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, 2005

                                       or

     [ ] 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                               14-1861651
   (State or Other jurisdiction of                   (IRS Employer
    incorporation or organization)                Identification No.)


    11601 Wilshire Boulevard, Suite 2160                   90025
  ----------------------------------------              ----------
        Los Angeles, California                         (Zip Code)
(Address of principal executive offices)


                                 (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 [ ]

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 8, 2005: 17,694,566 shares

Transitional Small Business Disclosure Format: Yes [ ] No [X]



<PAGE>



                       INNOVATIVE CARD TECHNOLOGIES, INC.

                               INDEX TO FORM 10QSB

                          PART I FINANCIAL INFORMATION


Item 1.     Financial Statements                                            PAGE

            Consolidated Balance Sheets at September 30, 2005 (unaudited)
            and December 31, 2004                                             3

            Consolidated Statements of Operations for the three and
            nine month periods ended September 30, 2005 and September 30,
            2004 (unaudited)                                                  4

            Consolidated Statement of Stockholder's Deficit
            (unaudited)                                                       5

            Consolidated Statements of Cash Flows for the nine month
            periods ended September 30, 2005 and September 30, 2004
            (unaudited)                                                       6

            Notes to Unaudited Consolidated Financial Statements              8

Item 2.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations                              28

Item 3.     Controls and Procedures                                          41

PART II     OTHER INFORMATION

Item 1.     Legal Proceedings                                                41

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds      41

Item 3.     Defaults Upon Senior Securities                                  41

Item 4.     Submission of Matters to a Vote of Security Holders              41

Item 5.     Other Information                                                41

Item 6.     Exhibits and Reports on Form 8-K                                 41

            SIGNATURES

                                        2


<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                       INNOVATIVE CARD TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS

              DECEMBER 31, 2004 AND SEPTEMBER 30, 2005 (UNAUDITED)

<TABLE>
<CAPTION>
                                                            September 30,
                                                                 2005         December 31,
ASSETS                                                       (unaudited)          2004
                                                             -----------      -----------
<S>                                                          <C>              <C>
CURRENT ASSETS
   Cash and cash equivalents                                 $   135,239      $   541,784
   Prepaids and other current assets                              12,196           41,431
   Accounts receivable                                                --            3,315
   Raw materials held for production                             135,951               --
                                                             -----------      -----------
     Total current assets                                        283,386          586,530
PROPERTY AND EQUIPMENT, NET                                      260,283           42,443
                                                             -----------      -----------
Total assets                                                 $   543,669      $   628,973
                                                             ===========      ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
     Accounts payable and accrued expenses                       937,318          157,254
     Notes payable                                               593,570          648,270
     Demand notes payable                                         50,333               --
     Demand notes payable - related parties                      671,183               --
     Accounts payable - related parties                          564,811          373,980
     Advances - Stock Subscriptions                              196,000               --
     Short term portion of capital lease                           9,150            8,627
     Deferred revenue                                             37,428           40,485
                                                             -----------      -----------
     Total current liabilities                                 3,059,793        1,228,617
                                                             -----------      -----------
LONG TERM LIABILITIES
     Long term portion of capital lease                           10,757           17,686
                                                             -----------      -----------
Total liabilities                                              3,070,550        1,246,303
                                                             -----------      -----------

STOCKHOLDERS' DEFICIT
   Preferred stock $0.001 par value, 5,000,000 shares
        Authorized, 0 (unaudited) and 2,843,500
        shares issued and outstanding                                 --            2,844
   Common stock $0.001 par value, 50,000,000 shares
        Authorized, 10,893,500 (unaudited) and 8,050,000
        shares issued and outstanding                             10,894            8,050
   Additional paid-in capital                                  3,673,715        3,673,715
   Accumulated deficit                                        (6,211,490)      (4,301,939)
                                                             -----------      -----------
     Total stockholders' deficit                              (2,526,881)        (617,330)
                                                             -----------      -----------
     Total liabilities and stockholders' deficit             $   543,669      $   628,973
                                                             ===========      ===========
</TABLE>


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

                                        3


<PAGE>



                       INNOVATIVE CARD TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)

<TABLE>
<CAPTION>
                                     Three months       Three months      Nine months       Nine months
                                         ended            ended              ended             ended
                                     September 30,     September 30,     September 30,     September 30,
                                         2005             2004               2005               2004
                                      (unaudited)       (unaudited)       (unaudited)       (unaudited)
                                     ------------      ------------      ------------      ------------
<S>                                  <C>               <C>               <C>               <C>
Revenues, net                        $        133      $     (4,300)     $      2,878      $     12,724
                                     ------------      ------------      ------------      ------------
Operating expenses
   Administrative                         283,339           182,168           791,950           450,285
   Consulting Fees                         48,750             7,500            63,750           116,524
   Professional Fees                       58,981            52,656           324,712           203,909
   Research and development               247,411           127,029           693,218           283,175
                                     ------------      ------------      ------------      ------------
Total operating expenses                  638,481           369,353         1,873,630         1,053,893
                                     ------------      ------------      ------------      ------------
Loss from operations                     (638,348)         (373,653)       (1,870,752)       (1,041,169)
                                     ------------      ------------      ------------      ------------

Other income (expense)
   Interest income                             61                 0               189                 1
   Interest expense                       (17,220)           (2,316)          (38,189)          (21,790)
                                     ------------      ------------      ------------      ------------
Total other income (expense)              (17,158)           (2,316)          (38,000)          (21,789)
                                     ------------      ------------      ------------      ------------

Income (loss) before provision
 for income taxes                        (655,506)         (375,069)       (1,908,752)       (1,062,958)
                                     ------------      ------------      ------------      ------------
Provision for income taxes                     --                --              (800)               --
                                     ------------      ------------      ------------      ------------

Net loss                             $   (655,506)     $   (375,069)     $ (1,909,552)     $ (1,062,958)
                                     ------------      ------------      ------------      ------------

Basic and diluted loss per share     $      (0.06)     $      (0.05)     $      (0.21)     $      (0.18)
                                     ============      ============      ============      ============
Weighed-average
 common shares outstanding             10,893,500         8,050,000         9,053,985         5,920,438
                                     ============      ============      ============      ============
</TABLE>



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

                                        4


<PAGE>

                       INNOVATIVE CARD TECHNOLOGIES, INC.
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                                   (unaudited)

<TABLE>
<CAPTION>
                                      Series A Preferred
                                            Stock                    Common Stock         Additional
                                   ------------------------   -------------------------     Paid-in      Accumulated
                                      Shares       Amount        Shares       Amount        Capital        Deficit         Total
                                   -----------  -----------   -----------   -----------   -----------    -----------    -----------
<S>                                <C>          <C>           <C>           <C>           <C>            <C>            <C>
Balance, December 31, 2004           2,843,500  $     2,844     8,050,000   $     8,050   $ 3,637,715    $(4,301,939)   $  (617,330)
Conversion of Series A Prefrered
     Stock to Common Stock,
     May 5, 2005                    (2,843,500) $    (2,844)    2,843,500   $     2,844           --              --             --
Net loss for the nine months ended
    September 30, 2005 (unaudited)         --           --            --            --            --      (1,909,552)    (1,909,552)
                                   -----------  -----------   -----------   -----------   -----------    -----------    -----------
Balance, September 30, 2005                --   $       --     10,893,500   $    10,894   $ 3,637,715    $(6,211,491)   $(2,526,882)
                                   ===========  ===========   ===========   ===========   ===========    ===========    ===========
</TABLE>



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

                                        5


<PAGE>

                       INNOVATIVE CARD TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)

<TABLE>
<CAPTION>
                                                               For the Nine Months Ended
                                                                      September 30,
                                                              ----------------------------
                                                                 2005             2004
                                                              -----------      -----------
                                                              (unaudited)      (unaudited)
<S>                                                           <C>              <C>
Cash flows from operating activities
   Net loss                                                   $(1,909,552)     $(1,062,958)
   Adjustments to reconcile net loss to net cash
     used in operating activities
        Depreciation and amortization                              51,864            3,434
        (Increase) decrease in
             Accounts receivable                                    3,315           11,017
             Prepaid expenses and other current assets             29,235          (37,813)
             Raw materials held for production                   (135,951)              --
             Other receivables                                         --              (60)
        Increase (decrease) in
             Accounts payable and accrued expenses                780,063          (66,270)
             Accounts payable - related parties                   190,831          (25,859)
             Deferred revenue                                      (3,058)           5,485
                                                              -----------      -----------
Net cash used in operating activities                            (993,252)      (1,173,024)
                                                              -----------      -----------
Cash flows from investing activities
       Purchase of Property and Equipment                        (269,702)         (25,545)
       Loan receivable- employee                                       --            8,093
                                                              -----------      -----------
Net cash used in investing activities                            (269,702)         (17,452)
                                                              -----------      -----------
Cash flows from financing activities
        Gross Proceeds from/of notes payable                           --          246,128
        Gross Repayment from/of notes payable                     (54,701)        (675,868)
        Proceeds from demand notes payable                         50,000               --
        Proceeds from series A preferred stock offering                --        1,825,000
        Proceeds from common stock offering                            --           50,000
        Advances stock subscriptions                              196,000               --
        Proceeds from issuance of common stock                         --            8,050
        Receivable from common stock issuance                          --           (8,050)
        Proceeds from demand notes payable                         50,000               --
        Proceeds from notes payable related parties               650,000               --
        Interest payable                                              333               --
        Interest payable- related parties                          21,183            4,125
        Payments on capital lease                                  (6,405)              --
                                                              -----------      -----------
Net cash provided by financing activities                         856,410        1,449,385
                                                              -----------      -----------
Net increase (decrease) in cash and cash
   equivalents                                                   (406,544)         258,910
Cash and cash equivalents, beginning of year                      541,784           37,691
                                                              -----------      -----------
Cash and cash equivalents, end of period                      $   135,239      $   296,601
                                                              ===========      ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements

                                        6
<PAGE>

                       INNOVATIVE CARD TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)


<TABLE>
<S>                                                           <C>              <C>
Supplemental disclosures of cash flow information
        Interest paid                                         $   15,435       $    17,665
                                                              ===========      ===========
        Income tax paid                                       $      800       $         0
                                                              ===========      ===========
</TABLE>

During the nine months ended September 30, 2005,

- 2,843,500 shares of preferred stock with a par value of $0.001 was converted
into 2,843,500 shares of common stock with a par value of $0.001.

- the Company paid $800 of income taxes

During the nine months ended September 30, 2004,

- $275,000 of notes payable - related parties was converted into 275,000 shares
of series A preferred stock.

- 50,000 shares of common stock valued at $50,000 were issued as offering costs

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

                                        7


<PAGE>

                       INNOVATIVE CARD TECHNOLOGIES, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2005

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

                                     GENERAL

The accompanying consolidated financial statements of Innovative Card
Technologies, Inc. ("ICTI") include the amounts of 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.

On April 2, 2004 through October 18, 2004, a series of integrated, mutually
dependent transactions were completed pursuant to previously-executed
agreements. These transactions are as follows:

o On April 2, 2004, the following occurred:

Certain members of LensCard US and another party who collectively hold certain
royalty rights ("Royalty Rights") collectively transferred their interests in
the Royalty Rights to LCC in exchange for an aggregate of 5,500,000 shares of
LCC common stock.

The Royalty Rights were transferred from LCC to PSAC in exchange for 100% of the
PSAC issued and outstanding common stock causing PSAC to become a wholly owned
subsidiary of LCC.

o On April 6, 2004,the following occurred:

LensCard International was acquired by LCC in exchange for an aggregate of
1,000,000 shares of LCC common stock and merged with and into LCC.

