





The
      consolidated financial statements include the accounts of Innovative Card
      Technologies, and its wholly owned subsidiaries, 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 recognizes 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 collectability is reasonably assured. The
      Company recognizes certain long-term contracts using the complete-contract
      method in accordance to the AICPA's Statement of Position 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.





8




**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 twelve 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.











The
      Company obtains the display, a key component for the Company’s ICT DisplayCard,
      from a single source, SmartDisplayer, pursuant to the Company’s written
      agreement with SmartDisplayer. Included in this agreement are provisions that
      require the Company to meet certain purchase requirements in order to maintain
      its exclusivity. On November 10, 2007, the Company was required to make a
      deposit on a purchase order to continue its exclusivity. Due to its liquidity
      position, the Company was unable to make this payment and therefore does not
      have exclusivity with SmartDisplayer. The Company is in the process of
      negotiating with SmartDisplayer for continued exclusivity, however, there can
      be
      no assurances that those negotiations will result in terms acceptable to the
      Company, if at all. 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. Included in this agreement are provisions that require
      the
      Company to meet certain purchase requirements in order to maintain its
      exclusivity. The Company has exclusivity until February 2008. To maintain this
      exclusivity and further extend the exclusivity, the Company is in the process
      of
      negotiating with NagraID, however there can be no assurances that those
      negotiations will result in terms acceptable to the Company, if at all. 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.




9


**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 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 3,194,498 stock options were excluded from the
      calculation of diluted loss per share for the three and nine months ended
      September 30, 2007. Since their effect would have been anti-dilutive, common
      stock equivalents of 4,772,198 warrants and 1,925,000 stock options were
      excluded from the calculation of diluted loss per share for the three and nine
      months ended September 30, 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 carry forwards 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.




**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 fair 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.




10


**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
      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 September 30, 2007 and December 31,
      2006 consisted of the following and are stated at the amount
      deposited:




September
                30,
              2007
            
            December
                31,
              2006(unaudited)Deposits
                on raw materials held for production(display
                & manufacturing component)
            
            $
            702,206
            
            $
            1,199,453TOTAL
            
            $
            702,026
            
            $
            1,199,453





These
      deposits for raw materials, as of September 30, 2007, are held by one vendor,
      are not refundable and made pursuant to agreements as discussed in Note 2 under
      Major Suppliers.





**NOTE
      4 - WORK IN PROGRESS INVENTORY**




Work
      in
      progress inventory held for production at September 30, 2007 and December 31,
      2006 consisted of the following and is stated at the lower of cost or
      market:




September
                30,
              2007
            
            December
                31,
              2006(unaudited)Work
                in progress inventory
            
            $
            2,112,302
            
            $
            1,098,553TOTAL
            
            $
            2,112,302
            
            $
            1,098,553





**NOTE
      5 - PROPERTY AND EQUIPMENT**




Property
      and equipment at September 30, 2007 and December 31, 2006 consisted of the
      following:




September
                30,
              2007
            
            December
                31,
              2006(unaudited)Computer
                equipment
            
            $
            89,179
            
            $
            55,672Office
                equipment
            
            
            8,168
            
            
            8,168Furniture
                and fixtures
            
            
            24,386
            
            
            19,878Production
                equipment, capital lease
            
            
            32,598
            
            
            32,598Leasehold
                improvements
            
            
            5,610
            
            
            5,610Production
                equipment
            
            
            528,157
            
            
            473,736688,098
            
            
            595,662Less
                accumulated depreciation and amortization
            
            
            (375,112
            )
            
            (234,742
            )TOTAL
            
            $
            312,986
            
            $
            360,920




Depreciation
      expense was $48,938 (unaudited) and $35,514 (unaudited) for the three months
      ended September 30, 2007 and 2006, respectively.




Depreciation
      expense was $140,370 (unaudited) and $81,658 (unaudited), for the nine months
      ended September 30, 2007 and 2006, respectively.




12




**NOTE
      6 - INTANGIBLE ASSETS**




For
      the
      acquisition of the
      DisplayCard assets ofnCryptone 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.





Amortization
      expense for
      the
      three months ended September 30, 2007 and 2006 was $179,878 (unaudited) and
      $0
      (unaudited), respectively. Amortization expense for the nine months ended
      September 30, 2007 and 2006 was $533,769 (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.




