UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

     |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                 For the quarterly period ended: March 31, 2006

                                       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                               90-0249676
   (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 |_|

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

Yes |_| No |X|

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

Common Stock Outstanding as of April 27, 2006: 18,214,566 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 March 31, 2006 (unaudited)
            and December 31, 2005                                             3

            Consolidated Statements of Operations for the three month
            periods ended March 31, 2006 and March 31, 2005 (unaudited)       4

            Consolidated Statements of Stockholders' Equity (unaudited)       5

            Consolidated Statements of Cash Flows for the three month
            periods ended March 31, 2006 and March 31, 2005 (unaudited)       6

            Notes to Unaudited Consolidated Financial Statements              8

Item 2.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations                              18

Item 3.     Controls and Procedures                                          27

PART II     OTHER INFORMATION

Item 1.     Legal Proceedings                                                27

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds      27

Item 3.     Defaults Upon Senior Securities                                  27

Item 4.     Submission of Matters to a Vote of Security Holders              27

Item 5.     Other Information                                                27

Item 6.     Exhibits and Reports on Form 8-K                                 28

            SIGNATURES


<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                       INNOVATIVE CARD TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS

                DECEMBER 31, 2005 AND MARCH 31, 2006 (UNAUDITED)

<TABLE>
<CAPTION>
                                                              March 31,
                                                                 2006                  December 31,
ASSETS                                                       (unaudited)                   2005
                                                             ------------              ------------
<S>                                                          <C>                       <C>
CURRENT ASSETS
   Cash and cash equivalents                                 $  2,604,078              $  3,277,532
   Prepaids and other current assets                               11,957                    11,773
   Accounts receivable                                                 --                    18,297
   Deposits on raw materials held for production                  123,400                   100,000
   Raw materials held for production                              228,917                   172,497
                                                             ------------              ------------
     Total current assets                                       2,968,352                 3,580,099
PROPERTY AND EQUIPMENT, NET                                       248,452                   241,264
                                                             ------------              ------------
Total assets                                                 $  3,216,804              $  3,821,363
                                                             ============              ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Accounts payable and accrued expenses                   $    266,025              $    252,806
     Accounts payable - related parties                            44,471                    15,000
     Short term portion of capital lease                            9,516                     9,331
     Deferred revenue                                              36,892                    37,143
                                                             ------------              ------------
     Total current liabilities                                    356,904                   314,280
                                                             ------------              ------------
LONG TERM LIABILITIES
     Long term portion of capital lease                             5,906                     8,355
                                                             ------------              ------------
Total liabilities                                                 362,810                   322,635
                                                             ------------              ------------

STOCKHOLDERS' EQUITY
   Preferred stock $0.001 par value, 5,000,000 shares
        Authorized, 0 (unaudited) and 0 shares issued
        and outstanding                                                --                        --
   Common stock $0.001 par value, 50,000,000 shares
        Authorized, 18,014,566(unaudited) and
        17,964,566 shares issued and outstanding                   18,015                    17,965
   Additional paid-in capital                                  10,471,410                10,347,710
   Accumulated deficit                                         (7,635,431)               (6,866,947)
                                                             ------------              ------------
     Total stockholders' equity                                 2,853,994                 3,498,728
                                                             ------------              ------------
     Total liabilities and stockholders' equity              $  3,216,804              $  3,821,363
                                                             ============              ============
</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 MONTHS ENDED MARCH 31, 2006 AND 2005 (UNAUDITED)

                                                Three Months       Three Months
                                                   Ended              Ended
                                                  March 31,          March 31,
                                                    2006               2005
                                                (unaudited)        (unaudited)
                                                ------------       ------------
Revenues                                        $        250       $      1,626
Cost of Goods Sold                                        --                 --
                                                ------------       ------------
Gross Margin                                             250              1,626

Operating expenses

   Administrative                                    424,926            250,463
   Consulting Fees                                    21,250              7,500
   Professional Fees                                 182,379            134,693
   Research and development                          163,678            268,874
                                                ------------       ------------
Total operating expenses                             792,233            661,530
                                                ------------       ------------
Loss from operations                                (791,983)          (659,904)
                                                ------------       ------------
Other income (expense)

   Interest income                                    24,011                124
   Interest expense                                     (512)            (5,317)
                                                ------------       ------------
Total other income (expense)                          23,499             (5,193)
                                                ------------       ------------
Loss before provision
 for income taxes                                   (768,484)          (665,097)
                                                ------------       ------------
Provision for income taxes                               (--)               (--)
                                                ------------       ------------
Net loss                                        $   (768,484)      $   (665,097)
                                                ------------       ------------
Basic and diluted loss per share                $      (0.04)      $      (0.08)
                                                ============       ============
Weighed-average
 common shares outstanding                        17,981,788          7,992,562
                                                ============       ============