LensCard US exchanged 100% of its membership interests with LCC for an aggregate
of 1,000,000 shares of LCC common stock.

o On December 23, 2003, LCC entered into a Securities Purchase Agreement with a
private investor under which it was to receive $50,000 in exchange for issuing
500,000 shares of LCC common stock and warrants to purchase 2,400,000 shares of
LCC common stock. The closing of the Securities Purchase Agreement was
contingent upon the private investor introducing the Company to potential
investors and the potential investors purchasing a minimum of $1,500,000 of

                                        8


<PAGE>

the Company's series A preferred stock financing. As of May 5, 2004, the parties
waived this contingency under the Securities Purchase Agreement. On May 5, 2004,
LLC received $50,000 from the private investor and issued 500,000 shares of
common stock and warrants to purchase 2,400,000 shares of common stock. If LCC
causes a Registration Statement to be effective, an aggregate 100,000 of the
warrants will expire sixty days after the effective date of the Registration
Statement, an aggregate 100,000 of the warrants will expire each month
thereafter for nine months, and the remaining 1,400,000 of the warrants will
expire on September 5, 2006.

o On April 7, 2004, we issued convertible promissory notes in the principal
amount of $340,000 to five accredited investors. These notes did not bear
interest and were automatically converted into an aggregate 340,000 shares of
series A preferred stock on May 5, 2004.

                                        9


<PAGE>

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS (CONTINUED)

o From April 7, 2004 through October 18, 2004, investors purchased 2,568,500
shares of LCC convertible series A preferred stock ("Preferred Stock") for
$2,568,500, which includes the conversion of $340,000 worth of convertible
promissory notes into 340,000 shares of series A preferred stock on April 7,
2004. Not included in the $2,568,500 is the conversion of advances payable in
the amount of $275,000 into 275,000 shares of series A preferred stock to
certain stockholders. Each share of Preferred Stock has a 0.001 par value, a
non-cumulative dividend of $0.06 per share when and if declared by the board of
directors, liquidation preference over the common stock, and conversion rights
into one share of common stock at $1 per share. Each share of Preferred Stock
shall be automatically converted into shares of Common Stock upon either (i) the
affirmative vote or written consent of not less than two- thirds of the shares
of Preferred Stock outstanding; or (ii) the registration of the LCC's Common
Stock under the Securities Act pursuant to the Registration Rights.

o On June 25, 2004, LCC changed its name to Innovative Card Technologies, Inc.

Prior to April 1, 2004, the financial statements of LensCard US and LensCard
International were presented on a combined basis since the companies were under
common control. As a result of the transactions between LCC, LensCard US and
LensCard International on April 2, 2004 and April 6, 2004, respectively, the
financial statements have been restated to present the companies on a
consolidated basis as of the earliest date presented.

COMPANY OVERVIEW

The Company (as defined in Note 3) researches, develops and markets
technology-based card enhancements primarily for the credit card market that are
designed to enable issuers to improve card functionality, reduce attrition and
increase acquisition rates of customers. 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 our efforts to complete the
development of its power inlay technology, initiate marketing and raising the
financing required to do so and fund its expenses. It has generated limited
revenues that derive from licensing agreements of its LensCard product, most of
which have terminated.

                                       10


<PAGE>

NOTE 2 - GOING CONCERN

The accompanying consolidated financial statements have been prepared in
conformity with United States generally accepted accounting principles which
contemplate continuation of the Company (as defined in Note 3) as a going
concern. During the year ended December 31, 2004 and nine months ended September
30, 2005, the Company incurred net losses of $1,621,740 and $1,909,552
(unaudited), respectively, and had negative cash flows from operations of
$1,664,303 and $993,252 (unaudited), respectively. In addition, the Company
had accumulated deficits of $4,301,939 and $6,211,490 (unaudited) at December
31, 2004 and September 30, 2005, respectively. These factors raise substantial
doubt about the Company's ability to continue as a going concern.

Recovery of the Company's assets is dependent upon future events, the outcome of
which is indeterminable. Successful transition of the Company to the attainment
of profitable operations is dependent upon the Company achieving a level of
sales adequate to support the Company's cost structure. In addition, the Company
plans to continue to attempt to raise additional capital. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue in
existence.

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                              BASIS OF PRESENTATION

The consolidated interim financial statements of Innovative Card Technologies,
Inc. and its wholly owned subsidiary, PSA Co. (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 Form SB-2 for the year ended December 31, 2004. 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. Examples include the value of raw materials inventory and
the value of property and equipment, net. The actual results experienced by the
Company may differ from management's estimates.

The interim financial information is unaudited, but reflects all normal
recurring adjustments that are, in the opinion of management, necessary to
fairly present the information set forth therein. The interim financial
statements should be read in conjunction with the audited financial statements
and related notes included in the Company's 2004 audited financial statements
contained in Form SB-2 filed with the Securities and Exchange Commission on
April 21, 2005. Interim results are not necessarily indicative of the results
for a full year. Certain amounts reported in previous periods have been
reclassified to conform to the current presentation.

                           PRINCIPLES OF CONSOLIDATION

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

                               REVENUE RECOGNITION

The Company's revenue is derived from various royalty agreements and is
recognized when sales are reported by the licensee. Deferred revenue consists of
payments received in advance of revenue being reported by the licensee to the
Company.

                              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.

                    CASH AND CASH EQUIVALENTS/BOOK OVERDRAFT

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.

                                       11


<PAGE>

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                             PROPERTY AND EQUIPMENT

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

                       FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                            RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations as incurred.

                                       12


<PAGE>

                                 LOSS PER SHARE

The Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per share is
computed by dividing loss available to common stockholders 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
2,400,000 warrants were excluded from the calculation of diluted loss per share
for the three and nine months ended September 30, 2005. The Company did not have
any other common stock equivalents outstanding during the three and nine months
ended September 30, 2005.

                                  INCOME TAXES

The Company utilizes Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income.

The results of operations presented for the nine months ended September 30, 2004
are those of LensCard US and LensCard International prior to the transactions
with LCC on April 1, 2004. LensCard US is a limited liability company.
Accordingly, all federal and state tax responsibilities of this entity are those
of the members' individually. LensCard International is a foreign corporation
whose income is derived from outside of the United States of America. Pursuant
to the Internal Revenue Code Section 871, LensCard International is not subject
to taxation in the United States of America. Therefore, a tax provision for LCC
for these dates is not presented.

                              STOCK INCENTIVE PLAN

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

                                    ESTIMATES

The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

                                       13


<PAGE>

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                                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 December 2004, the FASB issued a revision to FASB Statement No. 123,
Accounting for Stock-Based compensation. This Statement supersedes APB Opinion
No. 23, Accounting for Stock Issued to Employees. This Statement establishes
standards for the accounting for transactions in which an entity exchanges its
equity transactions for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of entity's equity
instruments or that may be settled by the issuance of those equity instruments.
This Statement is effective for public entities that file as small business
issuers as of the beginning of the first interim or annual reporting period that
begins after December 15, 2005. The Company is in the process of determining the
effect on the financial statements.

NOTE 4 - RAW MATERIALS HELD FOR PRODUCTION

Raw materials held for production at September 30, 2005 and December 31, 2004
consisted of the following and is stated at the lower cost or market:

<TABLE>
<CAPTION>
                                                  September 30,     December 31,
                                                      2005             2004
                                                  ------------      -----------
                                                   (unaudited)
<S>                                               <C>               <C>
Raw materials held for production
  (battery component)                               $135,951          $    --
Work in progress                                          --               --
Finished Goods                                            --               --
                                                   -----------      -----------
   TOTAL                                            $135,951          $    --
                                                   ===========      ===========
</TABLE>



                                       14


<PAGE>

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2005 and December 31, 2004 consisted of
the following:

<TABLE>
<CAPTION>
                                                  September 30,     December 31,
                                                      2005              2004
                                                   -----------      -----------
                                                   (unaudited)
<S>                                               <C>               <C>
Computer equipment                                    $ 9,808          $ 9,808
Office equipment                                        8,168            8,168
Furniture and fixtures                                 18,270           18,270
Production equipment, capital lease                    32,598           32,598
Leasehold improvements                                  5,610            5,610
Production equipment                                  269,703               --
                                                   -----------      -----------
                                                      344,157           74,454

Less accumulated depreciation and amortization         83,875           32,011
                                                   -----------      -----------
   TOTAL                                             $260,282          $42,443
                                                   ===========      ===========
</TABLE>



                                       15


<PAGE>

NOTE 5 - PROPERTY AND EQUIPMENT (CONTINUED)

During the year ended December 31, 2004, the Company had made commitments to
purchase $222,966 worth of production equipment that was not received by the
company by December 31, 2004 and therefore was not included in the Property and
Equipment balance as of December 31, 2004. See Note 8 for additional details.

Depreciation and amortization expense was $7,255, $29,731 (unaudited), $1,145
(unaudited), $51,864 (unaudited), and $3,434 (unaudited), for the year ended
December 31, 2004, the three months ended September 30, 2005 and 2004, and the
nine months ended September 30, 2005 and 2004, respectively.

NOTE 6 - NOTES PAYABLE

On October 30, 2002, the Company entered into a note payable with a financial
institution in exchange, for an aggregate borrowing limit of $450,000. Of the
$450,000, $350,000 was received during the 12 months ended December 31, 2002
while $100,000 was received during the 12 months ended December 31, 2003. The
loan was repaid on May 24, 2004. The balance of the note payable beared interest
at a rate of 4.0% per annum through the date of renewal, and 1.8% per annum
thereafter. As of December 31, 2004 and September 30, 2005 the outstanding
balance on the note payable was $0 and $0 (unaudited). The Company has no
further borrowing capacity under this agreement.

On April 22, 2003, the Company entered into a second note payable with the same
financial institution in exchange for gross proceeds of $150,000. The second
note has been renewed through April 30, 2006. The balance of the note payable
bears interest at 1.8% per annum through the date of renewal, and 4.1% per annum
thereafter. As of December 31, 2004 and September 30, 2005, the outstanding
balance on the note payable was $150,000 and $150,000 (unaudited).

On July 16, 2003, the Company entered into a third note payable with the same
financial institution in exchange for gross proceeds of $150,000. The third note
has been renewed through April 30, 2006. The balance of the note payable bears
interest at 1.8% per annum through the date of renewal, and 3.1% per annum
thereafter. As of December 31, 2004 and September 30, 2005, the outstanding
balance on the note payable was $150,000 and $150,000 (unaudited).

On September 24, 2003, the Company entered into a fourth note payable with the
same financial institution in exchange for gross proceeds of $150,000. The
fourth note has been renewed through April 30, 2006. The balance of the note
payable bears interest at 1.9% per annum through the date of renewal, and 2.7%
per annum thereafter. As of December 31, 2004 and September 30, 2005, the
outstanding balance on the note payable was $150,000 and $150,000 (unaudited).

On December 30 2003, the Company entered into a fifth note payable with the same
financial institution in exchange for gross proceeds of $200,000. The fifth note
matured on March 15, 2004 and was paid in full on May 24, 2004. The balance of
the note payable beared interest at a rate of 4.0% per annum. As of December 31,
2004 and September 30, 2005, the outstanding balance on the note payable was $0
and $0 (unaudited). The Company has no further borrowing capacity under this
agreement.

                                       16


<PAGE>

NOTE 6 - NOTES PAYABLE (CONTINUED)

On May 24, 2004, the Company entered into a sixth note payable with the same
financial institution in exchange for gross proceeds of $246,128. The sixth note
matured on May 31, 2005 and was renewed until July 31, 2005. The balance of the
note payable initially beared interest at 4.0% through the date of renewal. The
interest rate is subject to change from time to time based on changes in an
index which is based on the financial institution's prime rate. At December 31,
2004 and September 30, 2005, the outstanding balance on the note payable was
$198,270 and $143,570 (unaudited).

