**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: June 30, 2007




or




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


**EXCHANGE
      ACT OF 1934**




For
      the
      transition period from _____________ to ____________




*Commission
      File Number: 000-51260*





**INNOVATIVE
      CARD TECHNOLOGIES, INC.**


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




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





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





(310)
      312-0700


(Issuer's
      telephone number including area code)




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




Yes x No o




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




Yes o No x




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




Common
      Stock Outstanding as of August 6, 2007: 28,420,616 shares




Transitional
      Small Business Disclosure Format: Yes o No x







**INNOVATIVE
      CARD TECHNOLOGIES, INC.**





INDEX
      TO
      FORM 10QSB





PAGEPART
                I
            
            FINANCIAL
                INFORMATION
            
            3Item
                1.
            
            Financial
                Statements
            
            3Consolidated
                Balance Sheets at June 30, 2007 (unaudited)and
                December 31, 2006
            
            3Consolidated
                Statements of Operations for the three and six month
                periodsended
                June 30, 2007 (unaudited) and June 30, 2006 (unaudited)
            
            4Consolidated
                Statement of Stockholders' Equity for the six months ended June 30,
                2007
                (unaudited)
            
            5Consolidated
                Statements of Cash Flows for the six monthsended
                June 30, 2007 (unaudited) and June 30, 2006 (unaudited)
            
            6Notes
                to Unaudited Consolidated Financial Statements
            
            7Item
                2.
            
            Management's
                Discussion and Analysis of FinancialCondition
                and Results of Operations
            
            18Item
                3.
            
            Controls
                and Procedures
            
            22PART
                II
            
            OTHER
                INFORMATION
            
            23Item
                1.
            
            Legal
                Proceedings
            
            23Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            23Item
                3.
            
            Defaults
                Upon Senior Securities
            
            23Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            23Item
                5.
            
            Other
                Information
            
            23Item
                6.
            
            Exhibits
            
            24SIGNATURES
            
            24


2


**PART
        I - FINANCIAL INFORMATION** **ITEM**
  **1.
        FINANCIAL STATEMENTS**
 
 **INNOVATIVE
        CARD TECHNOLOGIES, INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
  June
                  30,
                2007
              
              December
                  31,
                2006(unaudited)ASSETSCURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              4,208,895
              
              $
              8,270,096Accounts
                  receivable
              
              
              91,225
              
              
              14,836Prepaids
                  and other current assets
              
              
              69,274
              
              
              42,658Deposits
                  on raw materials held for production
              
              
              1,415,250
              
              
              1,199,453Work
                  in progress inventory
              
              
              1,819,758
              
              
              1,098,553Total
                  current assets
              
              
              7,604,402
              
              
              10,625,596PROPERTY
                  AND EQUIPMENT, NET
              
              
              333,997
              
              
              360,920DEPOSITS
              
              
              170,397
              
              
              71,244INTANGIBLE
                  ASSETS, NET
              
              
              3,312,452
              
              
              3,666,343Total
                  assets
              
              $
              11,421,248
              
              $
              14,724,103LIABILITIES
                  AND STOCKHOLDERS' EQUITYCURRENT
                  LIABILITIESAccounts
                  payable and accrued expenses
              
              $
              1,193,918
              
              $
              460,162Accounts
                  payable - related parties
              
              
              1,055,375
              
              
              1,322,159Short
                  term portion of capital lease
              
              
              3,408
              
              
              8,355Deferred
                  revenue
              
              
              856,685
              
              
              340,010Total
                  current liabilities
              
              
              3,109,386
              
              
              2,130,686Total
                  liabilities
              
              
              3,109,386
              
              
              2,130,686COMMITMENTS
                  AND CONTINGENCIES
              
              
              —
              
              
              —STOCKHOLDERS'
                  EQUITYPreferred
                  stock $0.001 par value, 5,000,000 sharesAuthorized,
                  0 (unaudited) and 0 shares issued and outstanding
              
              
              —
              
              
              —Common
                  stock $0.001 par value, 50,000,000 sharesAuthorized,
                  28,420,616 (unaudited) and28,372,308
                  shares issued and outstanding
              
              
              28,420
              
              
              28,372Additional
                  paid-in capital
              
              
              26,880,034
              
              
              26,298,606Accumulated
                  deficit
              
              
              (18,596,592
              )
              
              (13,733,561
              )Total
                  stockholders' equity
              
              
              8,311,862
              
              
              12,593,417Total
                  liabilities and stockholders' equity
              
              $
              11,421,248
              
              $
              14,724,103
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  3
  **INNOVATIVE
        CARD TECHNOLOGIES, INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
  Three
                  months
                ended
                June
                  30,
                2007
              
              Three
                  months
                ended
                June
                  30,
                2006
              
              Six
                  months
                ended
                June
                  30,
                2007
              
              Six
                  months
                ended
                June
                  30,
                2006(unaudited)
              
              (unaudited)
              
              (unaudited)
              
              (unaudited)Revenues
              
              $
              1,089
              
              $
              1,978
              
              $
              2,509
              
              $
              2,228Cost
                  of Goods Sold
              
              
              —
              
              
              —
              
              
              —
              
              
              —Gross
                  Margin
              
              
              1,089
              
              
              1,978
              
              
              2,509
              
              
              2,228Operating
                  expensesAdministrative
              
              
              1,926,943
              
              
              1,424,932
              
              
              3,533,460
              
              
              1,849,856Consulting
                  fees
              
              
              21,250
              
              
              21,250
              
              
              42,500
              
              
              42,500Professional
                  fees
              
              
              203,695
              
              
              461,248
              
              
              567,218
              
              
              643,627Research
                  and development
              
              
              568,477
              
              
              179,965
              
              
              864,806
              
              
              343,643Total
                  operating expenses
              
              
              2,720,365
              
              
              2,087,395
              
              
              5,007,984
              
              
              2,879,626Loss
                  from operations
              
              
              (2,719,276
              )
              
              (2,085,417
              )
              
              (5,005,475
              )
              
              (2,877,398
              )Other
                  income (expense)Interest
                  income
              
              
              63,152
              
              
              64,373
              
              
              142,692
              
              
              88,384Interest
                  expense
              
              
              (100
              )
              
              (288
              )
              
              (248
              )
              
              (801
              )Total
                  other income (expense)
              
              
              63,052
              
              
              64,085
              
              
              142,444
              
              
              87,583Loss before
                  provisionfor
                  income taxes
              
              
              (2,656,224
              )
              
              (2,021,332
              )
              
              (4,863,031
              )
              
              (2,789,815
              )Provision
                  for income taxes
              
              
              —
              
              
              (2,400
              )
              