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

                                        4
<PAGE>

                       INNOVATIVE CARD TECHNOLOGIES, INC.
                    FOR THE THREE MONTHS ENDED MARCH 31, 2006
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (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, 2005                  --  $        --    17,964,566   $    17,965   $10,347,710    $(6,866,947)   $ 3,498,728
Exercise of warrants (unaudited)            --           --        50,000            50        49,950             --         50,000
Stock compensation expense
   (unaudited)                              --           --            --            --        73,750             --         73,750
Net loss for the three months
   ended March 31, 2006 (unaudited)         --           --            --            --            --       (768,484)      (768,484)
                                   -----------  -----------   -----------   -----------   -----------    -----------    -----------
Balance, March 31, 2006 (unaudited)         --   $       --    18,014,566   $    18,015   $10,471,410    $(7,635,431)   $ 2,853,994
                                   ===========  ===========   ===========   ===========   ===========    ===========    ===========
</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 THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (UNAUDITED)

<TABLE>
<CAPTION>
                                                               For the Three Months Ended
                                                                        March 31,
                                                              ----------------------------
                                                                 2006             2005
                                                              -----------      -----------
                                                              (unaudited)      (unaudited)
<S>                                                           <C>              <C>
Cash flows from operating activities
   Net loss                                                   $  (768,484)     $  (665,097)
   Adjustments to reconcile net loss to net cash
     used in operating activities
        Depreciation and amortization                              24,360            4,287
        Stock compensation expense                                 73,750               --
        (Increase) decrease in
             Accounts receivable                                   18,297               --
             Prepaid expenses and other current assets               (184)        (116,551)
             Deposits on raw materials held for production        (23,400)              --
             Raw materials held for production                    (56,420)              --
        Increase (decrease) in
             Accounts payable and accrued expenses                 13,215           77,727
             Accounts payable - related parties                    29,471           19,895
             Deferred revenue                                        (251)          (1,626)
                                                              -----------      -----------
Net cash used in operating activities                            (689,646)        (681,366)
                                                              -----------      -----------
Cash flows from investing activities
       Purchase of Property and Equipment                         (31,544)              --
                                                              -----------      -----------
Net cash used in investing activities                             (31,544)              --
                                                              -----------      -----------
Cash flows from financing activities
        Gross Repayment from/of notes payable                          --          (20,509)
        Proceeds from exercise of warrants                         50,000               --
        Proceeds from notes payable related parties                    --          500,000
        Interest payable- related parties                              --              183
        Payments on capital lease                                  (2,264)          (2,094)
                                                              -----------      -----------
Net cash provided by financing activities                          47,736          477,580
                                                              -----------      -----------
Net decrease in cash and cash equivalents                        (673,454)        (203,786)
Cash and cash equivalents, beginning of year                    3,277,532          541,784
                                                              -----------      -----------
Cash and cash equivalents, end of period                      $ 2,604,078      $   337,998
                                                              ===========      ===========
</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 THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (UNAUDITED)

Supplemental disclosures of cash flow information
        Interest paid                                $      512   $     5,134
                                                     ===========  ===========
        Income tax paid                              $      800   $        --
                                                     ===========  ===========


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

                                        7
<PAGE>

                       INNOVATIVE CARD TECHNOLOGIES, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2006

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.

                                        8
<PAGE>

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS (CONTINUED)

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 its 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.

NOTE 2 - 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 10-KSB for the year ended December 31, 2005. 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 2005 audited financial statements
contained in Form 10-KSB filed with the Securities and Exchange Commission on
March 20, 2006. 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.

                                        9
<PAGE>

                           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

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.

                            STOCK BASED COMPENSATION

Effective with the Company's fiscal year that began on January 1, 2006, the
Company has adopted the accounting and disclosure provisions of the Statement of
Financial Accounting Standards ("SFAS") No. 123R, "SHARE-BASED PAYMENTS" using
the modified prospective application transition method. This statement requires
a public entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the
award. The cost will be recognized over the period during which an employee is
required to provide service in exchange for the award, the vesting period. No
compensation cost is recognized for equity instruments for which employees do
not render the requisite service. During the three months ended March 31, 2006,
the Company incurred $73,750 of compensation expense relating to the vesting of
stock options which increased the Company's Additional Paid in Capital account.

                                 MAJOR SUPPLIERS

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

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

                                       10
<PAGE>

NOTE 2 - 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.