13




**NOTE 7
      - COMMITMENTS AND CONTINGENCIES**




**LEASE**






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 $102,243 from July 1, 2007 through December 31, 2007, $209,063
      and $124,677 in calendar years 2008 and 2009, respectively.





On
      April
      1, 2007, the Company entered into a lease for temporary office space with Boss
      Buro Express in Paris, France for one month, which commenced on April 1,
      2007 and is renewable on a month to month basis. The Company paid initial
      charges, including security deposit and set up fees of $6,458 USD. The lease
      requires a monthly payment of 2,745 Euro which is inclusive of certain office
      services. Amounts payable under the lease are due in Euro.





On
      July
      12, 2007, the Company entered into a lease for temporary office space with
      Regus
      do Brasil Ltda. in Sao Paulo, Brazil, which commenced on July 16, 2007.
      Amounts payable under the lease are in Brazilian Real. The monthly amounts
      are
      variable under the lease depending upon term commitment and space usage. The
      Company paid initial charges, including security deposit and set up fees, of
      $7,858 USD. From July 16, 2007 through October 31, 2007 the company paid 7,000
      Brazilian Real per month, which is exclusive of certain office services. From
      November 1, 2007 through November 30, 2007, the base rent will be 7,540 Real.
      Beginning December 1, 2007, the base rent will be decreased to 4,750 Real
      exclusive of certain office services. Rent
      expense was $67,769 (unaudited) and $8,482 (unaudited) for the three months
      ended September 30, 2007 and 2006, respectively.Rent expense was
      $185,857 (unaudited) and $24,723 (unaudited) for the three and nine months
      ended
      September 30, 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 September 30, 2007, sales have not been sufficient to
      require any payments pursuant to the above agreements to PSACo.




**PATENT
      AND TRADEMARK LICENSE AGREEMENTS**





The
      Company entered into a Patent and Trademark License Agreement with a financial
      institution 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"). This agreement is 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
      AGREEMENTS**




The
      Company entered into an Employment Agreement with Alan Finkelstein, its Chief
      Strategic Officer and Director; the initial term of three years, began January
      1, 1998 and has since January 1, 2000 renewed for successive one year terms.
      As
      of September 30, 2007, the termination date is December 31, 2007. However, the
      agreement automatically renews for one year if not terminated by December
      17, 2007, unless the Company gives a notice of nonrenewal to Mr. Finkelstein.
      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.




14




**NOTE 8
      - 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.




**WARRANTS**




The
      following summarizes the warrant transactions:




WarrantsOutstanding
            
            Weighted-Average
 
Exercise
                PriceOutstanding,December
                31, 2006
            
            
            4,646,598
            
            $
            1.43Granted
                during 2007  (unaudited)
            
            
            —
            
            
            —Exercised
                during 2007  (unaudited)
            
            
            (19,500
            )
            $
            1.25Outstanding,
                September 30, 2007  (unaudited)
            
            
            4,627,098
            
            $
            1.42




During
      the nine months ended September 30, 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).




15


**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 initially reserved a total of 2,215,000 shares of its common stock
      for
      issuance pursuant to the 2004 Stock Incentive Plan. In September 2007, the
      Company increased the total shares reserved for issuance under the 2004 Stock
      Incentive Plan to 2,229,500, which is subject to shareholder approval. 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 and
      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.





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
      Company does not plan to issue any additional stock from the 2004 Stock
      Incentive Plan.





**2007
      EQUITY INCENTIVE PLAN**





The
      Company’s Board of Directors approved the 2007 Equity Incentive Plan, which is
      subject to stockholder approval. The 2007 Equity Incentive Plan provides for
      the
      issuance of restricted stock, options, and similar stock rights to executive
      officers, directors, employees and consultants.