The first, fifth and sixth notes payable were guaranteed by three stockholders
of the Company. The second, third, and fourth notes payable are collateralized
by personal certificates of deposit belonging to an officer and a stockholder of
the Company. All outstanding principal, plus all accrued, unpaid interest are
due on the respective maturity dates. However, the Company is required to make
regular monthly payments of all accrued, unpaid interest due as of each payment
date for the second, third and fourth notes payable. For the sixth note payable,
the company is required to make two monthly payments of $6,837, subject to any
change in the index rate and one final payment of all outstanding principal and
accrued interest on April 30, 2006.

Demand notes payable consisted of a loan received in the form of secured demand
promissory from a shareholder and were, including accrued interest, $50,333
(unaudited) and $0 as of September 30, 2005 and December 31, 2004, respectively.
The shareholder loaned the company $50,000 on August 31, 2005. The secured
demand promissory notes create security interests in the Company's assets,
excluding assets subject to liens, leases, encumbrances, defenses or other
claims. The secured demand promissory notes are payable without notice by the
demand of the shareholder. There is no further borrowing capacity under both of
the secured demand promissory notes and the Company plans to repay the secured
demand promissory notes if the Company is able to obtain additional funding.

ADVANCES- STOCK SUBSCRIPTIONS

During September 2005, the Company received funds from investors totaling
$196,000, the balance of Advances- stock subscriptions was $196,000 (unaudited)
and $0 as of September 30, 2005 and December 31, 2004, respectively.

NOTE 7 - PROVISION FOR INCOME TAXES

The effective tax rate differs from the statutory tax rate primarily as a result
of the pre-merger LLC activity as discussed above and the change in the
valuation allowance account.

The Company has no material temporary differences that would result in deferred
taxes. The Company does, however, have loss carryforwards which may result in
deferred tax assets in the future. At September 30, 2005, the Company has
approximately $3,148,000 (unaudited) and $3,146,000 (unaudited) in federal and
state loss carryforwards available to offset taxes through December 31, 2025 and
2011, respectively.

The Company's deferred tax asset at September 30, 2005 of $1,384,000 (unaudited)
consists of loss carryforwards, state taxes, and deferred revenue and has been
offset entirely by a valuation allowance. The valuation allowance account has
been increased by $791,000 during the nine months ended September 30, 2005.

                                       17


<PAGE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES

                        PRODUCTION EQUIPMENT COMMITMENTS

The Company entered into commitments with two different production equipment
manufacturers during the year ended December 31, 2004 for two pieces of
production equipment. Both pieces of equipment were received during the second
quarter of 2005. The remaining amount payable to both manufacturers of the
production equipment was $54,574 and included in the Company's payable balance
as of September 30, 2005.

                                       18


<PAGE>

                                 EQUIPMENT LEASE

On November 30, 2004, the Company entered into a capital lease with CNC
Associates, Inc. for the purchase of production equipment. The lease requires
minimum monthly payments of $866 and expires on October 31, 2007. The capital
lease is personally guaranteed by an officer and stockholder of the Company.
Future minimum lease payments under this capital lease agreement at September
30, 2005 were as follows:

                    Year Ending
                    December 31,

                       2005                  $ 2,221
                       2006                    9,331
                       2007                    8,355
                                             -------
                         TOTAL (unaudited)    19,907

                    Less current portion       9,150
                                             -------
                    Long term portion         10,757



Equipment under the capitalized lease amounted to $32,598 and the related
depreciation expense amounted to $2,173, $2,464 (unaudited), $0 (unaudited),
$8,245 (unaudited), and $0 (unaudited) for the year ended December 31, 2004, the
three months ended September 30, 2005 and 2004, and nine months ended September
30, 2005 and 2004, respectively.

                                      LEASE

The Company subleases its office space under a non-cancelable operating lease
agreement from a stockholder. The lease requires minimum monthly payments of
$2,568, expired in May 2005, and requires the company to pay 15.03% of any
additional rents and/or charges of any kind due from Bemel & Ross. After
expiration, the lease becomes a month to month tenancy cancelable by either
party with thirty days notice. The additional rents and/or charges that may be
due consist of direct costs passed through the master landlord to Bemel & Ross.
The direct costs are based on operating costs during the calendar year ending
December 31, 2003, or the base year. Thereafter, if the direct costs in a
subsequent year exceed the direct costs in the base year, the master landlord
bills Bemel & Ross its proportionate share of the excess of direct costs, which
may include tax costs related to real estate and/or costs and expenses incurred
by the master landlord in connection with common areas of the building, the
parking structure or the cost of operating the building. Through September 30,
2005, Bemel & Ross has charged the company for additional rents and/or charges
in the amount of $4,935. Future minimum lease payments under this operating
lease agreement at September 30, 2005 are $0.

Rent expense was $8,993 (unaudited) , $7,704 (unaudited), $28,047 (unaudited),
and $23,112 (unaudited) for the three months ended September 30, 2005 and 2004,
and nine months ended September 30, 2005 and 2004, respectively.

                                       19


<PAGE>

                                AGENCY AGREEMENT

On February 19, 2001, the Company entered into an exclusive 10 year agreement
with a sales agent, not affiliated with the Company, to solicit orders for
certain of its products in all countries, except Canada, the United States and
all countries within South America. There are no minimum sales requirements that
must be met in order to maintain exclusivity. Under the agreement, this agent is
entitled to a percentage, ranging from 10% to 35%, of our revenues received on
orders obtained by the agent in this territory. The agreement may be terminated
for uncured material breach of contract, bankruptcy or insolvency, or upon the
death or disability of the holder of a majority of the agent's membership
interests. Since inception, the agent has obtained no orders and, therefore, no
amounts have been paid to the agent. This agreement was mutually terminated by
both parties on October 12, 2004.

                           REVENUE SHARING AGREEMENTS

In 1998, Universal Magnifier LLC, a California limited liability company, was
founded by Alan Finkelstein, the inventor of the LensCard, and Luc Berthoud for
the purpose of licensing the LensCard in the United States. In January 1999,
Universal Magnifier LLC merged into LensCard US LLC, a Delaware limited
liability company that was organized on January 7, 1999 for the purpose of
changing Universal Magnifier's name and place of organization. In 1995,
Universal Magnifier International Limited, an international business company
under the laws of the British Virgin Islands, was founded for the purpose of
licensing the LensCard worldwide other than the United States. In October 1998,
Universal Magnifier International Limited changed its name to LensCard
International Limited. In exchange for the rights to exploit the LensCard
patents, trademarks and related intangibles, LensCard US LLC and LensCard
International Limited agreed to make royalty payments to Alan Finkelstein and
Bradley Ross.

On April 2, 2004, Alan Finkelstein, Bradley Ross and Michael Paradise, who owned
one percent of Mr. Finkelstein's interest in the royalty payments, collectively
transferred their rights to the royalty payments to the company in exchange for
an aggregate of 5,500,000 shares of the company's common stock. The company then
immediately transferred these royalty rights to PSACo, Inc., a Delaware
corporation, in exchange for 25,000 shares of PSACo's common stock, or all of
its outstanding common stock, causing PSACo to become our wholly owned
subsidiary. As of September 30, 2004, these royalty payments accounted for 100%
of the company's revenue on a consolidated basis.

On April 6, 2004, LensCard US LLC exchanged all of its outstanding membership
interests the company for 1,000,000 shares of the company's common stock.
Effective April 6, 2004, LensCard International Limited merged with and into our
company. As a result of this reorganization and merger, the company owns the
intellectual property rights to the LensCard and are obligated to make payments
related to these rights to PSACo, our wholly owned subsidiary.

As of December 31, 2004 and 2003, annual sales have not been sufficient to
require any payments pursuant to the above agreements to PSACo., the company's
wholly owned subsidiary. Any future payments that may be required will be
recorded as a reduction of revenue.

                     PATENT AND TRADEMARK LICENSE AGREEMENTS

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

                                       20


<PAGE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

               PATENT AND TRADEMARK LICENSE AGREEMENTS (CONTINUED)

o An agreement dated July 17, 1998, providing for royalties to the Company at
the lesser of:

(a) the total of $0.45 and $0.225 for each Licensed Product when newly issued to
a customer or renewed by a customer, respectively.

(b) 90% of the lowest corresponding amounts paid by an other licensee of the
Company whose principal business is banking or other financial services.

Royalties will be due and payable quarterly within 60 days after the last day of
each calendar quarter. This agreement was cancelled on June 29, 2004.

o An agreement dated January 2, 2001, providing for royalties to the Company at
the following rates:

        Number of Licensed Products                Royalties
        Distributed in Calendar Year                per Card
        ----------------------------               ---------
        less than 100,000                           $ 2.20
        100,000 to 199,999                          $ 1.65
        200,000 to 249,999                          $ 1.25
        250,000 to 499,999                          $ 1.10
        500,000 and above                           $ 1.00


Royalties will be due and payable quarterly within 30 days after the last day of
each calendar quarter. The agreement was cancelled on September 30, 2003. No
products were distributed under this agreement.

o An agreement dated January 26, 2001, providing for a flat fee of $10,000 in
consideration of several marketing tests. The Agreement expired July 31, 2001.

o An agreement dated January 30, 2001, providing for royalties to the Company at
the rate of $1 per Licensed Product issued to a customer. Royalties were due and
payable quarterly within 30 days after the last day of each calendar quarter.
The agreement expired on December 31, 2002.

o An agreement dated July 9, 2001, providing for royalties to the Company at the
rate of $1.20 per LensCard issued to a customer. Royalties will be 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 the customer. The agreement is effective until July 9,
2006.

                                       21


<PAGE>

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

               PATENT AND TRADEMARK LICENSE AGREEMENTS (CONTINUED)

o 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 will be 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 products and $0.50
for each additional LensCard sold thereafter. The revised agreement is effective
until April 1, 2008.

                        MASTER PATENT LICENSE AGREEMENTS

On July 1, 1999, the Company entered into a master agreement, providing for
royalties to the Company equaling a percentage of total royalties received by
the licensee as follows:

o for amounts up to USD 200,000 95%

o for amounts between USD 200,000 and USD 500,000 97%

o for exceeding USD 500,000 98%

Royalties were due and payable within three business day after actual receipt by
the licensee. The agreement expired on June 30, 2002.

On October 1, 1999, the Company entered into a license agreement with a
financial institution, providing for royalties to LensCard International at the
rate of $2.50 for each card in a designated territory and $5 for all other new
issuances. In addition, annual minimum royalty payments of $50,000 and $75,000
were due for the periods ending September 30, 2000 and 2001, respectively. The
agreement expired on September 30, 2001.

On September 9, 2000, the Company assigned all of its rights, duties, and
obligations under the October 1, 1999 license agreement to the licensee of the
July 1, 1999 master agreement. In connection with the assignment, the Company
guaranteed the licensee's performance on the October 1, 1999 agreement, with the
financial institution consenting to the assignment.

                              EMPLOYMENT AGREEMENT

The Company has entered into an Employment Agreement with an officer for the
term of three years, commencing January 1, 1998 and ending, unless terminated
earlier, on January 1, 2000; however, on each anniversary date of the Agreement,
a year is added automatically to the term. As of September 30, 2005, the
termination date is January 1, 2006. The officer earns $12,500 as a monthly
salary. On December 8, 2004, the agreement was modified to provide the officer
with a monthly salary of $16,666. However, $4,166 of this amount is deferred
until the company has an ability to pay the monthly salary as determined by the
Board of Directors of the Company.

                          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. At times,
such cash and cash equivalents may be in excess of the Federal Deposit Insurance
Corporation insurance limit of $100,000. At times, cash balances are in excess
of the insured limit.

                                 MAJOR SUPPLIER

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.