                                 LOSS PER SHARE

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

Since their effect would have been anti-dilutive, common stock equivalents of
6,783,133 warrants and 1,585,000 stock options were excluded from the
calculation of diluted loss per share for the three months ended March 31, 2006.
Since their effect would have been anti-dilutive, common stock equivalents of
6,833,133 warrants and 1,585,000 stock options were excluded from the
calculation of diluted loss per share for the three months ended March 31, 2005.

                                  INCOME TAXES

The Company utilizes 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.

                                    ESTIMATES

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

                          CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of
credit risk consist of cash and cash equivalents. The Company places its cash
and cash equivalents with high credit, quality financial institutions. 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.

                                       11
<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

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

The correction of an error in previously issued financial statements is not an
accounting change. However, the reporting of an error correction involves
adjustments to previously issued financial statements similar to those generally
applicable to reporting an accounting change retrospectively. Therefore, the
reporting of a correction of an error by restating previously issued financial
statements is also addressed by this Statement.

                                       12
<PAGE>

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

NOTE 3  - DEPOSITS ON RAW MATERIALS HELD FOR PRODUCTION

Deposits for raw materials for production at March 31, 2006 and December 31,
2005 consisted of the following and is stated at the amount deposited:


                                                    March 31,       December 31,
                                                      2006              2005
                                                  ------------      -----------
                                                   (unaudited)
Deposits on raw materials held for production
  (display component)                               $ 123,400         $ 100,000
                                                   -----------      -----------
   TOTAL                                            $ 123,400         $ 100,000
                                                   ===========      ===========

NOTE 4 - RAW MATERIALS HELD FOR PRODUCTION

Raw materials held for production at March 31, 2006 and December 31, 2005
consisted of the following and is stated at the lower cost or market:


                                                    March 31,       December 31,
                                                      2006             2005
                                                  ------------      -----------
                                                   (unaudited)
Raw materials held for production
  (battery component)                               $ 228,917         $ 172,497
                                                   -----------      -----------
   TOTAL                                            $ 228,917         $ 172,497
                                                   ===========      ===========

                                       13
<PAGE>

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment at March 31, 2006 and December 31, 2005 consisted of the
following:

                                                    March 31,     December 31,
                                                      2006            2005
                                                   -----------    -----------
                                                   (unaudited)
Computer equipment                                  $  16,939      $  16,939
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                                  301,246        269,698
                                                    ---------      ---------
                                                      382,831        351,283
Less accumulated depreciation and amortization       (134,379)      (110,019)
                                                    ---------      ---------
   TOTAL                                            $ 248,452      $ 241,264
                                                    =========      =========

Depreciation and amortization expense was $24,360 (unaudited), and $4,287
(unaudited), for the the three months ended March 31, 2006 and 2005,
respectively.

NOTE 6 - PROVISION FOR INCOME TAXES

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 March 31, 2006, the Company has
approximately $4,615,000 (unaudited) and $4,613,000 (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 March 31, 2006 of $1,955,000 (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 $342,000 during the three months ended March 31, 2006.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

                                      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 March 31, 2006,
Bemel & Ross has charged the company for additional rents and/or charges in the
amount of $7,983. Future minimum lease payments under this operating lease
agreement at March 31, 2006 are $0.

Rent expense was $8,993 (unaudited) and $10,161 (unaudited) for the three months
ended March 31, 2006 and 2005, respectively.

                                       14
<PAGE>

                           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 June 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:

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.

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.

                              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 March 31, 2006, the termination
date is December 31, 2006. The officer earns $16,667 as a monthly salary.

NOTE 8 - 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 LensCard Corporation 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.

                                       15
<PAGE>

                                    WARRANTS

The following summarizes the warrant transactions:

                                                   Warrants     Weighted-Average
                                                 Outstanding     Exercise Price
                                              ----------------  ----------------
Outstanding,
   December 31, 2005                                 6,833,133  $           1.16
   Granted during 2006                                      --                --
   Exercised during 2006                               (50,000) $           1.00

Outstanding, March 31, 2006                          6,783,133  $           1.16

During the three months ended March 31, 2006, a warrant holder exercised 50,000
warrants resulting in the issuance of 50,000 shares of common stock and proceeds
to the company of $50,000.

                            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
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.