              —
              
              
              (2,400
              )Net
                  loss
              
              $
              (2,656,224
              )
              $
              (2,023,732
              )
              $
              (4,863,031
              )
              $
              (2,792,215
              )Basic
                  and diluted loss per share
              
              $
              (0.09
              )
              $
              (0.10
              )
              $
              (0.17
              )
              $
              (0.15
              )Basic
                  and diluted weighted-averagecommon
                  shares outstanding
              
              
              28,420,616
              
              
              19,690,137
              
              
              28,415,133
              
              
              18,841,787
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  4
  **INNOVATIVE
        CARD TECHNOLOGIES, INC.**
 **FOR
        THE SIX MONTHS ENDED JUNE 30, 2007**
 **CONSOLIDATED
        STATEMENT OF STOCKHOLDERS' EQUITY**
 (unaudited)
  Series
                  A Preferred
                Stock
              
              Common
                  Stock
              
              Additional
                Paid-in
              
              AccumulatedShares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              Deficit
              
              TotalBalance,
                  December 31, 2006
              
              
              —
              
              $
              —
              
              
              28,372,308
              
              $
              28,372
              
              $
              26,298,606
              
              $
              (13,733,561
              )
              $
              12,593,417Exercise
                  of warrants (unaudited)
              
              
              —
              
              
              —
              
              
              19,500
              
              
              19
              
              
              24,356
              
              
              —
              
              
              24,375Stock
                  compensation expense (unaudited)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              560,776
              
              
              
              
              
              560,776Cashless
                  exercise of employee stock options (unaudited)
              
              
              
              
              
              
              
              
              28,808
              
              
              29
              
              
              (29
              )
              
              
              
              
              —Offering
                  cost (unaudited)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,675
              )
              
              
              
              
              (3,675
              )Net
                  loss (unaudited)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,863,031
              )
              
              (4,863,031
              )Balance,
                  June 30, 2007 (unaudited)
              
              
              —
              
              $
              —
              
              $
              28,420,616
              
              $
              28,420
              
              $
              26,880,034
              
              $
              (18,596,592
              )
              $
              8,311,862
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  5
  **INNOVATIVE
        CARD TECHNOLOGIES, INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
  For
                  the Six Months Ended
                June
                  30,2007
              
              2006(unaudited)
              
              (unaudited)Cash
                  flows from operating activitiesNet
                  loss
              
              $
              (4,863,031
              )
              $
              (2,792,215
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activitiesDepreciation
                  and amortization
              
              
              445,323
              
              
              46,144Stock
                  compensation expense
              
              
              560,776
              
              
              200,186Warrant
                  compensation Expense
              
              
              —
              
              
              838,845(Increase)
                  decrease in Accounts receivable
              
              
              (76,389
              )
              
              18,297(Increase)
                  decrease in Prepaid expenses and other current assets
              
              
              (26,616
              )
              
              (65
              )(Increase)
                  decrease in Deposits on raw materials held for production
              
              
              (215,797
              )
              
              (740,400
              )(Increase)
                  decrease in Work in progress inventory
              
              
              (721,205
              )
              
              (94,449
              )(Increase)
                  decrease in Deposits, Rent and other
              
              
              (99,153
              )
              
              —Increase
                  (decrease) in Accounts payable and accrued expenses
              
              
              733,756
              
              
              76,770Increase
                  (decrease) in Accounts payable - related parties
              
              
              (266,784
              )
              
              71,733Increase
                  (decrease) in Deferred revenue
              
              
              516,675
              
              
              137,772Net
                  cash used in operating activities
              
              
              (4,012,445
              )
              
              (2,237,382
              )Cash
                  flows from investing activitiesPurchase
                  of Property and Equipment
              
              
              (64,509
              )
              
              (51,625
              )Net
                  cash used in investing activities
              
              
              (64,509
              )
              
              (51,625
              )Cash
                  flows from financing activitiesProceeds
                  from exercise of warrants
              
              
              24,375
              
              
              274,375Proceeds
                  from 5/30/06 Common Stock offering
              
              
              —
              
              
              11,356,500Offering
                  costs 5/30/06 Common Stock offering
              
              
              —
              
              
              (582,825
              )Offering
                  costs
              
              
              (3,675
              )
              
              —Payments
                  on capital lease
              
              
              (4,947
              )
              
              (4,575
              )Net
                  cash provided by financing activities
              
              
              15,753
              
              
              11,043,475Net
                  increase (decrease) in cash and cash equivalents
              
              
              (4,061,201
              )
              
              8,754,468Cash
                  and cash equivalents, beginning of year
              
              
              8,270,096
              
              
              3,277,532Cash
                  and cash equivalents, end of period
              
              $
              4,208,895
              
              $
              12,032,000
 
 Supplemental
                  disclosures of cash flow informationInterest
                  paid
              
              $
              248
              
              $
              801Income
                  tax paid
              
              $
              
              
              $
              2,400
  Supplemental
        disclosures of non-cash investing and financing activities:
 
 ·
              On
                  January 12, 2007, option holders cashlessly exercised 35,002 options
                  resulting in the issuance of 28,808 shares of common
                  stock.
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  6
  **INNOVATIVE
        CARD TECHNOLOGIES, INC.**
 
 **NOTES
        TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2007**
  **NOTE
        1 - ORGANIZATION AND LINE OF BUSINESS**
  **GENERAL**
  The
        accompanying consolidated financial statements of Innovative Card Technologies,
        Inc. ("ICTI") include the amounts of its wholly-owned subsidiary, PSA Co.
        and
        LensCard US, LLC ("LensCard US"), formerly Universal Magnifier, LLC, organized
        under the laws of the State of Delaware on January 7, 1999 and LensCard
        International Limited ("LensCard International"), formerly Universal Magnifier
        International Limited ("UMIL"), incorporated as an International Business
        Company under the laws of the British Virgin Islands on August 21, 1995.
        On
        January 7, 1999, LensCard US merged with Universal Magnifier LLC ("UMUS"),
        a
        California limited liability company founded in January, 1998, for the purpose
        of changing the place of organization of UMUS.
 
 LensCard
        Corporation ("LCC") was incorporated in the State of Delaware on November
        22,
        2002 and had no financial activity from that date until January 1, 2004.
        PSACo.,
        Inc. ("PSAC") was incorporated in the State of Delaware on August 27,
        2003.
  **COMPANY
        OVERVIEW**
  The
        Company researches, develops and markets technology-based card enhancements
        primarily for the enterprise and on-line banking markets that are designed
        to
        enable enterprise and financial institutions to improve security. It commenced
        sales of its first product, the LensCard, or a card embedded with a small
        magnifying lens, in 1998. Since 2002, its core focus has been and continues
        to
        be on research and development and marketing of its power inlay technology
        that
        is designed to bring power-based applications, including light, sound and
        display screens, to cards. Power inlay technology consists of a battery,
        circuit, and switch that can power applications on credit cards and other
        information-bearing plastic cards. It has devoted a significant majority
        of its
        efforts to completing the development of its power inlay technology, initiating
        marketing and raising the financing required to do so and funding its expenses.
        It has generated limited revenues that derive from licensing agreements of
        its
        LensCard product, most of which have terminated.
 