                                       22


<PAGE>

NOTE 9 - STOCKHOLDERS' DEFICIT

                                 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.

o From April 7, 2004 through October 18, 2004, investors purchased 2,568,500
shares of LCC convertible series A preferred stock ("Preferred Stock") for
$2,568,500, which includes the conversion of $340,000 worth of convertible
promissory notes into 340,000 shares of Series A Preferred Stock that were
issued on April 7, 2004. Not included in the $2,568,500 is the conversion of
unsecured advances owed to certain stockholders by the Company totaling $275,000
into 275,000 shares of Series A Preferred Stock. Each share of Preferred Stock
has a $.001 par value, a non-cumulative dividend of $0.06 per share when and if
declared by the board of directors, liquidation preference over the common
stock, and conversion rights into one share of common stock at $1 per share.
Each share of Preferred Stock shall be automatically converted into shares of
Common Stock upon either (i) a majority of the outstanding shares of Preferred
Stock, voting as a separate class, approves the conversion; or (ii) some or all
of the common shares underlying the Preferred Stock are covered by an effective
registration statement filed with the SEC. On May 5, 2005, the SEC declared the
registration statement that covered, in part, common stock underlying the
Preferred Stock effective, thereby converting all 2,843,500 outstanding shares
of Preferred Stock into Common Stock.

                                  COMMON STOCK

During the year ended December 31, 2002, the Company completed the following:

o A stockholder contributed $21,000

o Certain stockholders converted notes payable - related parties totaling
$664,484 into capital.

During the year ended December 31, 2003, the Company completed the following:

o On December 23, 2003, LCC entered into a Securities Purchase Agreement with a
private investor under which it was to receive $50,000 in exchange for a unit
that consisted of 500,000 shares of LCC common stock and warrants to purchase
2,400,000 shares of LCC common stock.

                                       23


<PAGE>

The closing was contingent upon the private investor introducing potential
investors to us and these potential investors or investment funds affiliated
with the private investor purchasing a minimum of $1,500,000 worth of the
Company's series A preferred stock at a price per share of $1.00 before February
1, 2004. As of May 5, 2004, the parties waived this closing contingency under
the Securities Purchase Agreement. On May 5, 2004, the Company received $50,000
from the private investor and issued 500,000 shares of its common stock and
warrants to purchase 2,400,000 shares of its common stock pursuant to the
Securities Purchase Agreement. The 2,400,000 warrants were issued to the
following private investors/groups: 700,000 warrants to Elmsmere Group Ltd,
700,000 warrants to Freemount Trading Ltd., 375,000 warrants to Diana
Derycz-Kessler, 375,000 warrants to Paul Kessler, 200,000 warrants to Steve
Emerson, and 50,000 warrants to Tyler Runnels. Each warrant issued to the
private investor vests immediately and allows the holder to purchase one share
of common stock for $1.00. Of the 2,400,000 shares, the right to purchase
100,000 shares will expire 60 days after the effective date of the registration
statement registering the underlying shares, and thereafter, the right to
purchase an additional 100,000 shares will expire on a monthly basis for the
next nine months. In any event, the warrants will expire on September 5, 2006.
If there is no effective registration statement registering the underlying
shares by May 5, 2005, these warrants contain cashless exercise provisions that
allow the holder to exercise the warrant for a lesser number of shares of common
stock in lieu of paying cash. On May 5, 2005, the registration statement was
declared effective by the SEC covering 250,000 of the warrants. The Company is
reviewing the expiration provisions of the Securities Purchase Agreement as it
relates to the registered and unregistered warrants. The fair value of each
warrant was estimated using the Black-Scholes option-pricing model with the
following weighted-average assumptions: dividend yield of 0%; expected
volatility of 200%; risk-free interest rate of 2.34%; and expected life of 2.5
years. The number of shares that would be issued in this case would be based
upon the market price of the common stock at the time of the net exercise, or if
there is no market price, the price per share as determined by the Company's
board of directors.

During the twelve months ended December 31, 2004, the Company completed the
following:

o On June 28, 2004, LCC issued 50,000 shares of common stock at a price per
share of $1.00 as payment for legal services.

                                    WARRANTS

The following summarizes the warrant transactions:

                                             Warrants           Weighted-Average
                                            Outstanding          Exercise Price
                                            -----------          --------------
Outstanding,
   December 31, 2004                        2,400,000               $    1.00
   Granted                                         --               $      --

Outstanding, September 30, 2005             2,400,000               $    1.00

Exercisable, September 30, 2005             2,400,000               $    1.00


The weighted-average fair value of the warrants granted during the twelve months
ended September 30, 2005 for which the exercise price equals the market price on
the grant date was $0.88, and the weighted-average exercise price was $1.00. No
warrants were granted during the three months ended September 30, 2005 for which
the exercise price was less than or greater than the market price on the grant
date. The weighted-average remaining contractual life of the warrants as of
September 30, 2005 is fifteen months.

                            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 has reserved a total of 2,215,000 shares of its common stock for
issuance pursuant to the 2004 Stock Incentive Plan. The board of directors, or a
committee of the board, administers the 2004 Stock Incentive Plan. Stock options
are generally granted with terms of up to ten years and vest over a period of
five years under the 2004 Stock Incentive Plan. The administrator determines the

                                       24


<PAGE>

exercise price of options granted under the 2004 Stock Incentive Plan, but the
exercise price must not be less than 85% of the fair market value of the
Company's common stock on the date of grant. In the event the participant owns
10% or more of the voting power of all classes of the Company's stock, the
exercise price must not be less than 110% of the fair market value per share of
the Company's common stock on the date of grant. With respect to all incentive
stock options, the exercise price must at least be equal to the fair market
value of the Company's common stock on the date of grant. The term of an
incentive stock option may not exceed 10 years, except that with respect to any
participant who owns 10% of the voting power of all classes of the Company's
outstanding stock or the outstanding stock of any parent or subsidiary of the
Company, the term must not exceed five years an the exercise price must equal at
least 110% of the fair market value on the grant date. The administrator
determines the term of all other options; however, no option will have a term in
excess of 10 years from the date of grant.

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 this action does not impair the rights of any
participant. As of September 30, 2005, 1,275,000 incentive stock options were
issued under the Plan, however, no non-statutory stock options, restricted
stock, stock appreciation rights or performance shares have been granted under
the Plan. On October 12, 2004, we granted to employees, officers, directors and
consultants options to purchase 1,275,000 shares of common stock at an exercise
price of $1.00 per share. As of December 31, 2004, 940,000 shares are available
for grant under the 2004 Stock Incentive Plan. No compensation cost was
recognized for the nine months ended September 30, 2005 as no stock options were
exercised.

The fair value of each option was estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions: dividend
yield of 0%; expected volatility of 200%; risk-free interest rate of 2.34%; and
expected life of 10 years. The number of shares that would be issued in this
case would be based upon the market price of the common stock at the time of the
net exercise, or if there is no market price, the price per share as determined
by the Company's board of directors.

Stock options - A summary of stock option activity and weighted average exercise
prices for the three months ended September 30, 2005 and year ended December 31,
2004 is as follows:

<TABLE>
<CAPTION>
                                         2005                            2004
                                        Shares     Exercise Price       Shares      Exercise Price
                                      ---------    --------------     ---------     --------------
<S>                                   <C>          <C>                <C>           <C>
Outstanding,
  beginning of year                   1,275,000       $    1.00              --       $      --
Granted                                      --              --       1,275,000       $    1.00
Exercised                                    --              --              --              --
Forfeited                                    --              --              --              --
                                      ---------       ---------       ---------       ---------
Outstanding,
  at September 30, 2005 and
  December 31, 2004, respectively     1,275,000       $    1.00       1,275,000       $    1.00
                                      =========       =========       =========       =========
Exercisable,
  at September 30, 2005 and
  December 31, 2004, respectively       335,000       $    1.00         285,000       $    1.00
</TABLE>



The following table summarizes information concerning options outstanding and
options exercisable as of September 30, 2005:

                                       25


<PAGE>

<TABLE>
<CAPTION>
                                 Outstanding                              Exercisable

                                       Weighted
                                        Average
                                       Remaining       Weighted                   Weighted
                                      Contractual       Average                    Average
Range of Exercise Price     Shares    Life (years)   Exercise Price   Shares    Exercise Price
-----------------------    ---------  ------------  ---------------  ---------  ---------------
<C>                        <C>        <C>           <C>              <C>        <C>
$1.00                      2,215,000             8  $           1.0    335,000  $          1.00
                           ---------  ------------  ---------------  ---------  ---------------
                           2,215,000             8  $           1.0    335,000  $          1.00
                           =========  ============  ===============  =========  ===============
</TABLE>



NOTE 10 - RELATED PARTY TRANSACTIONS

                            DUE FROM RELATED PARTIES

From time to time, the Company enters into related party transactions with
several officers, stockholders, and other related parties. As of September 30,
2005 and December 31, 2004, the Company was due $0 (unaudited) and $0,
respectively.

                       ADVANCES PAYABLE - RELATED PARTIES

Advances payable - related parties at December 31, 2004 and September 30, 2005
consisted of unsecured advances that were made to the Company for working
capital purposes that were originally advanced to the company in 2001 and 2002.
The related parties that advanced the funds to the Company were Luc Berthoud,
Bradley Ross, and Alan Finkelstein. The unsecured advances were
non-interest-bearing and payable upon demand. Luc Berthoud, Bradley Ross and
Alan Finkelstein converted their $275,000 in advances owed to them by the
company into 275,000 shares of Series A Preferred Stock on June 22, 2004.

                                       26


<PAGE>

NOTE 10 - RELATED PARTY TRANSACTIONS (CONTINUED)

                       ACCOUNTS PAYABLE - RELATED PARTIES

Accounts payable - related parties at September 30, 2005 and December 31, 2004
consisted of amounts due for consulting, legal, and accounting services rendered
and were $564,841 (unaudited) and $373,980 respectively. As of September 30,
2005, $22,399 is due for estimated costs for additional rents and/or charges
relating to the lease of office space that the Company has Bemel and Ross, a
certified public accounting firm that Bradley Ross is a partner in. $187,083 is
due to Forest Finkelstein for consulting services rendered through September 30,
2005, $295,571 is owed to Blakely, Sokoloff, Taylor & Zafman, LLP (BSTZ), a law
firm which, the Company's director, George Hoover, is a partner in, and $59,758
is due to Alan Finkelstein for unreimbursed expenses unpaid through September
30, 2005. The amounts are currently due to all three parties. The deferred
amount payable to Forest Finkelstein, Alan Finkelstein, Bemel & Ross and BSTZ
are non-interest bearing and are payable upon demand. However, all parties have
deferred payment until we have sufficient liquidity to pay.

                              CONSULTING AGREEMENTS

The Company entered into Consulting Agreements with Alan Finkelstein and Forest
Finkelstein, both of whom are related parties. For Alan Finkelstein, during the
nine months ended September 30, 2005 and 2004, the Company paid $0 and $0,
respectively. For Forest Finkelstein, during the nine months ended September 30,
2005 and 2004, the Company paid $5,000 and $0, respectively.

                               ACCOUNTING SERVICES

Bradley Ross, one of the Company's stockholders, is a partner in a certified
public accounting firm, Bemel & Ross, which has provided accounting and tax
services to the Company. During the nine months ended September 30, 2005 and
2004, the Company paid $0, and $32,000, respectively, to this entity for
services rendered.