The following table summarizes information about stock option transactions for
the period shown:

                                                          Three Month Period
ALL OPTIONS                                                      Ended
                                                            March 31, 2006
                                                              (unaudited)
                                                      --------------------------
                                                                      WEIGHTED
                                                                      AVERAGE
                                                                      EXERCISE
                                                                      PRICE
                                                                      ----------
Outstanding at beginning of period                     1,625,000      $     1.00
Options granted                                               --              --
Options forfeited                                             --              --
Options expired                                               --              --
Options exercised                                             --              --
                                                      ----------      ----------
Outstanding at end of period                           1,625,000      $     1.00
                                                      ==========      ==========
Exercisable at end of period                             530,000      $     1.00
                                                      ==========      ==========

                                                          Three Month Period
NON-VESTED OPTIONS                                               Ended
                                                            March 31, 2006
                                                              (unaudited)
                                                      --------------------------
                                                                      WEIGHTED
                                                                      AVERAGE
                                                                      EXERCISE
                                                                      PRICE
                                                                      ----------
Non-vested at beginning of period                      1,115,000      $     1.00
Options granted                                               --              --
Options forfeited                                             --              --
Options expired                                               --              --
Options vested                                           (20,000)           1.00
                                                      ----------      ----------
Non-vested at end of period                            1,095,000      $     1.00
                                                      ==========      ==========

The weighted average average grant-date fair value of options granted during the
three month period ended March 31, 2006 was $0.00 as no options were granted.

The weighted average remaining contractual lives of the options outstanding and
options exercisable at March 31, 2006, were 8.12 years and 8.12 years,
respectively.

The Company recorded $73,750 of compensation expense for employee stock options
during the three month period ending March 31, 2006. At March 31, 2006, there
was a total of $937,000 of unrecognized compensation costs related to the
non-vested share-based compensation arrangements under the 2004 Plan. The cost
is expected to be recognized over a weighted average period of 3.1 years. The
total fair value of shares vested during the three month period ended March 31,
2006 was approximately $258,000.

Since January 1, 2006, the Company is recognizing the cost of all employee stock
options on a straight-line attribution basis over their respective vesting
periods, net of estimated forfeitures. The Company has selected the modified
prospective method of transition; accordingly, prior periods have not been
restated. Prior to the adoptions of SFAS No. 123(R), the Company applied APB
Opinion No. 25 and related Interpretations in accounting for its stock-based
compensation plans; all employee stock options were granted at or above the
grant date market price; and accordingly, no compensation cost was recognized
for fixed stock option grants in prior periods.


                                       16
<PAGE>

If the fair value method had been applied, the Company's net loss and earnings
per share would have been reduced to the pro forma amounts as follows:



                                  Three Months
                                     Ended
                                 March 31, 2005
                                 --------------
                                  (unaudited)
Net loss:
As reported                        $  (665,097)
Less: Total share-
Based employee
Compensation expense
Determined under fair
value method for
employee stock options,
net of tax                             (56,250)
                                   -----------
Pro forma net loss                 $  (721,347)
                                   ===========

Basic and diluted loss per
Share:
As reported                        $     (0.08)
Pro forma                          $     (0.09)

The Black Scholes assumptions used are listed below:


                                  Three Months
                                     Ended
                                 March 31, 2005
                                 --------------
                                  (unaudited)

Risk free interest rate           2.34%
Dividends                            --
Volatility factor                 200%
Expected life                     10 years
Annual forfeiture Rate            0%

NOTE 9 - RELATED PARTY TRANSACTIONS

                       ACCOUNTS PAYABLE - RELATED PARTIES

Accounts payable - related parties at December 31, 2005 and March 31, 2006
consisted of amounts due for legal and expense reimbursement and were $15,000
and $44,471 (respectively). As of December 31, 2005 and March 31, 2006, $5,000
and $30,000 (unaudited) is owed to Blakely, Sokoloff, Taylor & Zafman, LLP
(BSTZ), a law firm which, the Company's director, George Hoover, is a partner in
and $10,000 and $14,471 (unaudited) is owed to Alan Finkelstein, a related
party. Respectively. The March 31, 2006 amounts are currently due to BSTZ and
Alan Finkelstein.

                              CONSULTING AGREEMENTS

The Company entered into Consulting Agreements with Forest Finkelstein, who is a
related party. For Forest Finkelstein, during the three months ended March 31,
2006 and 2005, the Company paid $21,250 and $2,500, respectively.

                                 LEGAL SERVICES

The Company receives legal services from Blakely, Sokoloff, Taylor and Zafman,
LLP, a law firm that George Hoover, a director of the Company, is a partner in.
During the three months ended March 31, 2006 and 2005, the Company paid $30,981
and $73,471, respectively, to this entity for legal services rendered.

NOTE 10 - SUBSEQUENT EVENTS  (UNAUDITED)

On April 3, 2006, the Company received $200,000 as a result of a warrant holder
exercising 200,000 warrants.

On April 4, 2006, the Company executed a purchase order with NagraID, a vendor
that assists the Company in building the Company's DisplayCards, whereby the
company is required to pay $382,000 within 60 days. The remaining balance will
be payable by the Company as DisplayCards are being manufactured.