The
      Company reserved a total of 4,000,000 shares of its common stock for issuance
      pursuant to the 2007 Equity Incentive Plan. The board of directors or a
      committee of the board administers the 2007 Equity Incentive Plan. Through
      September 30, 2007, only one grant has been made from the 2007 Equity Incentive
      Plan: 1,000,000 options to the Company’s CEO and the vesting is subject to
      various performance conditions under the executive’s employment
      agreement with the Company, which is in the process of being finalized. The
      Company anticipates recognizing $3,000,000 of Stock Compensation Expense during
      the term of the 1,000,000 options granted to the Company's CEO if the
      performance conditions are met. At September 30, 2007, none of the
      performace conditions had been met. The committee determines the exercise price
      of options granted under the 2007 Equity Incentive Plan, however the exercise
      price shall not be less than 100% of the Fair Market Value on the date that
      the
      option is granted for a nonqualified stock option. If the committee grants
      an
      incentive stock option, the option price shall not be less than 100% of the
      Fair
      Market Value of a share on the date that the option is granted. However, 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.
      The
      expiration dates for awards under the 2007 Equity Incentive Plan will occur
      on
      the earlier of five dates, subject to the discretion of the committee: (a)
      the
      date for termination of the option set forth in the award agreement, (b) the
      expiration of ten years from the date the option was granted, (c) the expiration
      of three months from the date of the participations termination of employment
      other than the participant’s death, disability retirement, (d) the expiration of
      twelve months from the date of the participant’s termination of employment by
      reason of disability, or (e) the expiration of twelve months from the date
      of
      participants death, if such death occurs while the participant is in the employ
      or service of the Company or an affiliate.




The
      2007
      Equity Incentive Plan will automatically terminate on September 24,
      2017.








The
      following summarizes stock option transactions for the period shown:




**Nine
                Months Ended**
              **September
                30, 2007****(unaudited)****WEIGHTED****AVERAGE**
              **EXERCISE**
              **PRICE****ALL
                OPTIONS**Outstanding
                at beginning of period
            
            
            2,351,000
            
            $
            2.37Options
                granted
            
            
            1,000,000
            
            $
            3.00Options
                forfeited
            
            
            (121,500
            )
            $
            4.89Options
                expired
            
            
            —
            
            
            —Options
                exercised
            
            
            (35,002
            )
            $
            1.00Outstanding
                at end of period
            
            
            3,194,498
            
            $
            2.29Exercisable
                at end of period
            
            
            879,998
            
            $
            1.18







**Nine Months Ended**
              **September
                30, 2007****(unaudited)****NON
                VESTED OPTIONS**
            
            
            
            **WEIGHTED****AVERAGE**
              **EXERCISE****PRICE**Non-vested
                at beginning of period
            
            
            1,516,000
            
            $
            2.68Options
                granted
            
            
            1,000,000
            
            $
            3.00Options
                forfeited
            
            
            (121,500
            )
            $
            4.89Options
                expired
            
            
            —
            
            
            —Options
                vested
            
            
            (80,000
            )
            $
            2.37Non-vested
                at end of period
            
            
            2,314,500
            
            $
            2.71




The
      weighted average grant-date fair value of options granted during the nine month
      periods ended September 30, 2007 and 2006 was $3.00 (unaudited) and $4.64
      (unaudited).




The
      weighted average remaining contractual lives of the options outstanding and
      options exercisable at September 30, 2007, were as follows:





**Options**
              **outstanding**
            
            **Options**
              **exercisable**September
                30, 2007 (unaudited)
            
            
            8.11
                years
            
            
            6.52
                years







16




The
      Company recorded $806,257 (unaudited) and $316,827 (unaudited) of compensation
      expense for employee stock options during the nine month periods ending
      September 30, 2007 and September 30, 2006, respectively which is included in
      the
      administrative expense category. The
      Company recorded $245,481 (unaudited) and $116,641 (unaudited) of compensation
      expense for employee stock options during the three month periods ending
      September 30, 2007 and September 30, 2006, respectively which is included in
      the
      administrative expense category. At
      September 30, 2007, there was a total of $5,586,604 of unrecognized compensation
      costs related to the non-vested share-based compensation arrangements under
      the
      2004 Plan and 2007 Plan. The cost is expected to be recognized over a weighted
      average period of 2.02 years. The total fair value of shares vested during
      the
      nine month period ended September 30, 2007 was approximately $189,240
      (unaudited). The aggregate intrinsic value of total outstanding options and
      total exercisable options was $6,646,700 (unaudited) and $2,360,700 (unaudited),
      respectively as of September 30, 2007.