                     DEMAND NOTES PAYABLE - RELATED PARTIES

Demand notes payable - related parties at September 30, 2005 consisted of loans
received in the form of secured demand promissory from Bristol Investment Fund,
Ltd., Union Finance International, Corp., and Bradley Ross, a significant
shareholder in the Company, and were, including accrued interest, $671,183
(unaudited) and $0 as of September 30, 2005 and December 31, 2004, respectively.
Union Finance International Corp. loaned the Company $333,000 on March 31, 2005,
Bristol Investment Fund, Ltd. loaned the Company $167,000 on March 30, 2005, and
Bradley Ross loaned the company $150,000 on August 31, 2005 for a combined total
of $650,000. The secured demand promissory notes create security interests in
the Company's assets, excluding assets subject to liens, leases, encumbrances,
defenses or other claims. The secured demand promissory notes are payable
without notice by the demand of Union Finance International Corp., Bristol
Investment Fund, Ltd., or Bradley Ross. There is no further borrowing capacity
under both of the secured demand promissory notes and the Company plans to repay
the secured demand promissory notes if the Company is able to obtain additional
funding.

                                       27


<PAGE>

                                 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, 2005 and 2004, the Company paid
$83,471 and $101,261, respectively, to this entity for legal services rendered.

NOTE 11 - SUBSEQUENT EVENTS

On October 19, 2005, the Company issued 7,071,066 shares of common stock and
4,433,133 warrants to purchase common stock at a price of $1.00 per Unit to a
number of investors pursuant to a private placement for total gross proceeds of
$6,500,000 and the conversion of $571,066 of indebtedness. Prior to the close of
financing, the Company repaid amounts owed to Forest Finkelstein for services
rendered, Bradley Ross for the principal amount of his demand note payable,
Rodger Bemel for the principal amount of his demand note payable, and advances
from shareholders that were received directly by the company for the fundraise,
as recorded on the September 30, 2005 balance sheet of $187,000, $150,000,
$50,000, and $196,000, respectively by transferring the amounts into escrow.

After the completion of the financing, on October 19, 2005, the Company repaid
all outstanding loans with City National Bank totaling $593,570 as of September
30, 2005. On October 20, 2005, the Company repaid the demand promissory note
payable to Bristol Investment Fund totaling $173,790 as of September 30, 2005.



                                       28
<PAGE>

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

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

                                    OVERVIEW

Our predecessor entities, Universal Magnifier International Limited and
Universal Magnifier LLC, were co-founded in 1995 and 1998 by Alan Finkelstein,
the LensCard inventor. We commenced sales of the LensCard in 1998. Since our
inception in 2002, our core focus has been and continues to be on research and
development and marketing of our power inlay technology that is designed to
bring power-based applications, including light, sound and display screens, to
ISO compliant cards. Power inlay technology consists of a battery, circuit, and
switch that can power applications on credit cards and other information-bearing
plastic cards. We have devoted a significant majority of our efforts to complete
the development of our power inlay technology, initiate marketing and raising
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 these agreements
or to further market or sell the LensCard, unless requested by a customer.

Since inception, we have been unprofitable. We incurred net losses of $1,909,552
for the nine months ended September 30, 2005. As of September 30, 2005, we had
an accumulated deficit of $6,211,490. Our continued existence is dependent upon
our ability to obtain additional financing. We anticipate that the sales of our
LightCard, SoundCard, and DisplayCard will not be sufficient enough to sustain
our operations, and further anticipate that after such introduction 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, as
they relate to retaining and obtaining 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 $9,639,566. We believe that we will have enough funding to
meet our cash needs and continue our operations into early 2007.

                                       29


<PAGE>

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 generate revenue from one source: licensing of the LensCard to various credit
card issuers. The LensCard is composed of a credit card with a small magnifying
lens embedded into the card. We sell time-based licenses to various credit card
issuers. 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.

We anticipate that the majority of our revenues in the coming year will come
from financial cards that contain a light and a magnifying lens as well as a
light. We intend to sell these cards directly to banks that issue financial
cards. Additionally, we intend to enter into arrangements whereby our
intellectual properties will be licensed to other strategic partners and we will
share in revenues or licensing fees.

We currently have no arrangements with any companies with regard to revenue
sharing or licensing fees for financial cards that contain a light and
magnifying lens as well as a light. We have agreements with two banks that issue
financial cards for the LensCard product, one which expired on December 31,
2004. 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 the credit card issuers are
received by us prior to the sale of the LensCard to the credit card issuers'
customers.

Accounts receivable allowances. Because our sales to date have been to large
credit card issuers, we have experienced very few issues surrounding payment 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.

Our first two products, the LightCard, or a financial card that has a light with
or without a magnifying lens, and a SoundCard that emits a monophonic tone such
as "Happy Birthday" or "Jingle Bells", have been fully developed. Presently, we
have the capability to produce 20,000 LightCards or SoundCards per month. If the
demand for the LightCard or SoundCard is substantial, we may be able to increase
our collective capacity to produce LightCards and SoundCards to 100,000 cards
per month if we are able to order and have additional production equipment
delivered, installed, and operational by early 2006. However, our ability to
produce 100,000 LightCards or SoundCards per month is limited to the amount of
component parts we are able to procure. One of these key components of our power
inlay technology, the battery, is presently available from only one supplier,
Solicore, Inc. Our projected cost to manufacture LightCards and SoundCards are
unknown at this time, as we have not produced the LightCards and SoundCards on a
mass production basis. Additionally, if there is no demand for the LightCard or
SoundCard by banks that issue financial cards we will have no benefit from the
LightCard or SoundCard.

Our third product, the DisplayCard with one time password ("DisplayCard OTP") is
in the early stages of manufacturing and believe that we will be able to
initially produce quantities of 1,000 per month beginning in early 2006. If the
demand for the DisplayCard OTP is substantial, we may be able to increase our
total capacity to produce DisplayCards to 100,000 per month. However, our
ability to produce 100,000 DisplayCard OTP per month is limited to the amount of
component parts we are able to procure. Two of these key components of the
DisplayCard and our power inlay technology, the battery, is presently available
from only one supplier, Solicore, Inc. and the other key component, that works
with our form factor, the display, is only available from one supplier,
SmartDisplayer. Our projected cost to manufacture the DisplayCard is unknown at
this time, as we have not produced the DisplayCards on a mass production basis.
Additionally, if there is no demand for the DisplayCard by banks that issue
financial cards or other entities that use non-financial cards we will have no
benefit from the DisplayCard.

Our other products that are designed to use the power inlay technology are still
in the early stages of development. At this time, we are unable to determine
when the other products will become fully developed, manufactured and sold to
banks that issue financial cards.

We estimate that our capital requirements for the next twelve months will be as
follows:

  Capital equipment expenditures and capital lease obligations        200,000
  General and administrative expenses                               1,600,000
  Professional Fees                                                   500,000
  Consulting Fees                                                     100,000
  Research and development                                            350,000
                                                                  -----------
  Total estimated capital requirements                             $2,750,000


Costs of production are not included in our capital requirements as we intend to
only incur these costs once orders for our products are received from our
potential customers.


                                       30
<PAGE>


RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS PERIODS ENDED SEPTEMBER 30, 2005 AND
SEPTEMBER 30, 2004

OVERVIEW

Our financial results for the three months ended September 30, 2005 reflect a
net loss of $655,506, or $0.06 per share (basic and diluted), compared to a net
loss of $376,069, or $0.05 per share (basic and diluted), for the three months
ended September 30, 2004.

The major factors contributing to our net loss of $655,506 during the third
quarter of 2005 were administrative expenses and research and development
expenses relating to new products and improving existing products. The major
factors contributing to our net loss during the second quarter of 2004 were
primarily the result of administrative expenses and research and development
expense.

Revenue. Revenue consists of royalties from the LensCard.

Total revenue increased from $(4,300) for the three months ended September 30,
2004 to $133 for the three months ended September 30, 2005. The increase
resulted primarily from an adjustment that took place during the third quarter
of 2004. LensCard revenues continue to be minimal as we have not been actively
marketing the LensCard product or licensing the LensCard product to third
parties.

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

Administrative expense increased from $182,168 for the three months ended
September 30, 2004 to $283,339 for the three months ended September 30, 2005.
Administrative expense increased primarily due to the establishment of our
office, additional employees, and additional travel expenses relating to
business development. We anticipate that administrative expense will increase in
absolute dollars as we incur increased costs associated with continuing to
establish our operations.

Consulting expense. Consulting expense consists of payments made to independent
contractors that provide services for the company.

Consulting expense increased from $7,500 for the three months ended September
30, 2004 to $48,750 for the three months ended September 30, 2005. Consulting
expense primarily increased as a result of a consultant being given additional
consideration that was approved by our Board of Directors. We anticipate that
our consulting expense will decrease in absolute dollars as the company does not
presently have the intention of hiring additional outside consultants.

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

                                       31


<PAGE>

Professional fees expense increased from $52,656 for the three months ended
September 30, 2004 to $58,981 for the three months ended September 30, 2005.
Professional fees expense primarily increased due to fees relating to the
maintenance and establishment of the company's intellectual property rights and
the legal and accounting fees relating to our requirements to operate as a
public company. We anticipate that professional fees will continue to increase
in absolute dollars as the company will continue to incur greater costs in
maintaining and establishing its intellectual property rights as well as costs
of operating as 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 $127,029 for the three months
ended September 30, 2004 to $247,411 for the three months ended September 30,
2005 due to increased research and development of the LightCard, SoundCard, and
DisplayCard. We expect our research and development expenses to increase in
absolute dollars as we continue to invest in developing new credit card
enhancements.

Interest expense. Interest expense increased from $2,316 for the three months
ended September 30, 2004 to $17,220 for the three months ended September 30,
2005 primarily due to the promissory notes that were issued in March 2005.

RESULTS OF OPERATIONS

COMPARISON OF THE NINE MONTHS PERIODS ENDED SEPTEMBER 30, 2005 AND
SEPTEMBER 30, 2004

OVERVIEW

Our financial results for the nine months ended September 30, 2005 reflect a net
loss of $1,909,552, or $0.21 per share (basic and diluted), compared to a net
loss of $1,062,958 or $0.18 per share (basic and diluted), for the nine months
ended September 30, 2004.

The major factors contributing to our net loss of $1,909,552 during the nine
months ended September 30, 2005 were administrative expenses, research and
development expenses relating to new products and improving existing products,
and professional fees. The major factors contributing to our net loss during the
nine months ended September 30, 2004 were primarily the result of professional
fees, administrative expenses, and research and development expense.

Revenue. Revenue consists of royalties from the LensCard.

Total revenue decreased from $12,724 for the nine months ended September 30,
2004 to $2,878 for the nine months ended September 30, 2005. The decrease
resulted primarily from fewer royalties of the LensCard as we have not been
actively marketing the LensCard product or licensing the LensCard product to
third parties.

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

Administrative expense increased from $450,285 for the nine months ended
September 30, 2004 to $791,950 for the nine months ended September 30, 2005.
Administrative expense increased primarily due to the establishment of our
office, additional employees, increased salaries, and additional travel expenses
relating to business development. We anticipate that administrative expense will
increase in absolute dollars as we incur increased costs associated with
continuing to establish our operations.

Consulting expense. Consulting expense consists of payments made to independent
contractors that provide services for the company.

Consulting expense decreased from $116,524 for the nine months ended September
30, 2004 to $63,750 for the nine months ended September 30, 2005. Consulting
expense primarily decreased as a result of a consultant converting to a full
time employee. We anticipate that our consulting expense will decrease in
absolute dollars as the company does not presently have the intention of hiring
outside consultants.

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


                                       32
<PAGE>

Professional fees expense increased from $203,909 for the nine months ended
September 30, 2004 to $324,712 for the nine months ended September 30, 2005.
Professional fees expense primarily increased due to additional amounts paid to
our external auditors and counsel in connection with the filing of the company's
registration statement as well as fees relating to the maintenance and
establishment of the company's intellectual property rights. We anticipate that
professional fees will continue to increase in absolute dollars as the company
will continue to incur greater costs in maintaining and establishing its
intellectual property rights as well as costs of operating as 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 $283,175 for the nine months ended
September 30, 2004 to $693,218 for the nine months ended September 30, 2005 due
to increased research and development of the LightCard, SoundCard, and
DisplayCard. We expect our research and development expenses to increase in
absolute dollars as we continue to invest in developing new credit card
enhancements.