On April 12, 2006, the Company issued immediately exercisable warrants to
purchase 150,000 shares of our common stock at an exercise price of $3.25 per
share that was the closing price on April 12, 2006 to an investor relations
firm. The warrants expire on April 11, 2009.

                                       17
<PAGE>

On April 20, 2006, Innovative Card Technologies, Inc. (the "Company") signed a
term sheet whereby the Company would purchase rights relating to the DisplayCard
from nCryptone for 4,500,000 shares of the Company's common stock and $1,000,000
USD to be paid within one year after the close of the acquisition. Included in
this proposed acquisition is all intellectual property relating to the
DisplayCard under the July 25, 2005 Joint Development Agreement with nCryptone,
all nCryptone intellectual property relating to the DisplayCard, and assumption
of certain accounts payable directly allocable to the DisplayCard, as well as
all tangible assets relating to the DisplayCard.

After the completion of the proposed acquisition, the Company will have all
rights, including 100% of all revenues, relating to the DisplayCard that was
previously shared by nCryptone under the Joint Development Agreement. The
Company will continue to utilize nCryptone personnel for one year after the
acquisition for the further development of the technology surrounding the
DisplayCard. Additionally, the Company plans to retain the two top executives of
the firm who were instrumental in developing the technology of the DisplayCard.

The Company and nCryptone intend to complete due diligence, obtain necessary
corporate authorizations and appropriate documents in final form for the
proposed acquisition by June 5, 2006. No legally binding obligations have been
created, implied or inferred by this agreement.

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

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

                                    OVERVIEW

Since 2002, 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, and initial sales of the LightCard. At this time, we have
no plans to renew the LensCard licensing agreements or to further market or sell
the LensCard, unless requested by a customer.

Since inception, we have been unprofitable. We incurred a net loss of $768,484
during the three months ended March 31, 2006. As of March 31, 2006, we had an
accumulated deficit of $7,635,431. 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 $10,625,050. We believe that we will have enough funding to
meet our cash needs and continue our operations into early 2007.

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.

                                       18
<PAGE>

We have generated revenue from two sources: licensing of the LensCard to various
credit card issuers and selling the Light Card to a credit card issuer. The
LensCard is composed of a credit card with a small magnifying lens embedded into
the card. 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 and a Display. 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 product, the LightCard, or a financial card that has a light with or
without a magnifying lens, has been fully developed. Presently, we are able to
produce 20,000 LightCards per month. If the demand for the LightCard is
substantial and we decide to increase production capacity, we may be able to
increase our capacity up to 100,000 total cards per month if we are able to
order and have additional production equipment delivered, installed, and
operational within six months. However, our ability to produce up to 100,000
LightCards 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, which
provides the power to our cards, is the battery and presently available from
only one supplier, Solicore, Inc. Our projected cost to manufacture the
LightCards is unknown at this time, as we have not produced the LightCards on a
mass production basis. Additionally, if there is no demand for the LightCard by
banks that issue financial cards we will have no benefit from the LightCard.

Our second product, the SoundCard, or a financial card that emits a monophonic
tone such as "Happy Birthday" or "Jingle Bells", has been fully developed. The
SoundCard and DisplayCard are being built using a similar manufacturing process.
Since, the market demand for the DisplayCard significantly outweighs market
demand for the SoundCard, we are devoting all of our resources to manufacturing
the DisplayCard and therefore do not anticipate allocating any resources to
build the SoundCard in the near future. However, if the demand for the SoundCard
is substantial and we decide to increase our production capacity, we may be able
to increase capacity up to 150,000 SoundCards per month within five months.
However, our ability to produce up to 150,000 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, which provides the power to our cards,
is the battery and presently available from only one supplier, Solicore, Inc.
Our projected cost to manufacture the SoundCards is unknown at this time, as we
have not produced the SoundCards on a mass production basis. Additionally, if
there is no demand for the SoundCard by banks that issue financial cards we will
have no benefit from the SoundCard.

Our third power-based card enhancement, the DisplayCard with one time password,
or DisplayCard OTP, will be available for issuance on a limited quantity basis
in 2006. We estimate that we will be initially able to produce 20,000
DisplayCard OTP per month. If the demand for the DisplayCard OTP is substantial
and we decide to increase our production capacity, we may be able to increase
capacity up to 150,000 DisplayCard OTP per month within five months. Our ability
to produce the DisplayCard OTP is limited to the component parts we are able to
procure. Two of these key components of the DisplayCard OTP are the battery,
presently available from only one supplier, Solicore, Inc. and the display,
presently available from only one supplier, SmartDisplayer. Our projected cost
to manufacture the DisplayCard OTP is unknown at this time, as we have not
produced the DisplayCard OTP on a mass production basis. Additionally, if there
is no demand for the DisplayCard OTP by banks that issue financial cards or
other entities that use non-financial cards we will have no benefit from the
DisplayCard OTP.