The
      Black
      Scholes assumptions used are listed below:





**Nine
                Months Ended September 30, 2007**
            
            
            **Nine
                Months Ended September 30, 2006**(unaudited)
            
            
            (unaudited)Risk
                free interest rate
            
            
            4.97
            %
            
            3.49
            %Dividends
            
            
            —
            
            
            —Volatility
                factor
            
            
            200
            %
            
            200
            %Expected
                life
            
            
            10
                years
            
            
            10
                yearsAnnual
                forfeiture rate
            
            
            0
            %
            
            0
            %





**NOTE 9
      - RELATED PARTY TRANSACTIONS**




**ACCOUNTS
      PAYABLE - RELATED PARTIES**




Accounts
      payable - related parties at September 30, 2007 and December 31, 2006 consisted
      of amounts due for legal expense reimbursement, and for a licensing fee and
      were
      $703,720 (unaudited) and $1,322,159 respectively. As of September 30, 2007
      and
      December 31, 2006, $8,355 (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, and $695,365 (unaudited) and $1,260,987 is owed
      to
      nCryptone, S.A., respectively. The amount is currently due to BSTZ. Of the
      $1,260,987 balance owed to nCryptone at December 31, 2006, $1,000,010 was
      payable on June 27, 2007. On July 12, 2007, nCryptone and the Company agreed
      to
      make periodic payments in lieu of the lump sum as follows: $300,000 on July
      2,
      2007, $200,000 on September 30 th ,
      2007
      and $500,010 on December 31 st ,
      2007
      with the unpaid balances accruing annual interest of 6.36% per year. If the
      Company raises funds prior to any of the periodic payment dates, the Company
      agrees to pay the remaining balance upon completion of such financing. On
      October 5 th ,
      2007,
      the agreement was modified to allow the Company to pay $100,000 on October
      8th,
      2007 with $600,010 on December 31, 2007 with the unpaid balances accruing annual
      interest of 6.36% per year. If the Company raises funds prior to December 31,
      2007, the Company agrees to pay the remaining balance upon completion of such
      financing.





**CONSULTING
      AGREEMENTS**




The
      Company continues to be a party to a month to month Consulting Agreement with
      Forest Finkelstein, the son of Alan Finklestein and during the nine months
      ended
      September 30, 2007 and 2006, the Company paid $63,750 (unaudited) and $63,750
      (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 nine months ended September 30, 2007 and 2006, the Company paid
      $108,991 (unaudited) and $148,846 (unaudited), respectively, to this entity
      for legal services rendered.





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




On
      October 26, 2007, W. Robert Ramsdell, for accepting a position on the Board
      of
      Directors and serving as the Chairman of the Compensation Committee of the
      Company, received an option to purchase 68,511 shares of our common stock at
      an
      exercise price of $2.96 per share which will vest as follows: 28,511 on October
      25, 2008, 20,000 on October 25, 2009, and 20,000 on October 25, 2010.





Effective
      October 29, 2007, Mr. Bennet P. Tchaikovsky resigned as Chief Financial Officer
      of the Registrant. In connection with his separation from the Registrant, Mr.
      Tchaikovsky and the Registrant have entered into three separate agreements:
      an
      Indemnification Agreement, a Consulting Agreement, and a Separation Agreement.
      Beginning October 29, 2007 and ending on June 29, 2008, Mr. Tchaikovsky will
      be
      paid $12,270 per month plus certain other reimbursements for assisting the
      Registrant with transitioning the Registrant’s new Chief Financial Officer.
      However, if Mr. Tchaikovsky obtains full-time employment during the term of
      the
      Consulting Agreement, the Consulting Agreement will automatically terminate
      and
      no further payments will be due from the Registrant to Mr. Tchaikovsky. The
      Registrant and Mr. Tchaikovsky entered into a Separation Agreement whereby
      Mr.
      Tchaikovsky fully released the Registrant in consideration for Mr. Tchaikovsky
      becoming vested in his remaining 60,000 unvested options and waiving the
      termination period for all of his options.