Interest expense. Interest expense increased from $21,790 for the nine months
ended September 30, 2004 to $38,189 for the nine months ended September 30, 2005
primarily due to the promissory notes that were issued in March 2005 .

LIQUIDITY AND CAPITAL RESOURCES

DISCUSSION OF RESULTS

Our principal sources of liquidity had been cash and cash equivalent balances,
which were $541,784 at December 31, 2004. Since our inception, we have incurred
significant losses, and as of December 31, 2004 and September 30, 2005 we had an
accumulated deficit of $4,301,939 and $6,211,490, respectively.

Net cash used in operating activities was $993,252 for the nine months ended
September 30, 2005 as compared with $1,173,024 for the nine months ended
September 30, 2004. The decrease was due primarily to greater net loss offset by
increases in accounts payable and accrued expenses.

Net cash used in investing activities was $269,702 for the nine months ended
September 30, 2005 as compared with $17,452 for the nine months ended September
30, 2004. The increase was due to the purchase of production equipment that was
placed into use during the nine months ended September 30, 2005.

Net cash provided by financing activities was $856,410 for the nine months ended
September 30, 2005 as compared to net cash provided by financing activities of
$1,449,385 for the nine months ended September 30, 2004. The decrease occurred
primarily because $1,825,000 in net proceeds from the Preferred Stock financing
that took place during the nine months ended September 30, 2004 partially offset
by $650,000 of proceeds of notes payable loaned by related parties during the
nine months ended September 30, 2005, and the gross repayment of notes payable
of $406,837 during the nine months ended September 30, 2004.

EQUITY AND DEBT FINANCINGS AND ACCOUNTS PAYABLE

To date, our operations have been funded through bank loans in the amount of
$1,346,128, loans in the form of secured demand promissory notes totaling
$650,000 from Bristol Investment Fund, Ltd., Union International Finance Corp.,
and Bradley Ross, , the issuance of series A preferred stock, including the
conversion of $340,000 worth of convertible promissory notes into 340,000 shares
of Series A preferred stock in which we raised gross proceeds of $2,568,500, and
the conversion of $275,000 in unsecured advances due to related parties into
Series A preferred stock. As of September 30, 2005, we had accounts payable due
to related parties, Forest Finkelstein, in the amount of $187,083, and Blakely,
Sokoloff, Taylor and Zafman, LLP, a law firm that George Hoover, one of our
directors, is a partner in, in the amount of $295,571. The agreements with
Forest Finkelstein and Blakely, Sokoloff, Taylor and Zafman to defer payments
are based on written communications that may not be enforceable. If Forest
Finkelstein or Blakely, Sokoloff, Taylor and Zafman require us to make these
payments, we may not have the funds to do so and we may become insolvent.

On December 23, 2003, we entered into a Securities Purchase Agreement with
Bristol Capital, LLC under which we were to sell a unit that consisted of
500,000 shares of our common stock and warrants to purchase 2,400,000 shares of
our common stock at an exercise price of $1.00 per share in exchange for
$50,000. The closing was contingent upon Bristol Capital, LLC introducing
potential investors to us and these potential investors or investment funds
affiliated with Bristol Capital purchasing a minimum of $1,500,000 worth of our
series A preferred stock at a price per share of $1.00 before February 1, 2004.
As of May 5, 2004, the parties waived this closing contingency under the
Securities Purchase Agreement. On May 5, 2004, we received $50,000 from Bristol
Capital, LLC and issued 500,000 shares of our common stock and warrants to
purchase 2,400,000 shares of our common stock pursuant to the Securities
Purchase Agreement.

                                       33

<PAGE>

From April 7, 2004 to October 18, 2004, we issued 2,568,500 shares of Series A
preferred stock at a price per share of $1.00 to a number of investors pursuant
to a private placement, including the conversion of $340,000 worth of
convertible promissory notes into 340,000 shares of series A preferred stock
that were issued on April 7, 2004, and raised gross proceeds of $2,568,500.

On May 24, 2004, we obtained a loan in the amount of $246,128. We are required
to pay interest at a rate equal to a prime rate set by City National Bank, which
currently is 4.0%, on the loan. Beginning on June 30, 2004, we must pay this
loan in 11 principal payments of $6,837 and one final principal and interest
payment of $158,090 on the maturity date of July 31, 2005. We did not make this
final payment of $158,090 on July 31, 2005. As of August 12, 2005, we are in the
process of renewing this note with City National Bank. Additionally, on May 24,
2004, we renewed three notes payable, each in the amount of $150,000, from City
National Bank that were originally dated April 22, 2003, July 16, 2003 and
September 24, 2003. Of the three notes payable, one has an interest rate of
4.1%, one has an interest rate of 3.1% and one has an interest rate of 1.9%.
Beginning on June 30, 2004, we are required to pay monthly interest payments on
amounts drawn from the notes payable, with all outstanding principal and accrued
and unpaid interest due on April 30, 2006. As of September 30, 2005 with respect
to each note payable, we had drawn the full amount, $150,000 on each note
payable, for an aggregate amount of $450,000 drawn through September 30, 2005.
There is no further borrowing capacity available under each of the notes
payable. Upon maturity of the notes payable and loan, we plan to either renew
these with City National Bank or repay the notes payable or loan if we are able
to obtain additional funding.

On June 22, 2004, we issued 275,000 shares of series A preferred stock to Alan
Finkelstein, Bradley Ross and Luc Berthoud in a conversion of $275,000 in
unsecured advances due to Alan Finkelstein, Bradley Ross and Luc Berthoud. The
conversion was made at $1.00 per share.

On October 14, 2004, we ordered production equipment from a manufacturer costing
124,400 Euros. The equipment was delivered and installed on April 15, 2005. As
of September 30, 2005, we owe the manufacturer $35,577 for the equipment and
related installation costs.

On October 25, 2004, we ordered additional production equipment from another
manufacturer costing $81,900. The equipment was delivered and installed on June
22, 2005. As of September 30, 2005, we owe this manufacturer $27,680 for the
equipment and related installation costs.

On November 30, 2004, we entered into a capital lease for production equipment
that cost $32,598 with CNC Associates, Inc. that was personally guaranteed by
our chief executive officer, Alan Finkelstein. The lease requires minimum
monthly payments of $866 and expires on October 31, 2007.

In March 2005, we obtained loans in the form of secured demand promissory notes
totaling $500,000 from Bristol Investment Fund, Ltd. and Union Finance
International, Corp. Union Finance International Corp. loaned us $333,000 on
March 31, 2005 while Bristol Investment Fund, Ltd. loaned us $167,000 on March
30, 2005 for the combined total of $500,000. The secured demand promissory notes
create security interests in our assets, excluding assets subject to liens,
leases, encumbrances, defenses or other claims. The secured demand promissory
notes are payable without notice by the demand of Union Finance International
Corp. or Bristol Investment Fund, Ltd. There is no further borrowing capacity
under both of the secured demand promissory notes and we plan to repay the
secured demand promissory notes if we are able to obtain additional funding.

Since late March and early April 2005, certain principal stockholders, directors
and executive officers have continued to agree to defer payments owed to them.
The parties that have agreed to defer payments owing to them are as follows:

$13,406 to Bemel & Ross, of which one of our principal stockholders, Bradley
Ross, is a partner in, $28,319 to Alan Finkelstein, our chief executive officer
and chairman of the board, and $138,333 to Forest Finkelstein, who is the son of
Alan Finkelstein. These agreements are based on written communications that may
not be enforceable. If Bemel & Ross, Alan Finkelstein or Forest Finkelstein
require us to make these payments, we may not have the funds to do so and we may
become insolvent.

LIQUIDITY RISK

Since April 2005, our cash and cash equivalent balances have not been sufficient
to satisfy our obligations. We will need to obtain additional financing in
addition to the funds already raised through the sale of equity securities and
debt financing to fund our cash needs and continue our operations. Although a
stockholder has verbally agreed to guarantee any overdraft in our checking
account up to $120,000, we do not believe that this will enable us to sustain
our operations and is only covering our immediate obligations such as payroll
and account payables that we are unable to defer. We currently do not have any
binding commitments for, or readily available sources of, additional financing.
Additional financing, whether through public or private equity or debt
financing, arrangements with stockholders or other sources to fund operations,
may not be available, or if available, may be on terms unacceptable to us. Our
ability to maintain sufficient liquidity is dependent on our ability to raise
additional capital. 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 either short or long-term capital requirements, our
operations and liquidity could be materially adversely affected and we could
become insolvent and be forced to cease operations.

                                       34
<PAGE>

FACTORS THAT MAY AFFECT RESULTS

TO BE SUCCESSFUL WE MAY REQUIRE ADDITIONAL CAPITAL.

Our current resources will be sufficient to fund operations through early 2007.
As we are in the early stage of manufacturing and have not sold substantial
quantities of our products, we are unable to determine the amount of additional
capital we will need to become successful. We currently do not have any binding
commitments for, or readily available sources of, additional financing and will
not receive any proceeds from this offering. As noted in the prior risk factor
addressing our accumulated deficit of $6,211,490 as of September 30, 2005, we
anticipate that the sales of our products will not be sufficient enough to
sustain our operations, and further anticipate that after such introductions we
will continue to incur net losses due to our costs exceeding our revenues for an
indefinite period of time.

AS A COMPANY IN THE EARLY STAGE OF DEVELOPMENT WITH AN UNPROVEN BUSINESS
STRATEGY, OUR LIMITED HISTORY OF OPERATIONS MAKES EVALUATION OF OUR BUSINESS AND
PROSPECTS DIFFICULT.

Our business prospects are difficult to predict because of our limited operating
history, early stage of development and unproven business strategy. Since our
incorporation on November 22, 2002, we have primarily been and continue to be
involved in development of products using our power inlay technology and
marketing these products under development to industry partners. In 1998, Alan
Finkelstein commenced commercialization of our first product, the LensCard, and
entered into license agreements with banks and credit card issuers, most of
which have terminated. After discovering the possibility of placing power into
an International Organization of Standards (ISO) compliant card, we began to
focus our efforts on the development of our power inlay technology and not on
the marketing of the LensCard. For these reasons, we expect that future orders
for the LensCard will be substantially less. Although management believes that
our power inlay technology and products under development have significant
profit potential, we may not attain profitable operations and our management may
not succeed in realizing our business objectives. If we are unsuccessful in
developing our business, the common stock you receive may never have value.

WE HAVE AN ACCUMULATED DEFICIT OF $6,211,490 AS OF SEPTEMBER 30, 2005 AND HAVE
RECEIVED AN OPINION FROM OUR AUDITORS REGARDING OUR ABILITY TO CONTINUE AS A
GOING CONCERN, AND WE MAY NEVER ACHIEVE PROFITABILITY.

We have incurred significant net losses every year since our inception,
including net losses of $1,909,552, $1,621,740, and $977,155 for the nine months
ending September 30, 2005 and the fiscal years ending December 31, 2004 and
December 31, 2003, respectively. As of September 30, 2005, we had an accumulated
deficit of $6,211,490. These losses have resulted principally from expenses
incurred in our research and development programs and general and administrative
expenses. To date, we have not yet generated significant recurring revenues. Our
limited revenues that derive from sales of the LensCard and the limited revenues
that we may receive from sales of the LightCard have not been and will not
continue to be sufficient to sustain our operations. We anticipate that we will
continue to incur substantial operating losses based on projected sales revenues
less manufacturing, general and administrative and other operating costs for an
indefinite period of time. We expect that our revenues will not be sufficient to
sustain our operations for the foreseeable future, notwithstanding any
anticipated revenues we may receive when our power-based card enhancement
products are initially introduced to markets, due to the significant costs
associated with the development and marketing of our products. No assurances can
be given when we will ever be profitable.