 As
        further discussed in Item 2 to this Form 10-QSB, the Company believes that
        it
        currently has enough cash to meet its short term needs and continue current
        operations through November 2007. The Company anticipates that it will not
        now
        be able to generate sales of the ICT DisplayCard in substantial quantities
        until
        2008 to support its cash needs since the sales cycle for that product is
        longer
        than originally anticipated. Under the agreements to maintain exclusivity
        under
        its supplier contracts, the Company purchased inventory and made deposits
        prior
        to orders being received from customers. These inventory purchases and deposits
        along with the Company's operating expenses have collectively reduced the
        Company’s cash resources since the Company has not been able to sell its
        acquired inventory or utilize its deposits with suppliers or otherwise replenish
        such cash. As such, the Company will be required to raise operating capital
        in
        order to continue its current operations and/or to pursue any acquisitions
        of products or entities.
 
 **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
  **BASIS
        OF PRESENTATION**
  The
        consolidated interim financial statements of Innovative Card Technologies,
        Inc.,
        its wholly owned subsidiary, PSA Co. (the "Company"), Lens Card US, LLC,
        and Lens Card International Limited have been prepared in conformity
        with accounting principles generally accepted in the United States and are
        consistent in all material respects with those applied in the Company's annual
        report on Form 10-KSB for the year ended December 31, 2006. The preparation
        of
        consolidated financial statements in conformity with U.S. generally accepted
        accounting principles requires management to make estimates and judgments
        that
        affect the amounts reported in the consolidated financial statements and
        accompanying notes. The actual results experienced by the Company may differ
        from management's estimates.
  7
  The
        interim financial information is unaudited, but reflects all normal recurring
        adjustments that are, in the opinion of management, necessary to fairly present
        the information set forth therein. The interim financial statements should
        be
        read in conjunction with the audited financial statements and related notes
        included in the Company's 2006 audited financial statements contained in
        Form
        10-KSB filed with the Securities and Exchange Commission on April 2, 2007.
        Interim results are not necessarily indicative of the results for a full
        year.
 
 **PRINCIPLES
        OF CONSOLIDATION**
 
 The
        consolidated financial statements include the accounts of Innovative Card
        Technologies, its wholly owned subsidiary, PSA Co., Lens Card US, LLC and
        Lens
        Card International, (the "Company"). All significant inter-company accounts
        and
        transactions are eliminated in consolidation.
  **REVENUE
        RECOGNITION**
 
 The
        Company recognizes revenues in accordance with SEC Staff Accounting Bulletin
        No.
        104, or SAB 104. Revenues are recognized when persuasive evidence of an
        arrangement exists, delivery has occurred or services have been rendered,
        the
        price is fixed and determinable and collectability is reasonably assured.
        The
        Company recognizes certain long-term contracts using the complete-contract
        method in accordance to SOP 81-1, “Accounting for Performance of
        Construction-Type and Certain Production-Type of Contracts.”
 
 **COMPREHENSIVE
        INCOME**
 
 The
        Company utilizes Statement of Financial Accounting Standards ("SFAS") No.
        130,
        "Reporting Comprehensive Income." This statement establishes standards for
        reporting comprehensive income and its components in a financial statement.
        Comprehensive income as defined includes all changes in equity (net assets)
        during a period from non-owner sources. Examples of items to be included
        in
        comprehensive income, which are excluded from net income, include foreign
        currency translation adjustments, minimum pension liability adjustments,
        and
        unrealized gains and losses on available-for-sale securities. Comprehensive
        income is not presented in the Company's financial statements since the Company
        did not have any changes in equity from non-owner sources.
 
 **INVENTORY**
 
 The
        Company values its inventory at the lower of cost (first-in, first-out) or
        market. Under certain market conditions, the Company uses estimates and
        judgments regarding the valuation of inventory to properly value inventory.
        Inventory adjustments are made for the difference between the cost of the
        inventory and the estimated market value and charged to operation in the
        period
        in which the facts that give rise to the adjustments become known.
 
 **INTANGIBLE
        ASSETS AND LONG-LIVED ASSETS**
 
 The
        cost
        incurred to acquire intangible assets, which are active and relate to products
        with a definitive life cycle, are amortized over the estimated useful life
        of
        three to five years. The Company assesses the carrying value of long-lived
        assets in accordance with SFAS No. 144, “Accounting for the Impairment or
        Disposal of Long-Lived Assets.” The Company assesses the impairment of
        identifiable intangibles and long-lived assets whenever events or changes
        in
        circumstances indicate that the carrying value may not be recoverable. Factors
        considered important that could trigger an impairment review include, but
        are
        not limited to, the following: a significant underperformance to expected
        historical or projected future operating results, a significant change in
        the
        manner of the use of the acquired asset or the strategy for the overall
        business, or a significant negative industry or economic trend. Based on
        anticipated future income and cash flows and other factors relevant in the
        opinion of the Company’s management, there has been no impairment.
 
 **CASH
        AND CASH EQUIVALENTS**
  For
        the
        purpose of the statements of cash flows, the Company considers all highly
        liquid
        investments purchased with original maturities of three months or less to
        be
        cash equivalents.
 
 **MAJOR
        SUPPLIERS**
 
 The
        Company obtains the battery, a key component for the Company’s power inlay
        technology, from a single source, Solicore, Inc., on a purchase order basis.
        The
        Company believes that alternative sources for this component in the event
        of a
        disruption or discontinuation in supply would not be available on a timely
        basis, which could disrupt Company operations, delay production for up to
        nine
        months and impair the Company’s ability to manufacture and sell
        products.
  8
 
 The
        Company obtains the display, a key component for the Company’s ICT DisplayCard,
        from a single source, SmartDisplayer, pursuant to the Company’s written
        agreement with SmartDisplayer. Included in this agreement are provisions
        that
        require the Company to meet certain purchase requirements in order to maintain
        its exclusivity. The Company has exclusivity until May, 2010, however to
        maintain its exclusivity during this time period the Company will be required
        to
        meet certain purchase requirements. The Company believes that alternative
        sources for this component in the event of a disruption or discontinuation
        in
        supply would not be available on a timely basis, which could disrupt Company
        operations relating to the ICT DisplayCard, delay production of the ICT
        DisplayCard for up to twelve months and impair the Company’s ability to
        manufacture and sell the ICT DisplayCard.
 