Effective
      October 29, 2007, Mr. Charles Caporale was appointed Chief Financial Officer
      of
      the Registrant. Mr. Caporale and the Registrant are finalizing a written
      executive employment agreement with the Registrant, the material terms of which,
      are as follows: The employment agreement has a one year term which may be
      extended by mutual written consent of the parties for additional one-year
      terms.  Mr. Caporale will receive annual base compensation of $180,000 per
      year.  Subject to Board approval, he may also receive an additional
      increase of $20,000 in his base compensation and an annual bonus up to the
      amount of his base compensation.  Subject to Board approval, Mr. Caporale
      may also be issued 200,000 options priced at the closing price on the date
      of
      grant which shall vest pursuant to a schedule associated with the achievement
      of
      certain milestones. The options vest immediately upon termination of employment
      without cause by the Registrant or a change in control. In the event
      of a termination by the Registrant without cause Mr. Caporale would be entitled
      to six months’ severance.




On
      November 8, 2007, a warrant holder exercised 12,500 warrants resulting in the
      issuance of 12,500 shares of common stock for proceeds of $15,625.





17


**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 that
      could cause actual results to differ materially from the results contemplated
      by
      these forward-looking statements. We also urge the reader 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 continued to develop 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 which
      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 $9,306,645
      during the nine months ended September 30, 2007. As of September 30, 2007,
      we
      had an accumulated deficit of $23,040,207. Our continued existence will be
      dependent upon our ability to obtain additional financing, as we have not been
      able in the short term 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 short term needs and
      continue our current operations through December 2007. We anticipate that we
      will not be able to generate sales of the ICT DisplayCard in substantial
      quantities until 2008 to support our cash needs since the sales cycle for that
      product is longer than originally anticipated. Under the agreements to maintain
      exclusivity we purchased inventory and made deposits prior to orders being
      received from customers. These inventory purchases and deposits along with
      our
      operating expenses have collectively reduced the Company’s cash resources since
      we have not been able to sell our acquired inventory or utilize our deposits
      with suppliers or otherwise replenish such cash. As such, we will be required
      to
      raise operating capital in order to continue our current operations and/or
      to
      pursue any acquisitions of products. We have engaged an investment advisor
      to
      explore capital raising opportunities.




We
      may be
      unable to raise operating capital on terms satisfactory to us, if at all. There
      can be no assurances that we will be able to raise operating capital on
      satisfactory terms, or that sufficient revenues will be generated from the
      sales
      of our product in order to sustain our operations. Should our cash and liquidity
      position become severe, we would need to limit our operations which would harm
      the value of your investment in the Company.




**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.




18




We
      anticipate that future revenues in the next twelve months 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. These reseller agreements have
      generated several testing or “pilot” programs to test the ICT DisplayCard.
      Because these are programs to test our card and not a deployment within an
      organization or to customers, we credit any cash received from these testing
      or
“pilot” programs against research and development expense.





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 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.





Due
      to
      exclusivity contracts that we have entered into with our various suppliers,
      we
      have been required to make inventory purchases prior to orders being received
      from our customers. We entered into these exclusivity contracts anticipating
      significant orders. Since these sales orders have not materialized, we have
      built up a significant inventory which can make our inventory subject to
      obsolescence and/or declining value because of the low turnover of our
      inventory. Quarterly, management addresses such obsolescence and/or declining
      value and makes any appropriate adjustments to reflect the inventory value
      at
      the lower of cost or market.





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. Cash received from customers for testing
      or “pilot” programs are credited against research and development
      expense.





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 and nine months ended September 30, 2007, 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).




19


**RESULTS
      OF OPERATIONS**




**COMPARISON
      OF THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30,
      2006**




**OVERVIEW**




Our
      financial results for the three months ended September 30, 2007 reflect a net
      loss of $4,443,617, or $0.16 per share (basic and diluted), compared to a net
      loss of $1,070,305, or $0.04 per share (basic and diluted), for the three months
      ended September 30, 2006.




The
      major
      factors contributing to our increased net loss of $4,443,616 during the third
      quarter of 2007 were administrative expenses, professional fees, inventory
      writeoffs and reserves, unrecoverable payments to suppliers as a result of
      not
      meeting minimum purchase commitments and research and development expenses
      for
      new products and improving existing products.




Revenue.
      Revenue consists of royalties from the LensCard.