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        125,000
Production costs
General and administrative expenses                               1,600,000
Professional Fees                                                   475,000
Consulting Fees                                                     100,000
Research and development                                            400,000
                                                                -----------
Total estimated capital requirements                             $2,700,000

Cost of production includes component parts to manufacture the DisplayCard.

                                       19
<PAGE>

RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS PERIODS ENDED MARCH 31, 2006 AND MARCH 31, 2005

OVERVIEW

Our financial results for the three months ended March 31, 2006 reflect a net
loss of $768,484, or $0.04 per share (basic and diluted), compared to a net loss
of $665,097, or $0.08 per share (basic and diluted), for the three months ended
March 31, 2005.

The major factors contributing to our net loss of $768,484 during the first
quarter of 2006 were administrative expenses, professional fees and research and
development expenses relating to new products and improving existing products.
The major factors contributing to our net loss during the first quarter of 2006
were primarily the result of administrative expenses and research and
development expense.

Revenue. Revenue consists of royalties from the LensCard.

Total revenue decreased from $1,626 for the three months ended March 31, 2005 to
$250 for the three months ended March 31, 2006. The decrease resulted primarily
from fewer royalties received from the LensCard. 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 $250,463 for the three months ended March
31, 2005 to $424,926 for the three months ended March 31, 2006. Administrative
expense increased primarily due to additional employees, insurance costs,
compensation relating to the vesting of employee and director's stock options,
and 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 March 31,
2005 to $21,250 for the three months ended March 31, 2006. Consulting expense
primarily increased as a result of a consultant receiving receiving a highly
monthly rate as approved by our Board of Directors. We anticipate that our
consulting expense will decrease in absolute dollars as we do 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 us.

Professional fees expense increased from $134,693 for the three months ended
March 31, 2005 to $182,379 for the three months ended March 31, 2006.
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 we will continue to incur greater costs in maintaining
and establishing our 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 decreased from $268,874 for the three months
ended March 31, 2005 to $163,678 for the three months ended March 31, 2006 due
to a decrease in materials spending that was used for the research and
development of the LightCard, SoundCard, and DisplayCard. However, we expect our
research and development expenses to increase in absolute dollars as we continue
to invest in developing new credit card enhancements.

Interest income. Interest income increased from $124 for the three months ended
March 31, 2005 to $24,011 for the three months ended March 31, 2006 primarily
due to an increased operating cash balance that was earning interest during the
three months ended March 31, 2006.

Interest expense. Interest expense decreased from $5,317 for the three months
ended March 31, 2005 to $512 for the three months ended March 31, 2006 primarily
due to indebtedness that was not outstanding during the three months ended March
31, 2006.

                                       20
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

DISCUSSION OF RESULTS

Our principal sources of liquidity had been cash and cash equivalent balances,
which were $3,277,532 at December 31, 2005 and $2,604,078 as of March 31, 2006.
Since our inception, we have incurred significant losses, and as of December 31,
2005 and March 31, 2006 we had an accumulated deficit of $6,866,947 and
$7,635,431, respectively.

Net cash used in operating activities was $689,646 for the three months ended
March 31, 2006 as compared with $681,366 for the three months ended March 31,
2005. The decrease was due primarily to additional purchases of raw materials
held for production and deposits for raw materials held for production.

Net cash used in investing activities was $31,544 for the three months ended
March 31, 2006 as compared with $0 for the three months ended March 31, 2005.
The increase was due to the purchase of production equipment that was placed
into use during the three months ended September 30, 2005.

Net cash provided by financing activities was $47,736 for the three months ended
March 31, 2006 as compared to net cash provided by financing activities of
$477,580 for the three months ended March 31, 2005. The decrease occurred
primarily because $500,000 in net proceeds from the proceeds from demand notes
payable related parties that took place during the three months ended March 31,
2005.

EQUITY AND DEBT FINANCINGS AND ACCOUNTS PAYABLE

To date, our operations have been funded primarily through equity financings
totaling $10,625,050. We believe that we will have enough funding to meet our
cash needs and continue our operations through early 2007.

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. On March 1, 2006, we received $50,000 as a result of 50,000
of the 2,400,000 warrants being exercised by a warrant holder. On April 3, 2006,
we received $200,000 as a result of 50,000 of the 2,400,000 warrants being
exercised by a warrant holder.