 The
        Company assembles its ICT DisplayCard using a single source, NagraID pursuant
        to
        a written agreement. Included in this agreement are provisions that require
        the
        Company to meet certain purchase requirements in order to maintain its
        exclusivity. The Company has exclusivity until February 2008, however to
        maintain exclusivity during this time period the Company will be required
        to
        meet certain purchase requirements. The Company believes that alternative
        sources for this component in the event of a disruption or discontinuation
        in
        supply would not be available on a timely basis, which could disrupt Company
        operations relating to the ICT DisplayCard, delay production of the ICT
        DisplayCard for up to twelve months and impair the Company’s ability to
        manufacture and sell the ICT DisplayCard.
  **PROPERTY
        AND EQUIPMENT**
  Property
        and equipment are stated at cost. The Company provides for depreciation and
        amortization using the double-declining method over estimated useful lives
        of
        five to seven years. Expenditures for maintenance and repairs are charged
        to
        operations as incurred while renewals and betterments are capitalized. Gains
        or
        losses on the sale of property and equipment are reflected in the statements
        of
        operations.
  **FAIR
        VALUE OF FINANCIAL INSTRUMENTS**
 
 The
        Company's financial instruments include cash and cash equivalents, prepaid
        expenses and other current assets, due from related parties, accounts payable
        and accrued expenses and deferred revenue. The book value of all other financial
        instruments are representative of their fair values.
 
 **RESEARCH
        AND DEVELOPMENT**
  Research
        and development costs are charged to operations as incurred.
  **LOSS
        PER SHARE**
  The
        Company utilizes SFAS No. 128, "Earnings per Share." Basic loss per share
        is
        computed by dividing loss available to common shareholders by the
        weighted-average number of common shares outstanding. Diluted loss per share
        is
        computed similar to basic loss per share except that the denominator is
        increased to include the number of additional common shares that would have
        been
        outstanding if the potential common shares had been issued and if the additional
        common shares were dilutive. Common equivalent shares are excluded from the
        computation if their effect is anti-dilutive.
  Since
        their effect would have been anti-dilutive, common stock equivalents of
        4,627,098 warrants and 2,254,498 stock options were excluded from the
        calculation of diluted loss per share for the three and six months ended
        June 30, 2007. Since their effect would have been anti-dilutive, common stock
        equivalents of 6,783,135 warrants and 1,585,000 stock options were excluded
        from
        the calculation of diluted loss per share for the three and six months ended
        June 30, 2006.
  **INCOME
        TAXES**
  The
        Company accounts for income taxes in accordance to SFAS No. 109, “Accounting for
        Income Taxes”. Also, the Company adopted the provisions of the Financial
        Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for
        Uncertainty in Income Taxes- an Interpretation of FASB Statement No. 109” (“FIN
        48”), effective January 1, 2007. As a result of the implementation of FIN 48,
        the Company made a comprehensive review of its portfolio of uncertain tax
        positions in accordance with recognition standards established by FIN 48.
        As a
        result of this review, the Company concluded that at this time there are
        no
        uncertain tax positions. As a result of applying the provisions of FIN 48,
        there
        was no cumulative effect on retained earnings.
 
 Deferred
        income taxes are provided using the liability method whereby deferred tax
        assets
        are recognized for deductible temporary differences and operating loss and
        tax
        credit carry forwards and deferred tax liabilities are recognized for taxable
        temporary differences. Temporary differences are the differences between
        the reported amounts of assets and liabilities and their tax bases. 
Deferred tax assets are reduced by a valuation allowance when, in the opinion
        of
        management, it is more likely than not that some portion or all of the deferred
        tax assets will not be realized. Deferred tax assets and liabilities are
        adjusted for the effects of the changes in tax laws and rates of the date
        of
        enactment.
  When
        tax
        returns are filed, it is highly certain that some positions taken would be
        sustained upon examination by the taxing authorities, while others are subject
        to uncertainty about the merits of the position taken or the amount of the
        position that would be ultimately sustained. The benefit of a tax position
        is recognized in the financial statements in the period during which, based
        on
        all available evidence, management believes it is more likely than not that
        the
        position will be sustained upon examination, including the resolution of
        appeals
        or litigation processes, if any. Tax positions taken are not offset or
        aggregated with other positions. Tax positions that meet the
        more-likely-than-not recognition threshold are measured as the largest amount
        of
        tax benefit that is more than 50 percent likely of being realized upon
        settlement with the applicable taxing authority. The portion of the
        benefits associated with tax positions taken that exceeds the amount measured
        as
        described above is reflected as a liability for unrecognized tax benefits
        in the
        accompanying balance sheet along with any associated interest and penalties
        that
        would be payable to the taxing authorities upon examination. Interest and
        penalties associated with unrecognized tax benefits are classified as additional
        income taxes in the statement of income.
  9
  **STOCK
        INCENTIVE PLAN**
 
 The
        Company accounts for its stock incentive plan under SFAS No. 123R, "Share-Based
        Payments" using the fair value based method. Under this method, compensation
        cost is measured at the grant date based on the value of the award and is
        recognized over the service period, which is usually the vesting
        period.
 
 **ESTIMATES**
  The
        preparation of financial statements requires management to make estimates
        and
        assumptions that affect the reported amounts of assets and liabilities and
        disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenue and expenses during the reporting
        period. Actual results could differ from those estimates.
  **CONCENTRATIONS
        OF CREDIT RISK**
 
 Financial
        instruments which potentially subject the Company to concentrations of credit
        risk consist of cash and cash equivalents. The Company places its cash and
        cash
        equivalents with high credit, quality financial institutions. Such cash and
        cash
        equivalents may be in excess of the Federal Deposit Insurance Corporation
        insurance limit of $100,000. Cash balances are in excess of the insured
        limit.
 
 **RECLASSIFICATION**
 
 Certain
        amounts included in the prior year financial statements have been reclassified
        to conform with the current year presentation. Such reclassification did
        not
        have any effect on the reported net loss.
  **RECENTLY
        ISSUED ACCOUNTING PRONOUNCEMENTS**
 
 In
        May
        2005, the FASB issued Statement of Financial Accounting Standards ("SFAS")
        No.
        154, "Accounting Changes and Error Corrections. SFAS No. 154 replaces Accounting
        Principles Board ("APB") Opinion No. 20, "Accounting Changes" and SFAS No.
        3,
        "Reporting Accounting Changes in Interim Financial Statements", and changes
        the
        requirements for the accounting for and reporting of a change in accounting
        principle. This Statement applies to all voluntary changes in accounting
        principle. It also applies to changes required by an accounting pronouncement
        in
        the unusual instance that the pronouncement does not include specific transition
        provisions. When a pronouncement includes specific transition provision,
        those
        provisions should be followed.
 