Total
      revenue decreased from $32,389 for the three months ended September 30, 2006
      to
      $159 for the three months ended September 30, 2007. The decrease resulted
      primarily from recognition of deferred revenue on LensCard royalties received
      from a terminated licensing agreement during the three months ended September
      30, 2006. We believe that future revenue will be primarily from the sales
      of the ICT DisplayCard; we anticipate that such revenues may begin in early
      2008.





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




Administrative
      expense increased from $778,005 for the three months ended September 30, 2006
      to
      $1,779,763 for the three months ended September 30, 2007. Administrative expense
      increased primarily due to the hiring of additional employees, 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 as we incur increased costs associated
      with establishing our operations.




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 $202,905 for the three months ended September 30,
      2006 to $285,928 for the three months ended September 30, 2007. Professional
      fees expense increased as a result of costs to evaluate a potential acquisition.
      We anticipate that professional fees will continue to increase as we will have
      to assess our internal controls as required by Sarbanes-Oxley in order
      to furnish our report on our initial assessment for the year ended December
      31,
      2007 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 $181,782 for the three months ended
      September 30, 2006 to $442,130 for the three months ended September 30, 2007
      primarily due to engineering charges from a supplier. 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.




Inventory
      Writeoffs and Reserves. Inventory writeoffs and reserves consist of expenses
      to
      record obsolete inventory.





Inventory
      writeoffs and reserves increased from $40,042 for the three months ended
      September 30, 2006 to $179,621 for the three months ended September 30, 2007
      due
      to increased reserves relating to components purchased for the ICT DisplayCard.
      We anticipate that inventory writeoffs and reserves will decrease as we
      anticipate selling our ICT DisplayCard with one time password in early 2008
      which will utilize our standing inventory.





Unrecoverable
      Payments to Suppliers. Unrecoverable payments to suppliers expense consist
      of
      payments made to third party suppliers for deposits that we no longer expect
      to
      utilize, purchase orders that we do not expect to fulfill and accrued
      expenses to satisfy irrevocable purchase orders.





Unrecoverable
      payments to suppliers increased from $0 for the three months ended September
      30,
      2006 to $1,546,428 for the three months ended September 30, 2007 to recognize
      the diminished value of certain deposits made on the basis of production volume
      that will not be realized and to accrue for costs that we expect to
      pay in the future as we did not complete certain irrevocable purchase orders.
      At
      this time, we do not anticipate that unrecoverable payments to suppliers will
      increase in the future as management considers these to be one time
      charges.





Depreciation
      and amortization expense. Depreciation and amortization increased from $35,514
      for the three months ended September 30, 2006 to $228,816 for the three months
      ended September 30, 2007 due to amortization expense related to the intangible
      assets acquired as part of the nCryptone asset acquisition.





Interest
      income. Interest income decreased from $135,796 for the three months ended
      September 30, 2006 to $31,609 for the three months ended September 30, 2007
      due
      to a decreased operating cash balance that was earning interest during the
      three
      months ended September 30, 2007.




Interest
      expense. Interest expense increased from $242 for the three months ended
      September 30, 2006 to $11,899 for the three months ended September 30, 2007
      as a
      result of interest accruing on a balance owed to a related party that the
      Company is presently deferring.





**COMPARISON
      OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30,
      2006**




**OVERVIEW**




Our
      financial results for the nine months ended September 30, 2007 reflect a net
      loss of $9,306,645, or $0.33 per share (basic and diluted), compared to a net
      loss of $3,862,520, or $0.18 per share (basic and diluted), for the nine months
      ended September 30, 2006.




The
      major
      factors contributing to our increased net loss of $9,306,645 during the nine
      months ended September 30, 2007 were administrative expenses, professional
      fees,
      inventory writeoffs and reserves, unrecoverable payments to suppliers as a
      result of not meeting minimum purchase commitments and research and development
      expenses relating to new products and improving existing products.




Revenue.
      Revenue consists of royalties from the LensCard.




20




Total
      revenue decreased from $34,617 for the nine months ended September 30, 2006
      to
      $2,669 for the nine months ended September 30, 2007. The decrease resulted
      primarily from recognition of deferred revenue on LensCard royalties received
      from a terminated licensing agreement during the nine months ended September
      30,
      2006. We believe that future revenue will be primarily from the sales of
      the ICT DisplayCard; we anticipate that such revenues may begin in early
      2008.