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 were required
to pay interest at a rate equal to a prime rate set by City National Bank, which
was 4.0%, on the loan. Beginning on December 31, 2004, we paid this loan in 10
principal payments of $6,837, but did not make the one final principal and
interest payment of $158,090 on the maturity date of July 31, 2005. City
National Bank then extended this loan until April 30, 2006. 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 had an interest rate of
4.1%, one had an interest rate of 3.1% and one had an interest rate of 1.9%.
Beginning on December 31, 2004, we were 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. Prior to each note
payable being fully repaid, we had drawn the full amount, $150,000 on each note
payable, for an aggregate amount of $450,000 drawn through October 18, 2005. On
October 19, 2005, we repaid all outstanding notes to City National Bank,
including interest, totaling $595,629. We have no further borrowing capacity
relating to any of these notes. As of March 31, 2006 we owed $0 relating to
these notes from City National Bank.

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 December 31, 2005, we owe the manufacturer $0 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 December 31, 2005, we owe this manufacturer $0 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.

                                       21
<PAGE>

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
created security interests in our assets, excluding assets subject to liens,
leases, encumbrances, defenses or other claims. The secured demand promissory
notes were payable without notice by the demand of Union Finance International
Corp. or Bristol Investment Fund, Ltd. There was no further borrowing capacity
under both of the secured demand promissory notes. On October 11, 2005, Union
Finance International Corp. transferred its $333,000 loan plus interest to BSR
Investments, Ltd. On October 19, 2005, BSR Investments, Ltd. converted the loan
plus interest totaling $347,816 into 347,816 shares of common stock and a
warrant to purchase up to 173,908 shares of our common stock at an exercise
price of $1.25 per share. On October 20, 2005 the loan, including interest,
amounting to $174,504 obtained from Bristol Investment Fund, Ltd. was repaid. As
of March 31, 2006, we owed Bristol Investment Fund, Ltd. and BSR Investments,
Ltd. $0 relating to these secured demand promissory notes.

In August 2005, we obtained loans in the form of secured demand promissory notes
totaling $200,000 from Bradley Ross and Rodger Bemel. Bradley Ross loaned us
$150,000 and Rodger Bemel loaned us $50,000 on August 31, 2005 for the combined
total of $200,000. The secured demand promissory notes created security
interests in our assets, excluding assets subject to liens, leases,
encumbrances, defenses or other claims. The secured demand promissory notes were
payable without notice by the demand of Bradley Ross or Rodger Bemel. There was
no further borrowing capacity under both of the secured demand promissory notes.
On October 19, 2005 we repaid the principal amounts owed to both Bradley Ross
and Rodger Bemel in full. As of March 31, 2006, we owed Bradley Ross and Rodger
Bemel $0 relating to these secured demand promissory notes.

FUTURE NEEDS

We have made and to continue to make commitments to our various suppliers for
the purchase of DisplayCards. We anticipate that the sales of our products will
not be sufficient to sustain our operations. Although we are in discussions with
various investment banks, we currently do not have any binding commitments for,
or readily available sources of, additional financing. In the event that
additional financing is required, whether through public or private equity or
debt financing, arrangements with stockholders or other sources to fund
operations, may not be available, or if available, may be on terms unacceptable
to us. If we issue additional equity securities to raise funds, the ownership
percentage of our existing stockholders would be reduced. New investors may
demand rights, preferences or privileges senior to those of existing holders of
our common stock. Debt incurred by us would be senior to equity in the ability
of debt holders to make claims on our assets. The terms of any debt issued could
impose restrictions on our operations. If adequate funds are not available to
satisfy our capital requirements, our operations and liquidity could be
materially adversely affected.

RISKS FACTORS

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.

                                       22
<PAGE>

WE HAVE AN ACCUMULATED DEFICIT OF $7,635,431 AS OF MARCH 31, 2006 AND WE MAY
NEVER ACHIEVE PROFITABILITY.

We have incurred significant net losses every year since our inception,
including net losses of $768,484 for the three monhts ended March 31, 2006. As
of March 31, 2006, we had an accumulated deficit of $7,635,431. 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 have received and may
receive from sales of the LightCard may not be sufficient to sustain our
operations beyond early 2007 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 beyond early 2007, 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.

TO BE SUCCESSFUL WE MAY REQUIRE ADDITIONAL CAPITAL.

Our current resources will be sufficient to fund operations through early 2007
under the following assumptions: we generate no sales from any of our products
during 2006 or 2007 and we continue to operate with our existing cost structure.
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 $7,635,431 as of March 31, 2006, 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.

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 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.

ACQUISITIONS COULD RESULT IN OPERATING DIFFICULTIES, DILUTION AND OTHER HARMFUL
CONSEQUENCES.