 Opinion
        20 previously required that most voluntary changes in accounting principle
        be
        recognized by including in net income of the period of the change the cumulative
        effect of changing to the new accounting principle. This Statement requires
        retrospective application to prior periods' financial statements of changes
        in
        accounting principle, unless it is impracticable to determine either the
        period-specific effects or the cumulative effect of the change. When it is
        impracticable to determine the period-specific effects of an accounting change
        on one or more individual prior periods presented, this Statement requires
        that
        the new accounting principle be applied to the balances of assets and
        liabilities as of the beginning of the earliest period for which retrospective
        application is practicable and that a corresponding adjustment be made to
        the
        opening balance of retained earnings (or other appropriate components of
        equity
        or net assets in the statement of financial position) for that period rather
        than being reported in an income statement. When it is impracticable to
        determine the cumulative effect of applying a change in accounting principle
        to
        all prior periods, this Statement requires that the new accounting principle
        be
        applied as if it were adopted prospectively from the earliest date
        practicable.
 
 The
        correction of an error in previously issued financial statements is not an
        accounting change. However, the reporting of an error correction involves
        adjustments to previously issued financial statements similar to those generally
        applicable to reporting an accounting change retrospectively. Therefore,
        the
        reporting of a correction of an error by restating previously issued financial
        statements is also addressed by this Statement. The adoption of SFAS 154
        did not
        have a material impact on the Company's financial position, results of
        operations or cash flows.
  10
 
 In
        February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
        Financial Instruments" ("SFAS 155"), which amends SFAS No. 133, "Accounting
        for
        Derivatives Instruments and Hedging Activities" ("SFAS 133") and SFAS No.
        140,
        "Accounting for Transfers and Servicing of Financial Assets and Extinguishment
        of Liabilities" ("SFAS 140"). SFAS 155 amends SFAS 133 to narrow the scope
        exception for interest-only and principal-only strips on debt instruments
        to
        include only such strips representing rights to receive a specified portion
        of
        the contractual interest or principle cash flows. SFAS 155 also amends SFAS
        140
        to allow qualifying special-purpose entities to hold a passive derivative
        financial instrument pertaining to beneficial interests that itself is a
        derivative instruments. The adoption of SFAS 155 did not have a material
        impact
        on the Company's financial position, results of operations or cash
        flows.
 
 In
        March
        2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
        Assets” (“SFAS 156”). SFAS 156 addresses the accounting for recognized servicing
        assets and servicing liabilities related to certain transfers of the servicer’s
        financial assets and for acquisitions or assumptions of obligations to service
        financial assets that do not relate to the financial assets of the servicer
        and
        its related parties. SFAS 156 requires that all recognized servicing assets
        and
        servicing liabilities are initially measured at fair value, and subsequently
        measured at either fair value or by applying an amortization method for each
        class of recognized servicing assets and servicing liabilities. SFAS 156
        is
        effective in fiscal years beginning after September 15, 2006. The adoption
        of
        SFAS 156 did not have a material impact on the Company’s financial
        position, results of operations or cash flows.
  In
        September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
        No. 157 clarifies the principle that fair value should be based on the
        assumptions market participants would use when pricing an asset or liability
        and
        establishes a fair value hierarchy that prioritizes the information used
        to
        develop those assumptions. Under the standard, fair value measurements would
        be
        separately disclosed by level within the fair value hierarchy. SFAS No. 157
        is effective for financial statements issued for fiscal years beginning after
        November 15, 2007, and interim periods within those fiscal years, with
        early adoption permitted. The Company is currently determining the effect,
        if
        any, the adoption of SFAS No. 157 will have on the Company’s financial
        statements.
  In
        September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for
        Defined Benefit Pension and Other Postretirement Plan - an amendment of FASB
        Statement No. 87, 88, 106 and 132(R). SFAS No. 158 requires an
        employer to recognize the overfunded or underfunded status of a defined benefit
        postretirement plan as an asset or liability in its statement of financial
        position and recognize changes in the funded status in the year in which
        the
        changes occur. SFAS No. 158 is effective for fiscal years ending after
        December 15, 2006. The adoption of SFAS No. 158 did not have a
        material impact on the Company’s financial position, results of operations or
        cash flows.
 
 In
        September 2006, the SEC issued SAB No. 108, Considering the Effects of
        Prior Year Misstatements when Quantifying Misstatements in Current Year
        Financial Statements (“SAB 108”). SAB 108 requires that registrants quantify
        errors using both a balance sheet and income statement approach and evaluate
        whether either approach results in a misstated amount that, when all relevant
        quantitative and qualitative factors are considered, is material. The adoption
        of SAB 108 did not have a material impact on the Company’s consolidated
        financial statements.
 
 In
        February 2007, the FASB issued Statement of Financial Accounting Standard
        No.
        159, "The Fair Value Option for Financial Assets and Financial Liabilities"
        ("SFAS 159"). SFAS 159 permits entities to choose to measure many financial
        instruments and certain other items at fair value. Unrealized gains and losses
        on items for which the fair value option has been elected are reported in
        earnings. SFAS 159 is effective for fiscal years beginning after November
        15,
        2007. The Company is currently evaluating the impact of implementing SFAS
        159 on
        our consolidated financial statements, however the Company anticipates that
        SFAS
        159 will not have a material impact on the Company’s financial position, results
        of operations or cash flows.
  Effective
        January 1, 2007, the Company adopted FSP No. FIN 48-1, “Definition of Settlement
        in FASB Interpretation No. 48,” (FSP FIN 48-1), which was issued on May 2, 2007.
        FSB FIN 48-1 amends FIN 48 to provide guidance on how an entity should determine
        whether a tax position is effectively settled for the purpose of recognizing
        previously unrecognized tax benefits. The term “effectively settled” replaces
        the term “ultimately settled” when used to describe recognition, and the terms
“settlement” or “settled” replace the terms “ultimate settlement” or “ultimately
        settled” when used to describe measurement of a tax position under FIN 48. FSP
        FIN 48-1 clarifies that a tax position can be effectively settled upon the
        completion of an examination by a taxing authority without being legally
        extinguished. For tax positions considered effectively settled, an entity
        would
        recognize the full amount of tax benefit, even if the tax position is not
        considered more likely than not to be sustained based solely on the basis
        of its
        technical merits and the statute of limitations remains open. The adoption
        of
        FSP FIN 48-1 did not have an impact on the accompanying financial
        statements.
 11
  **NOTE
        3 - DEPOSITS ON RAW MATERIALS HELD FOR PRODUCTION**
  Deposits
        for raw materials held for production at June 30, 2007 and December 31, 2006
        consisted of the following and are stated at the amount deposited:
  June
                  30,
                2007
              
              December
                  31,
                2006(unaudited)Deposits
                  on raw materials held for production(display
                  & manufacturing component)
              