Our independent auditors have added an explanatory paragraph to their audit
opinions issued in connection with the financial statements for each of the
years ended December 31, 2004 and 2003 relative to the substantial doubt about
our ability to continue as a going concern. Our ability to obtain additional
funding will determine our ability to continue as a going concern. Our financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


                                       35
<PAGE>


WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS, AND WE WILL BE UNABLE TO MANUFACTURE
OR DELIVER OUR PRODUCTS IF SHIPMENTS FROM THESE SUPPLIERS ARE INTERRUPTED OR ARE
NOT SUPPLIED ON A TIMELY BASIS.

We obtain the battery, a key component for our power inlay technology, from a
single source on a purchase order basis from Solicore, Inc. We believe 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 would
disrupt our operations, delay production for up to six months and impair our
ability to manufacture and sell our products.

We obtain the display, a key component for the DisplayCard, from a single
source, SmartDisplayer. On July 25, 2005, we entered into a three year exclusive
agreement with SmartDisplayer whereby as long as we meet certain minimum monthly
purchase requirements we maintain our exclusivity with SmartDisplayer. We
believe 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
would disrupt our operations, delay production for up to 6 months and impair our
ability to manufacture and sell our DisplayCard.

Our dependence upon outside suppliers exposes us to risks, including:

o the possibility that our suppliers could terminate their services at any time;

o the potential inability of our suppliers to obtain required components or
products;

o reduced control over pricing, quality and timely delivery, due to the
difficulties in switching to alternative suppliers;

o the potential delays and expense of seeking alternative sources of suppliers;
and

o increases in prices of key components.


IF WE ARE NOT ABLE TO DEVOTE ADEQUATE RESOURCES TO PRODUCT DEVELOPMENT AND
COMMERCIALIZATION, WE MAY NOT BE ABLE TO DEVELOP OUR PRODUCTS.

Our business strategy is to develop and market new products using our power
inlay technology that can enhance payment and other information-bearing plastic
cards. We believe that our revenue growth and profitability, if any, will
substantially depend upon our ability to:

o continuing to fund  research and development endeavors;

o complete development of new products; and

o successfully introduce and commercialize new products.


FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS COULD ENABLE THIRD PARTIES
TO USE OUR TECHNOLOGY, OR VERY SIMILAR TECHNOLOGY, AND COULD REDUCE OUR ABILITY
TO COMPETE IN THE MARKET, AND ANY PROPRIETARY RIGHTS LITIGATION COULD BE TIME
CONSUMING AND EXPENSIVE TO PROSECUTE AND DEFEND.

Establishment of patents and other proprietary rights is important to our
success and our competitive position. Performance in the payment card industry
can depend, among other factors, on patent protection. Our policy is to identify
patentable inventions developed by our company, and to seek to acquire patent
rights for such inventions. Many of our current patents on the LensCard begin to
expire in 2012. We mainly develop and patent technology in the fields of card
enhancements and methods of card manufacturing. We seek to obtain a reasonably
broad territorial protection for our patented technologies. We usually file
initial patent applications in the United States, and subsequently file
corresponding applications in foreign countries depending on the relevant
circumstances. We may elect to forego patent protection for some of our
proprietary technologies and treat such technologies as trade secrets. Despite
our efforts to establish and protect our patents, trade secrets or other
proprietary rights, unauthorized parties may attempt to copy aspects of our
technology or to obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries do not protect our proprietary
rights to as great an extent as do the laws of the United States. Our means of
establishing and protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around our patents or our other proprietary rights.

Due to the importance of proprietary technology in the payment card industry,
our business involves a risk of overlap with third party patents and subsequent
litigation with competitors or patent-holders. Any claims, with or without
merit, could be time-consuming, result in costly litigation, or cause us to
enter into licensing agreements.

WE DEPEND ON KEY PERSONNEL IN A COMPETITIVE MARKET FOR SKILLED EMPLOYEES, AND
FAILURE TO RETAIN AND ATTRACT QUALIFIED PERSONNEL COULD SUBSTANTIALLY HARM OUR
BUSINESS.

We rely to a substantial extent on the management, marketing and product
development skills of our key employees, particularly Alan Finkelstein, our
co-founder and chief executive officer, Bennet Price-Lientz Tchaikovsky, our
chief financial officer, and Murdoch Henretty, our chief technology officer, to
formulate and implement our business plan, including the development of our
power inlay technology. Our success depends to a significant extent upon our
ability to retain and attract key personnel. Competition for employees can be
intense in the payment card industry and the process of locating key personnel
with the right combination of skills is often lengthy. The loss of the services
of our key personnel may significantly delay or prevent the achievement of
product development and could have a material adverse effect on us.



                                       36
<PAGE>


IF OUR FUTURE PRODUCTS DO NOT ACHIEVE A SIGNIFICANT LEVEL OF MARKET ACCEPTANCE,
IT IS HIGHLY UNLIKELY THAT WE EVER WILL BECOME PROFITABLE.

To our knowledge, no credit card issuers have adopted power-based card
enhancements to date using our power inlay technology on a mass quantity basis.
As a result, our ability to enable issuers to improve and add card
functionality, reduce attrition and increase acquisition rates, and enhance
security and anti-fraud protection for customers through power-based card
enhancements has yet to be proven. The commercial success of our future products
will depend upon the adoption of our power inlay technology as a preferred
method of applying card enhancements to payment cards. In order to be
successful, our future products must meet the technical and cost requirements
for card enhancements within the payment card industry. Market acceptance will
depend on many factors, including:

o our ability to convince prospective strategic partners and customers to adopt
our products;

o the willingness and ability of prospective strategic partners and customers to
adopt our products; and

o our ability to sell and service sufficient quantities of our products.

Because of these and other factors, our products may not achieve market
acceptance. If our products do not achieve a significant level of market
acceptance, demand for our future products will not develop as expected and it
is highly unlikely that we ever will become profitable.

WE HAVE GRANTED THIRD PARTIES SUBSTANTIAL MARKETING RIGHTS TO CERTAIN OF OUR
PRODUCTS AND PRODUCTS UNDER DEVELOPMENT. IF THE THIRD PARTIES ARE NOT SUCCESSFUL
IN MARKETING OUR PRODUCTS WE MAY NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS.

Our agreements with our corporate marketing partners generally contain no
minimum purchase requirements in order for them to maintain their exclusive
marketing rights. We have entered into an agreement with VISA to market certain
of our products that we are currently developing to VISA's regional offices and
member banks. One or more of these marketing partners may not devote sufficient
resources to marketing our products. Furthermore, although VISA has agreed not
to promote power-enabling technologies from other parties, there is nothing to
prevent VISA from pursuing non-power alternative technologies or products that
may compete with our products. In the future, third party marketing assistance
may not be available on reasonable terms, if at all. If any of these events
occur, we may not be able to commercialize our products, which could negatively
impact our results of operations or substantially limit our ability to execute
our business strategy.

WE MAY EXPERIENCE CUSTOMER CONCENTRATION IN THE FINANCIAL CARD MARKETPLACE,
WHICH MAY EXPOSE US TO ALL OF THE RISKS FACED BY OUR POTENTIAL MATERIAL
CUSTOMERS.

Since our agreement with VISA requires us to not offer or provide our power
inlay technology to certain other major credit card issuers for a period of at
least two years, we may experience customer concentration in the financial card
marketplace. Until and unless we secure multiple customer relationships, we may
experience periods during which we will be highly dependent on one or a limited
number of customers. Dependence on a single or a few customers will make it
difficult to satisfactorily negotiate attractive prices for our products and
will expose us to the risk of substantial losses if a single dominant customer
stops conducting business with us. Moreover, to the extent that we may be
dependent on any single customer, we could be subject to the risks faced by that
customer to the extent that such risks impede the customer's ability to stay in
business and make timely payments to us.

THE POWER INLAY TECHNOLOGY HAS NOT BEEN PROVEN IN FULL SCALE PRODUCTION. FAILURE
TO DEVELOP THE PROTOTYPE SCALE INTO MASS PRODUCTION MAY HAVE A MATERIAL NEGATIVE
EFFECT ON OUR BUSINESS STRATEGY AND OPERATIONS.

Our power inlay technology has been proven during the manufacture of cards in
prototype quantities. Furthermore, we have developed an automated process in our
laboratory and are now taking steps towards mass production. However, our
product has yet to be proven to be manufactured in full scale mass production.
We are applying our own resources and are also working in cooperation with other
companies that have specialized technical expertise related to the manufacturing
process of power inlay technology for ISO-compliant credit cards. We have
entered into agreements with these other companies to protect confidential
information exchanged by the parties and expect to enter into further agreements
that will grant us ownership or exclusive license rights to the manufacturing
process of the power inlay technology for use in credit and other
information-bearing plastic cards. Failure to secure or maintain exclusive
rights or failure of the prototype technology to successfully transfer to full
scale production, without the use of proprietary technology of others, may have
a material negative effect on our business strategy and operations.



                                       37
<PAGE>

WE HAVE LIMITED MANUFACTURING EXPERIENCE AND CAPACITY AND WILL RELY
SUBSTANTIALLY ON THIRD-PARTY MANUFACTURERS. THE LOSS OF ANY THIRD-PARTY
MANUFACTURER COULD LIMIT OUR ABILITY TO LAUNCH OUR PRODUCTS IN A TIMELY MANNER,
OR AT ALL.

To be successful, we must manufacture, or contract for the manufacture of, our
future products in compliance with industry standards and on a timely basis,
while maintaining product quality and acceptable manufacturing costs. As
discussed in the risk factor above, we are working in cooperation with other
companies that have specialized technical expertise related to the manufacturing
process of our power inlay technology for ISO-compliant credit cards. We also
currently use a limited number of sources for most of the supplies and services
that we use in the manufacturing of our power inlay technology and prototypes.
We do not have agreements with our suppliers. Our manufacturing strategy
presents the following risks:

o delays in the quantities needed for product development could delay
commercialization of or products in development;

o if we need to change to other commercial manufacturers, any new manufacturer
would have to be educated in, or develop substantially equivalent processes
necessary for the production of our products;

o if market demand for our products increases suddenly, our current
manufacturers might not be able to fulfill our commercial needs, which would
require us to seek new manufacturing arrangements and may result in substantial
delays in meeting market demand; and

o we may not have intellectual property rights, or may have to share
intellectual property rights, to any improvements in the manufacturing processes
or new manufacturing processes for our products.

Any of these factors could delay commercialization of our products under
development, entail higher costs and result in our being unable to effectively
sell our products.

RISKS RELATED WITH OWNERSHIP OF OUR SECURITIES

There is currently a limited trading market for our common stock.

Our common stock is traded in the over-the-counter market through the
Over-the-Counter Electronic Bulletin Board. There can be no assurance that an
active trading market will be maintained. Trading of securities on the
Over-the-Counter Electronic Bulletin Board is generally limited and is effected
on a less regular basis than that effected on other exchanges or quotation
systems (such as the NASDAQ Stock Market), and accordingly investors who own or
purchase common stock will find that the liquidity or transferability of the
common stock is limited. Additionally, a stockholder may find it more difficult
to dispose of, or obtain accurate quotations as to the market value, of common
stock. We cannot assure you that our common stock will ever be included for
trading on any stock exchange or through any other quotation system (including,
without limitation, the NASDAQ Stock Market).

THE APPLICATION OF THE PENNY STOCK RULES COULD ADVERSELY AFFECT TRADING IN OUR
COMMON STOCK.