We do not have a great deal of experience acquiring companies. On April 20,
2006, we signed a term sheet whereby we would purchase rights relating to the
Display Card from nCryptone for 4,500,000 shares of our common stock and
$1,000,000 USD to be paid within one year after the close of the proposed
acquisition. We announced this signing of a term sheet on a Current Report on
Form 8-K that we filed with the Securities and Exchange Commission on April 26,
2006. We have evaluated and expect to continue to evaluate potential strategic
transactions. Any of these transactions could be material to our financial
condition and results of operations. In addition, the process of integrating an
acquired company, business or technology may create unforeseen operating
difficulties and expenditures. The areas where we may face risks include:

      o     Difficulty in realizing the potential technological benefits of the
            transaction;

      o     Difficulty in integrating the technology, operations or work force
            of the acquired business with our existing business;

      o     Retaining employees from the business we acquire;

      o     Disruption of our ongoing business; and

      o     Difficulty in maintaining uniform standards, controls, procedures
            and policies.

Foreign acquisitions involve unique risks in addition to those mentioned above,
including those related to integration of operations across different cultures
and languages, currency risks and the particular economic, political and
regulatory risks associated with specific countries.

In addition, future acquisitions or dispositions could result in potentially
dilutive issuances of our equity securities, the incurrence of debt, contingent
liabilities or amortization expenses, write-offs of goodwill, any of which could
harm our financial condition. Future acquisitions may require us to obtain
additional equity or debt financing, which may not be available on favorable
terms or at all.


                                       23
<PAGE>

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.

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.

                                       24
<PAGE>

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.

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 TO 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).

                                       25
<PAGE>

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.

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.

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 April 27, 2006, after taking into consideration our outstanding
common shares, our board of directors will be entitled to issue up to 31,785,434
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 78.0% of our common stock including options held
by each principal stockholder, executive officer and director that are
exercisable within 60 days of April 27, 2006. 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.

                                       26
<PAGE>

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 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;

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.

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

                                       27
<PAGE>

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.

                                   SIGNATURES

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

                       INNOVATIVE CARD TECHNOLOGIES, INC.


Date: May 11, 2006             /s/ Alan Finkelstein
                               ----------------------------
                               Alan Finkelstein
                               Chief Executive Officer, President
                               Secretary and Chairman of the Board

Date: May 11, 2006             /s/  Bennet Price-Lientz Tchaikovsky
                               ---------------------------------------
                               Bennet Price-Lientz Tchaikovsky
                               Chief Financial Officer

                                       28
<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(2)     Form of common stock warrant, as amended
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

<PAGE>

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)
10.25(3)    Secured Demand Promissory Note between registrant and Bradley Ross
            dated August 31, 2005
10.26(3)    Secured Demand Promissory Note between registrant and Roger Bemel
            dated August 31, 2005
10.27+(6)   Joint Development Agreement between registrant and nCryptone dated
            July 25, 2005
10.28+(6)   Agreement between registrant and SmartDisplayer Technology, Co.,
            Inc. dated July 25, 2005
10.29(4)    Form of Lock-Up agreement by and between registrant's directors and
            executive officers pursuant to the private placement dated October
            19, 2005
10.30(5)    Form of Warrant pursuant to private placement dated October 19, 2005
10.31(5)    Registration Rights Agreement by and between the registrant and each
            investor pursuant to the private placement dated October 19, 2005
10.32(4)    Side Letter Agreement between the registrant, T.R. Winston & Company
            and investors pursuant to the private placement dated October 19,
            2005
10.33+(8)   Letter of Intent by and between VASCO Data Security, nCryptone and
            Registrant, dated October 28, 2005.
14(7)       Code of Business Conduct and Ethics
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.

<PAGE>

(2) Incorporated by reference to the exhibit to the Registrant's Form 8-K filed
with the Securities and Exchange Commission on September 7, 2005

(3) Incorporated by reference to the exhibit to the Registrant's Form 8-K filed
with the Securities and Exchange Commission on September 6, 2005

(4) Incorporated by reference to the exhibit to the Registrant's Registration
Statement on Form SB-2 (File No. 333-129564) filed with the Securities and
Exchange Commission on November 8, 2005.

(5) Incorporated by reference to the exhibit to the Registrant's Form 8-K filed
with the Securities and Exchange Commission on October 25, 2005, as amended.

(6) Incorporated by reference to the exhibit to the Registrant's Amendment No. 1
to Form SB-2 (File No. 333-129564) filed with the Securities and Exchange
Commission on March 17, 2006.

(7) Incorporated by reference to the exhibit to the Registrant's Form 10-KSB
filed with the Securities and Exchange Commission on March 20, 2006.

(8) Incorporated by reference to the exhibit to the Registrant's Form 8-K filed
with the Securities and Exchange Commission on November 18, 2005.

* 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.