              $
              1,415,250
              
              $
              1,199,453TOTAL
              
              $
              1,415,250
              
              $
              1,199,453
 
 These
        deposits for raw materials are held by two vendors, are not refundable and
        made
        pursuant to agreements as discussed in Note 2 under major suppliers
 
 **NOTE
        4 - WORK IN PROGRESS INVENTORY**
  Work
        in
        progress inventory held for production at June 30, 2007 and December 31,
        2006
        consisted of the following and is stated at the lower of cost or
        market:
  June
                  30,
                2007
              
              December
                  31,
                2006(unaudited)Work
                  in progress inventory
              
              $
              1,819,758
              
              $
              1,098,553TOTAL
              
              $
              1,819,758
              
              $
              1,098,553
 
 **NOTE
        5 - PROPERTY AND EQUIPMENT**
  Property
        and equipment at June 30, 2007 and December 31, 2006 consisted of the
        following:
  June
                  30,
                2007
              
              December
                  31,
                2006(unaudited)Computer
                  equipment
              
              $
              89,179
              
              $
              55,672Office
                  equipment
              
              
              8,168
              
              
              8,168Furniture
                  and fixtures
              
              
              24,384
              
              
              19,878Production
                  equipment, capital lease
              
              
              32,598
              
              
              32,598Leasehold
                  improvements
              
              
              5,610
              
              
              5,610Production
                  equipment
              
              
              500,232
              
              
              473,736660,171
              
              
              595,662Less
                  accumulated depreciation and amortization
              
              
              (326,174
              )
              
              (234,742
              )TOTAL
              
              $
              333,997
              
              $
              360,920
  Depreciation
        and amortization expense was $46,757
        (unaudited) and $21,784 (unaudited) for the three months ended June 30, 2007
        and
        2006, respectively.
  Depreciation
        and amortization expense was $91,432 (unaudited) and $46,144 (unaudited),
        for
        the six months ended June 30, 2007 and 2006, respectively.
  12
  **NOTE
        6 - INTANGIBLE ASSETS**
  For
        the
        acquisition of nCryptone on June 28, 2006, the Company allocated the purchase
        price by assigning a value of $3,030,000 to intangible assets and $1,000,010
        to
        a patent license fee. The $1,000,010 patent license fee will be amortized
        over
        the remaining life of the patent (12 years through November 2018). The total
        purchase price allocation of the DisplayCard assets of nCryptone is summarized
        as follows:
  Common
                  Stock:
              
              $
              3,468,405Total
                  Purchase Price:
              
              $
              3,468,405
  The
        Company’s allocation of the purchase price is summarized as
        follows:
 Assets:Intangible
                  Assets
              
              $
              3,030,000Accounts
                  Receivable
              
              
              14,830Equipment
              
              
              25,619Inventory
              
              
              397,956Total
                  Assets
              
              $
              3,468,405
  $2,900,000
        of acquired intangibles has been assigned to developed technologies and $130,000
        has been assigned to a non-competition agreement, which are subject to periodic
        amortization over the estimated useful life of five and three years,
        respectively.
 
 Amortization
        expense for the three and six months ended June 30, 2007 and June 30, 2006
        was
        $177,923 (unaudited), $0 (unaudited), $353,891 (unaudited), and $0 (unaudited),
        respectively. Estimated amortization expense for each of the ensuing years
        through December 31, 2011 is, respectively, $527,903, $703,871, $682,204,
        $660,538 and $370,538.
 13
 
 **NOTE 7
        - COMMITMENTS AND CONTINGENCIES**
  **LEASE**
 
 Until
        September 30, 2006, the Company subleased its office space under a
        non-cancelable operating lease agreement from a stockholder. The lease required
        minimum monthly payments of $2,568, and required the Company to pay 15.03%
        of any additional rents and/or charges of any kind due from Bemel & Ross.
        Since May 2005, the lease became a month to month tenancy cancelable by either
        party with thirty days notice. The additional rents and/or charges that may
        be
        due consist of direct costs passed through the master landlord to Bemel &
Ross. The direct costs are based on operating costs during the calendar year
        ending December 31, 2003, or the base year. Thereafter, if the direct costs
        in a
        subsequent year exceed the direct costs in the base year, the master landlord
        bills Bemel & Ross its proportionate share of the excess of direct costs,
        which may include tax costs related to real estate and/or costs and expenses
        incurred by the master landlord in connection with common areas of the building,
        the parking structure or the cost of operating the building. Through September
        30, 2006, Bemel & Ross has charged the Company for additional rents and/or
        charges in the amount of $2,165. Future minimum lease payments under this
        operating lease agreement at September 30, 2006 are $0. The company terminated
        this lease on September 30, 2006.
 
 On
        September 14, 2006, the Company entered into a sublease for 6,500 square
        feet of
        office space with Bergman & Dacey, Inc. which commenced on October 1, 2006
        and expires on July 31, 2009. The Company paid a security deposit of $71,244.
        The lease requires monthly payments of $16,789 plus 32.5% of triple net costs
        charged to Bergman & Dacey, such as common area operating expenses, taxes
        and insurance. The rent increases 3% on October 1st of each year. Minimum
        lease
        payments will be $102,243 from July 1, 2007 through December 31, 2007, $209,063
        and $124,677 in calendar years 2008 and 2009, respectively.
 
 On
        April
        1, 2007, the Company entered into a lease for temporary office space with
        Boss
        Buro Express in Paris, France for one month, which commenced on April 1,
        2007 and is renewable on a month to month basis. The Company paid initial
        charges, including security deposit and set up fees of $6,458 USD. The lease
        requires a monthly payment of 2,745 Euro which is inclusive of certain office
        services. Amounts payable under the lease are due in Euro.
 
 On
        July
        12, 2007, the Company entered into a lease for temporary office space with
        Regus
        do Brasil Ltda. in Sao Paulo, Brazil, which commenced on July 16, 2007 and
        which has a term of three (3) months and is renewable on a month to month
        basis
        thereafter. The Company paid initial charges, including security deposit
        and set
        up fees, of $7,858 USD. The lease requires monthly payments of 7,000 Brazilian
        Real, which is inclusive of certain office services. Amounts payable under
        the
        lease are in Brazilian Real.
 