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




Administrative
      expense increased from $2,713,545 for the nine months ended September 30, 2006
      to $4,910,397 for the nine months ended September 30, 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 as we incur increased
      costs associated with establishing our operations.




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 $757,200 for the nine months ended September
      30, 2006 to $853,146 for the nine months ended September 30,
      2007. Professional fees expense increased due to increased accounting fees
      and legal costs. We anticipate that professional fees will continue to
      increase as we will have to assess our internal controls as required
      by 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 $525,429 for the nine months ended
      September 30, 2006 to $911,540 for the nine months ended September 30, 2007
      due
      to increased expenses 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.





Inventory
      Writeoffs and Reserves. Inventory writeoffs and reserves consist of expenses
      to
      record obsolete inventory.





Inventory
      writeoffs and reserves increased from $40,042 for the nine months ended
      September 30, 2006 to $575,017 for the nine months ended September 30, 2007
      due
      to increased reserves relating to components purchased for the ICT DisplayCard.
      We anticipate that inventory writeoffs and reserves will decrease as we
      anticipate selling our ICT DisplayCard with one time password in early 2008
      which will utilize our standing inventory.





Unrecoverable
      Payments to Suppliers. Unrecoverable payments to suppliers expense consist
      of
      payments made to third party suppliers for deposits that we no longer expect
      to
      utilize, purchase orders that we do not expect to fulfill and accrued expenses
      to satisfy irrevocable purchase orders.




Unrecoverable
      Payments to Suppliers increased from $0 for the nine months ended September
      30,
      2006 to $1,546,428 for the nine months ended September 30, 2007 to recognize
      the
      diminished value of certain deposits made on the basis of production volume
      that
      will not be realized and to accrue for costs that we expect to pay in the
      future as we did not complete certain irrevocable purchase orders. At this
      time,
      we do not anticipate that unrecoverable payments to suppliers will increase
      in
      the future as management considers these to be one time charges.





Depreciation
      and amortization expense. Depreciation and amortization increased from $81,658
      for the nine months ended September 30, 2006 to $674,139 for the nine months
      ended September 30, 2007 due to amortization expense related to the intangible
      assets acquired as part of the nCryptone asset acquisition.





Interest
      income. Interest income decreased from $224,180 for the nine months ended
      September 30, 2006 to $174,301 for the nine months ended September 30, 2007
      due
      to a decreased operating cash balance that was earning interest during the
      nine
      months ended September 30, 2007.




Interest
      expense. Interest expense increased from $1,043 for the nine months ended
      September 30, 2006 to $12,148 for the nine months ended September 30, 2007
      as a
      result of interest accruing on a balance owed to a related party that the
      Company is presently deferring.




**LIQUIDITY
      AND CAPITAL RESOURCES**




Our
      principal sources of liquidity have been cash and cash equivalent balances,
      which were $8,270,096 at December 31, 2006 and $1,498,234 as of September 30,
      2007. Since our inception, we have incurred significant losses, and as of
      December 31, 2006 and September 30, 2007 we had an accumulated deficit of
      $13,733,561 and $23,040,207, respectively. The source of the cash and cash
      equivalent balances has come from equity financings.




Net
      cash
      used in operating activities was $6,692,631 for the nine months ended September
      30, 2007 as compared with $4,342,930 for the nine months ended September 30,
      2006. This significant increase in cash used was primarily due to a greater
      net
      loss as we continue to further establish our operations and deposits and
      inventory purchases paid to our suppliers.




Net
      cash
      used in investing activities was $92,436 for the nine months ended September
      30,
      2007 as compared with $65,752 for the nine months ended September 30, 2006.
      The
      increase was due to more production equipment being purchased during the nine
      months ended September 30, 2007.




21




Net
      cash
      provided by financing activities was $13,205 for the nine months ended September
      30, 2007 as compared to $11,047,372 for the nine months ended September 30,
      2006. The decrease occurred because of the $11,356,500 in gross proceeds from
      the private offering that took place during the nine months ended September
      30,
      2006.