As long as the trading price of our common stock is below $5.00 per share, the
open-market trading of our common stock will be a "low-priced" security under
the "penny stock" rules promulgated under the Securities Exchange Act of 1934.
The "penny stock" rules impose additional sales practice requirements on
broker-dealers who sell securities to persons other than established customers
and accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their spouse). In
accordance with these rules, broker-dealers participating in transactions in
low-priced securities must first deliver a risk disclosure document which
describes the risks associated with such stocks, the broker-dealer's duties in
selling the stock, the customer's rights and remedies and certain market and
other information. Furthermore, the broker-dealer must make a suitability
determination approving the customer for low-priced stock transactions based on
the customer's financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the customer,
obtain specific written consent from the customer, and provide monthly account
statements to the customer. The effect of these restrictions will probably
decrease the willingness of broker-dealers to make a market in our common stock,
decrease liquidity of our common stock and increase transaction costs for sales
and purchases of our common stock as compared to other securities.

Stockholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include (i) control
of the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer; (ii) manipulation of prices through
prearranged matching of purchases and sales and false and misleading press
releases; (iii) boiler room practices involving high-pressure sales tactics and
unrealistic price projections by inexperienced sales persons; (iv) excessive and
undisclosed bid-ask differential and markups by selling broker-dealers; and (v)
the wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.

NASD SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO BUY
AND SELL OUR STOCK.

In addition to the "penny stock" rules described above, the NASD has adopted
rules that require that in recommending an investment to a customer, a
broker-dealer must have reasonable grounds for believing that the investment is
suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer's financial status,
tax status, investment objectives and other information. The NASD requirements
make it more difficult for broker-dealers to recommend that their customers buy
our common stock, which may limit your ability to buy and sell our stock and
have an adverse effect on the market for our shares.

                                       38
<PAGE>

WE DO NOT ANTICIPATE PAYING ANY CASH DIVIDENDS IN THE FORESEEABLE FUTURE, WHICH
MAY REDUCE YOUR RETURN ON AN INVESTMENT IN OUR COMMON STOCK.

We plan to use all of our earnings, to the extent we have earnings, to fund our
operations. We do not plan to pay any cash dividends in the foreseeable future.
We cannot guarantee that we will, at any time, generate sufficient surplus cash
that would be available for distribution as a dividend to the holders of our
common stock. Therefore, any return on your investment would derive from an
increase in the price of our stock, which may or may not occur.

SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS
OUR STOCK PRICE.

Upon effectiveness of this prospectus, and based on the number of shares
outstanding as of October 19, 2005, we will have 17,964,566 shares of common
stock outstanding. The 10,980,100 shares in this offering, assuming conversion
of warrants for 4,147,600 shares of common stock, will be freely tradable
without restriction or further registration under the federal securities laws,
subject in some cases to volume and other limitations.

In addition, we intend to file a registration statement on Form S-8 under the
Securities Act of 1933, as amended, to register 1,585,000 shares of our common
stock underlying options granted to our officers, directors, employees and
consultants and 630,000 shares of common stock reserved for issuance under our
2004 Stock Incentive Plan. These shares, if issued in accordance with these
plans, will be eligible for immediate sale in the public market, subject to
volume limitations.

If our stockholders sell substantial amounts of common stock in the public
market, or the market perceives that such sales may occur, the market price of
our common stock could fall. The sale of a large number of shares could impair
our ability to raise needed capital by depressing the price at which we could
sell our common stock.

WE MAY RAISE ADDITIONAL CAPITAL THROUGH A SECURITIES OFFERING THAT COULD DILUTE
YOUR OWNERSHIP INTEREST AND VOTING RIGHTS.

Our certificate of incorporation currently authorizes our board of directors to
issue up to 50,000,000 shares of common stock and 5,000,000 shares of preferred
stock. As of October 19, 2005, after taking into consideration our outstanding
common and preferred shares, our board of directors will be entitled to issue up
to 22,987,301 additional common shares and 5,000,000 preferred shares. The power
of the board of directors to issue shares of common stock, preferred stock or
warrants or options to purchase shares of our stock is generally not subject to
stockholder approval.

We may require additional working capital to fund our business. If we raise
additional funds through the issuance of equity, equity-related or convertible
debt securities, these securities may have rights, preferences or privileges
senior to those of the holders of our common stock. The issuance of additional
common stock or securities convertible into common stock by our board of
directors will also have the effect of diluting the proportionate equity
interest and voting power of holders of our common stock.

WE ARE CONTROLLED BY OUR PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND
DIRECTORS, AND AS A RESULT, THE TRADING PRICE FOR OUR SHARES MAY BE DEPRESSED
AND THESE STOCKHOLDERS CAN TAKE ACTIONS THAT MAY BE ADVERSE TO YOUR INTERESTS.

Our principal stockholders, executive officers and directors, in the aggregate,
beneficially own approximately 17.4% of our common stock, on an as-converted
basis, including warrants and options held by each principal stockholder,
executive officer and director that are exercisable within 60 days of October
19, 2005. These stockholders, acting together, will have the ability to exert
substantial influence over all matters requiring approval by our stockholders,
including the election and removal of directors and any proposed merger,
consolidation or sale of all or substantially all of our assets. In addition,
they could dictate the management of our business and affairs. This
concentration of ownership could have the affect of delaying, deferring or
preventing a change in control, or impeding a merger or consolidation, takeover
or other business combination that could be favorable to you. This significant
concentration of share ownership may also adversely affect the trading price for
our common stock because investors may perceive disadvantages in owning stock in
companies with controlling stockholders.

OUR INCORPORATION DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER THAT
STOCKHOLDERS CONSIDER FAVORABLE AND COULD ALSO LIMIT THE MARKET PRICE OF YOUR
STOCK, WHICH MAY INHIBIT AN ATTEMPT BY OUR STOCKHOLDERS TO CHANGE OUR DIRECTION
OR MANAGEMENT.

Our amended and restated certificate of incorporation and bylaws will contain
provisions that could delay or prevent a change in control of our company. Some
of these provisions:

o authorize our board of directors to determine the rights, preferences,
privileges and restrictions granted to, or imposed upon, the preferred stock and
to fix the number of shares constituting any series and the designation of such
series without further action by our stockholders;


                                       39
<PAGE>

o prohibit stockholders from calling special meetings;

o prohibit cumulative voting in the election of directors, which would otherwise
allow less than a majority of stockholders to elect director candidates;

o establish advance notice requirements for submitting nominations for election
to the board of directors and for proposing matters that can be acted upon by
stockholders at a meeting; and

o prohibit stockholder action by written consent, requiring all stockholder
actions to be taken at a meeting of our stockholders.

In addition, we are governed by the provisions of Section 203 of Delaware
General Corporate Law. These provisions may prohibit large stockholders, in
particular those owning 15% or more of our outstanding voting stock, from
merging or combining with us, which may prevent or frustrate any attempt by our
stockholders to change our management or the direction in which we are heading.
These and other provisions in our amended and restated certificate of
incorporation and bylaws and under Delaware law could reduce the price that
investors might be willing to pay for shares of our common stock in the future
and result in the market price being lower than it would be without these
provisions.

                                       40


<PAGE>

ITEM 3. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. As of the end of the
period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the applicable period to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act (i) is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms and (ii)
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosures.

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



                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not Applicable

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

Not Applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

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

Not Applicable

ITEM 5. OTHER INFORMATION

Not Applicable

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

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

                                       41
<PAGE>

                                   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 __, 2005          /s/ Alan Finkelstein
                                     ----------------------------
                                     Alan Finkelstein
                                     Chief Executive Officer, President
                                     Secretary and Chairman of the Board

      Date: November __, 2005          /s/  Bennet Price-Lientz Tchaikovsky
                                     ---------------------------------------
                                     Bennet Price-Lientz Tchaikovsky
                                     Chief Financial Officer



                                       42
<PAGE>
                                  Exhibit Index

Exhibit
Number            Description
-------           -----------
2.1(1)      Exchange agreement by and among the registrant, LensCard US, LLC,
            Alan Finkelstein, Forest Finkelstein, Bradley Ross and Luc
            Berthoud, dated April 1, 2004
2.2(1)      Exchange agreement by and among the registrant, Alan Finkelstein,
            Bradley Ross and Michael Paradise, dated April 1, 2004
2.3(1)      Exchange agreement between the registrant and its wholly-owned
            subsidiary, PSACo, Inc., dated April 1, 2004
2.4(1)      Merger agreement between the registrant and LensCard International
            Limited, a British Virgin Islands International
            Business Company, dated April 6, 2004
3.5(1)      Amended and Restated Certificate of Incorporation of the
            registrant
3.7(1)      Amended and Restated Bylaws of the registrant 10.1(1)* 2004 stock
            incentive plan 10.2(1) Sublease agreement between registrant and
            Bemel & Ross for premises at 11601 Wilshire Blvd., #2160, Los
            Angeles, California 90025, dated January 5, 2003
10.3(1)     Guaranty of lease between Alan Finkelstein and Bemel & Ross, dated
            January 5, 2003
10.4(1)     Form of common stock warrant
10.5(1)     Securities purchase agreement between registrant and Bristol
            Capital, LLC dated December 23, 2003
10.5(a)(1)  Waiver of section 2.3 of the securities purchase agreement between
            registrant and Bristol Capital, LLC
10.6(1)     Shares for debt agreement between registrant and Alan Finkelstein,
            dated June 22, 2004
10.7(1)     Shares for debt agreement between registrant and Bradley Ross, dated
            June 22, 2004
10.8(1)     Shares for debt agreement between registrant and Luc Berthoud, dated
            June 22, 2004
10.9(1)     Promissory note (loan no. 00003) between registrant and City
            National Bank, dated May 24, 2004
10.10(1)    Promissory note (loan no. 00005) between registrant and City
            National Bank, dated May 24, 2004
10.11(1)    Promissory note (loan no. 00004) between registrant and City
            National Bank, dated May 24, 2004
10.12(1)    Promissory note (loan no. 00006) between registrant and City
            National Bank, dated May 24, 2004
10.13(1)    Commercial guaranty between Alan Finkelstein and City National Bank
            dated May 24, 2004
10.14(1)    Commercial guaranty between Bradley Ross and City National Bank
            dated May 24, 2004
10.15(1)    Commercial guaranty between Luc Berthoud and City National Bank
            dated May 24, 2004
10.16(1)*   Offer letter between registrant and Murdoch Henretty dated July 28,
            2004
10.17(1)*   Employment agreement between registrant and Alan Finkelstein
            dated January 1998
10.18(1)+   Strategic Alliance Agreement between registrant and Visa
            International Service Association dated May 26, 2004
10.19(1)    Secured Demand Promissory Note between registrant and Union Finance
            International Corp. dated March 31, 2005
10.20(1)    Secured Demand Promissory Note between registrant and Bristol
            Investment Fund, Ltd. dated March 30, 2005
10.21(1)    Capital Lease Agreement between registrant and CNC Associates, Inc.
            dated November 30, 2004
10.22(1)+   Guaranty between Alan Finkelstein and CNC Associates, Inc. dated
            November 30, 2004
10.23(1)    Security Agreement between registrant and Union Finance
            International Corp. dated March 31, 2005 (See Exhibit 10.19)
10.24(1)    Security Agreement between registrant and Bristol Investment Fund,
            Ltd. dated March 30, 2005 (See Exhibit 10.20)
31.1        Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive
            Officer
31.2        Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial
            Officer
32.1        Certification by the Chief Executive Officer and Chief Financial
            Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
            Section 906 of the Sarbanes-Oxley Act of 2002.
--------------



(1) Incorporated by reference to the exhibit of the same number to the
Registrant's Registration Statement on Form SB-2 (File No. 333-119814) filed
with the Securities and Exchange Commission on October 19, 2004, as amended.

* Identifies a management contract or compensatory plan of arrangement required
to be filed as an exhibit to this report.

+ Confidential treatment granted as to certain portions, which portions were
omitted and filed separately with the Securities and Exchange Commission.

                                       43