 Rent
        expense was $65,415 (unaudited), $7,248 (unaudited), $118,088 (unaudited)
        and
        $16,241 (unaudited) for the three and six months ended June 30, 2007 and
        2006,
        respectively.
  **REVENUE
        SHARING AGREEMENTS**
  The
        Company entered into an agreement with its wholly owned subsidiary, PSACo.,
        Inc., a Delaware corporation, whereby if the Company receives payments from
        royalty rights related to the LensCard that the Company would be obligated
        to
        make payments related to these rights to PSACo, the Company’s wholly owned
        subsidiary. As of June 30, 2007, sales have not been sufficient to require
        any payments pursuant to the above agreements to PSACo. Any future payments
        that
        may be required will be recorded as a reduction of revenue.
  **PATENT
        AND TRADEMARK LICENSE AGREEMENTS**
 
 The
        Company has entered into various Patent and Trademark License Agreements
        with
        financial institutions granting a limited, non-exclusive right and license
        to
        make, distribute, market, sell, and use credit cards or debit cards containing
        a
        magnifying lens (the "Licensed Products"). These agreements are as
        follows:
  ·
              An
                  agreement dated January 16, 2002 and expiring on March 31, 2004,
                  providing
                  for royalties to the Company at the rate of $1.50 per LensCard
                  issued to a
                  customer. Royalties were due and payable quarterly within 30 days
                  after
                  the last day of each calendar quarter. The Company receives sales
                  reports
                  within thirty days following the end of a calendar quarter from
                  this
                  customer. On April 1, 2004, the agreement was extended requiring
                  a $12,500
                  payment by the customer with the Company receiving a royalty of
                  $0.25 per
                  licensed product and $0.50 for each additional LensCard sold thereafter.
                  The revised agreement is effective until April 1,
                  2008.
 
 **EMPLOYMENT
        AGREEMENT**
  The
        Company entered into an Employment Agreement with Alan Finkelstein, its Director
        and President; the initial term of three years, began January 1, 1998 and
        has
        since January 1, 2000 renewed for successive one year terms. As of June 30,
        2007, the termination date is December 31, 2007. However, the agreement
        automatically renews for one year if not terminated by December 31, 2007.
        Mr. Finkelstein earns $16,667 as a monthly salary.
  **LITIGATION**
 
 To
        date,
        the Company has never been a party to and has never been involved with any
        litigation. However, in the future, the Company, like any other business
        or
        individual, may become subject to litigation some of which the Company can
        control and other litigation that the Company cannot control. If the Company
        were to become involved in any litigation, management would have to assess
        whether or not such litigation would likely have a material adverse effect
        on
        the Company’s consolidated financial condition or results of
        operations.
  14
 
 **NOTE 8
        - STOCKHOLDERS' EQUITY**
  **PREFERRED
        STOCK**
 
 The
        Company has 5,000,000 authorized shares of $0.001 par value preferred stock.
        The
        preferred stock may be issued in series, from time to time, with such
        designations, rights, preferences, and limitations as the Board of Directors
        may
        determine by resolution.
  **WARRANTS**
  The
        following summarizes the warrant transactions:
 WarrantsOutstanding
                
                Weighted-AverageExercise
                    PriceOutstanding,December
                    31, 2006
                
                
                4,646,598
                
                $
                1.43Granted
                    during 2007  (unaudited)
                
                
                —
                
                
                —Exercised
                    during 2007  (unaudited)
                
                
                (19,500
                )
                $
                1.25Outstanding,
                    June 30, 2007  (unaudited)
                
                
                4,627,098
                
                $
                1.42
  During
        the six months ended June 30, 2007, warrant holders exercised 19,500 warrants
        resulting in the issuance of 19,500 shares of common stock and proceeds to
        the
        Company of $24,375 (unaudited).
  **2004
        STOCK INCENTIVE PLAN**
  The
        Company's Board of Directors and stockholders approved the 2004 Stock Incentive
        Plan in August 2004. The 2004 Stock Incentive Plan provides for the grant
        of
        incentive stock options to the Company's employees, and for the grant of
        non-statutory stock options, restricted stock, stock appreciation rights
        and
        performance shares to the Company's employees, directors and
        consultants.
  The
        Company reserved a total of 2,351,000 shares of its common stock for issuance
        pursuant to the 2004 Stock Incentive Plan. The board of directors, or a
        committee of the board, administers the 2004 Stock Incentive Plan. Stock
        options
        are generally granted with terms of up to ten years and vest over a period
        of
        five years under the 2004 Stock Incentive Plan. The administrator determines
        the
        exercise price of options granted under the 2004 Stock Incentive Plan, but
        the
        exercise price must not be less than 85% of the fair market value of the
        Company's common stock on the date of grant. In the event the participant
        owns
        10% or more of the voting power of all classes of the Company's stock, the
        exercise price must not be less than 110% of the fair market value per share
        of
        the Company's common stock on the date of grant. With respect to all incentive
        stock options, the exercise price must at least be equal to the fair market
        value of the Company's common stock on the date of grant. The term of an
        incentive stock option may not exceed 10 years, except that with respect
        to any
        participant who owns 10% of the voting power of all classes of the Company's
        outstanding stock or the outstanding stock of any parent or subsidiary of
        the
        Company, the term must not exceed five years an the exercise price must equal
        at
        least 110% of the fair market value on the grant date. The administrator
        determines the term of all other options; however, no option will have a
        term in
        excess of 10 years from the date of grant.
  15
  The
        2004
        Stock Incentive Plan will automatically terminate on August 5, 2014, unless
        it
        terminates sooner because all shares available under the Plan have been issued
        or all outstanding options terminate in connection with a change of control.
        In
        addition, the board of directors has the authority to amend the 2004 Stock
        Incentive Plan provided its action does not impair the rights of any
        participant.
  The
        following summarizes stock option transactions for the period
        shown:
 **Six
                    Months Ended**
                  **June
                    30, 2007****(unaudited)****WEIGHTED****AVERAGE****EXERCISE****PRICE****ALL
                    OPTIONS**Outstanding
                    at beginning of period
                
                
                2,351,000
                
                $
                2.10Options
                    granted
                
                
                —
                
                $Options
                    forfeited
                
                
                (61,500
                )
                $
                4.89Options
                    expired
                
                
                —
                
                
                —Options
                    exercised
                
                
                (35,002
                )
                $
                1.00Outstanding
                    at end of period
                
                
                2,254,498
                
                $
                2.04Exercisable
                    at end of period
                
                
                833,998
                
                $
                1.11
 
 **Six Months Ended**
                **June
                  30, 2007****(unaudited)****NON
                  VESTED OPTIONS**
              
              
              
              
              
              **WEIGHTED****AVERAGE**
                **EXERCISE****PRICE**Non-
                  vested at beginning of period
              
              
              1,516,000
              
              $
              2.68Options
                  granted
              
              
              —
              
              $Options
                  forfeited
              
              
              (61,500
              )
              $
              4.89Options
                  expired
              
              
              —
              
              
              —Options
                  vested
              
              
              (34,000
              )
              $
              2.42Non-
                  vested at end of period
              
              
              1,420,500
              
              $
              2.59
  The
        weighted average grant-date fair value of options granted during the six
        month
        periods ended June 30, 2007 and 2006 was $0 (unaudited) and $4.45.
  The
        weighted average remaining contractual lives of the options outstanding and
        options exercisable at June 30, 2007, were as follows:
 **Options
                    outstanding**
                
                **Options**
                  **exercisable**June
                    30, 2007 (unaudited)
                
                
                7.55
                    years
                
                
                6.73
                    years
  16




The
      Company recorded $560,776 (unaudited) and $200,186 (unaudited) of compensation
      expense for employee stock options during the six month periods ending June
      30,
      2007 and June 30, 2006, respectively which is included in the administrative
      expense category. At June 30, 2007, there was a total of $3,025,662 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 3.44 years. The total fair value
      of
      shares vested during the six month period ended June 30, 2007 was approximately
      $82,300 (unaudited). The aggregate intrinsic value of total outstanding options
      and total exercisable options was $6,119,050 (unaudited) and $3,077,050
      (unaudited), respectively as of June 30, 2007.