**EQUITY
      FINANCINGS AND ACCOUNTS PAYABLE**




To
      date,
      our operations have been funded primarily through equity financings totaling
      $21,803,691. In order to continue our operations beyond December 2007, we will
      need to raise additional capital. If we are to exercise our right to acquire
      control over a supplier, then we will need financing both for that transaction
      and for the supplier’s operating expenses, in addition to the cash needed
      to continue our operations beyond December 2007. Our significant equity
      financings from January 1, 2006 through November 9, 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 expires 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 was payable by June 27, 2007. Through November 9, 2007
      we
      have paid $400,000 towards this payable. On October 5, 2007, we agreed to make
      additional payments to nCryptone as follows: $600,010 on December 31, 2007
      with
      any unpaid balance from June 28, 2007 accruing annual interest of  6.36%
      per year. If we complete a fundraising event prior to the remaining balance
      becoming due, we agreed to pay the full remaining balance to nCryptone upon
      completion of such financing.




**FUTURE
      NEEDS - OPERATING CAPITAL REQUIREMENTS AND POTENTIAL
      ACQUISITIONS**




We
      believe that our current cash of $968,413 as of November 16, 2007, is sufficient
      to meet our needs through December 2007. We anticipate that we will not be
      able
      to generate sales of the ICT DisplayCard in substantial quantities until 2008
      to
      support our operating cash needs since the sales cycle for that product is
      longer than originally anticipated. As such, we will be required to raise
      operating capital in order to continue our current operations. We have engaged
      an investment advisor to explore capital raising opportunities.





We
      will
      also be required to raise operating capital if we are to exercise our purchase
      option to acquire a significant supplier or if we intend to pursue any
      other acquisitions of products.




We
      do not
      have any binding commitments for, or readily available sources of, additional
      financing at this time. 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. There can be no assurances
      that we will be able to raise operating capital on satisfactory terms, or that
      sufficient revenues will be generated from the sales of our product in order
      to
      sustain our operations. Should our cash and liquidity position become severe,
      we
      would need to limit our operations which would harm the value of your investment
      in the Company.





**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,
      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 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**




Steven
      Delcarson was appointed the Chief Executive Officer and President effective
      September 21, 2007. As part of this appointment, Mr. Delcarson was issued
      1,000,000 options priced at $3.00 the closing price on September 21, 2007 which
      shall vest pursuant to a schedule associated with the achievement of certain
      milestones. In the event of a termination by the Company without cause or a
      change in control of the Company, all options issued would vest upon the
      occurrence of such event. The Company relied upon the exemption from
      registration as set forth in Section 4(2) of the Securities Act for the
      issuance of these options. Mr. Delcarson was an accredited investor within
      the
      meaning of Regulation D of the Securities Act, took the options for
      investment purposes without a view to distribution and had access to information
      concerning the Company and its business prospects, as required by the Securities
      Act. In addition, there was no general solicitation or advertising for the
      issuance of the options.  Due to Mr. Delcarson’s status as an accredited
      investor and his position with the Company, the Company deems him to be
      sophisticated for the purposes of Section 4(2) of the Securities
      Act.




**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**





**ITEM
      6. 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:
                November 19, 2007
            
            /s/ Steve
                DelcarsonSteve
                DelcarsonCEO




Date:
                November 19, 2007
            
            /s/ Charles
                CaporaleCharles
                CaporaleChief
                Financial Officer




23


**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




24





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, 200410.11**
            
            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




25





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 Ethics10.44
                (1)
            
            2007
                Equity Incentive Plan10.46
                (12)
            
            Separation
                agreement between registrant and Bennet Tchaikovsky dated October
                29,
                200710.47
                (12)
            
            Consulting
                agreement between registrant and Bennet Tchaikovsky dated October
                29,
                200710.48
                (12)
            
            Indemnification
                agreement between registrant and Bennet Tchaikovsky dated October
                29,
                200721.1
                  (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.




26




(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
                SEC on
                July 12, 2006.(11)
            
            Previously
                filed by the registrant on Form 10QSB with the SEC on November 13,
                2006.(12)
            
            Previously
                filed by the registrant on Form 8-K with the SEC on November 1,
                2007.








27