The
      Black
      Scholes assumptions used are listed below:




**Six
                Months Ended June 30, 2007**
            
            
            **Six
                Months Ended June 30, 2006**(unaudited)
            
            
            (unaudited)Risk
                free interest rate
            
            
            4.97
            %
            
            2.34
            %Dividends
            
            
            —
            
            
            —Volatility
                factor
            
            
            200
            %
            
            200
            %Expected
                life
            
            
            10
                years
            
            
            10
                yearsAnnual
                forfeiture rate
            
            
            0
            %
            
            0
            %





**NOTE 9
      - RELATED PARTY TRANSACTIONS**




**ACCOUNTS
      PAYABLE - RELATED PARTIES**




Accounts
      payable - related parties at June 30, 2007 and December 31, 2006 consisted
      of
      amounts due for legal expense reimbursement, and for a licensing fee and were
      $1,055,375 (unaudited) and $1,322,159 respectively. As of June 30, 2007 and
      December 31, 2006, $13,237 (unaudited) and $61,173 is owed to Blakely, Sokoloff,
      Taylor & Zafman, LLP (BSTZ), a law firm in which, George Hoover, a director
      of the Company, is a partner, $100 (unaudited) and $0 is owed to Alan
      Finkelstein, a related party, and $1,042,038 (unaudited) and $1,260,987 is
      owed
      to nCryptone, S.A., respectively. The amounts are currently due to BSTZ and
      Alan
      Finkelstein. The $1,000,010 was payable to nCryptone on June 27, 2007. On July
      12, 2007, nCryptone and the Company agreed to make periodic payments in lieu
      of
      the lump sum as follows: $300,000 on July 2, 2007, $200,000 on September
      30 th ,
      2007
      and $500,010 on December 31 st ,
      2007
      with the unpaid balances accruing annual interest of 6.36% per year. If the
      Company raises funds prior to any of the periodic payment dates, the Company
      agrees to pay the remaining balance upon completion of such financing.





**CONSULTING
      AGREEMENTS**




The
      Company continues to be a party to a month to month Consulting Agreement with
      Forest Finkelstein, the son of Alan Finklestein and during the six months ended
      June 30, 2007 and 2006, the Company paid $42,500 (unaudited) and $42,500
      (unaudited), respectively.





**LEGAL
      SERVICES**




The
      Company receives legal services from Blakely, Sokoloff, Taylor and Zafman,
      LLP,
      a law firm that George Hoover, a director of the Company, is a partner in.
      During the six months ended June 30, 2007 and 2006, the Company paid $78,293
      (unaudited) and $88,604 (unaudited), respectively, to this entity for legal
      services rendered.





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




On
      July
      3, 2007, the Company issued a press release announcing that Nasdaq Listing
      Qualifications notified the Company that it has regained compliance with the
      independent director and audit committee requirements for continued listing
      on
      The Nasdaq Capital Market set forth in Marketplace Rules 4350(c) and 4350(d)(2),
      respectively as a result of appointing Mr. W. Robert Ramsdell to its Board
      of
      Directors and its Audit Committee on June 29, 2007.





On
      July
      23, 2007, Mr. Donald Killian submitted his resignation as a director of the
      Company, effective as of July 23, 2007.





On
      July
      26, 2007, the Company issued a press release announcing that the Company
      received written notice from Nasdaq Listing Qualifications on July 25, 2007
      stating that solely as a result of the resignation of Mr. Donald Killian from
      the Company’s Board of Directors, effective as of July 23, 2007, the Company is
      currently not in compliance with Nasdaq’s independent director and audit
      committee requirements as set forth in Marketplace Rule 4350.




17




Pursuant
      to Marketplace Rules 4350(c)(1) and 4350(d)(4), Nasdaq is providing the Company
      a cure period in order to regain compliance with the independent director and
      audit committee requirements as follows: (1) until the earlier of the Company’s
      next annual shareholders’ meeting or July 23, 2008; or (2) if the next annual
      shareholders’ meeting is held before January 22, 2008, then the Company must
      evidence compliance no later than January 23, 2008.





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




On
      July 31, 2007, the Company extended its option to
      purchase a significant supplier of the Company. The option has been
      extended until November 1, 2007.




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




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




**OVERVIEW**




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





Since
      inception, we have been unprofitable. We incurred a net loss of $4,863,031
      during the six months ended June 30, 2007. As of June 30, 2007, we had an
      accumulated deficit of $18,596,592. Our continued existence will be dependent
      upon our ability to obtain additional financing, as we have not been able in
      the
      short term to successfully sell the ICT DisplayCard in substantial quantities.
      We further anticipate that after such introduction of the ICT DisplayCard we
      will continue to incur net losses due to our costs exceeding our revenues for
      an
      indefinite period of time. Our capital requirements for the next 12 months
      for
      retention and hiring of key personnel, implementation of a sales force for
      our
      products, and further research and development relating to the production of
      our
      power inlay technology, have been and will continue to be significant. To date,
      our operations have been funded primarily through equity financings totaling
      $21,803,691.





We
      believe that we currently have enough cash to meet our short term needs and
      continue our current operations through November 2007. We anticipate that we
      will not be able to generate sales of the ICT DisplayCard in substantial
      quantities until 2008 to support our cash needs since the sales cycle for that
      product is longer than originally anticipated. Under the agreements to maintain
      exclusivity we purchased inventory and made deposits prior to orders being
      received from customers. These inventory purchases and deposits along with
      our
      operating expenses have collectively reduced the Company’s cash resources since
      we have not been able to sell our acquired inventory or utilize our deposits
      with suppliers or otherwise replenish such cash. As such, we will be required
      to
      raise operating capital in order to continue our current operations and/or
      to
      pursue any acquisitions of products or entities. We may be unable to raise
      operating capital on terms satisfactory to us, if at all. There can be no
      assurances that we will be able to raise operating capital on satisfactory
      terms, or that sufficient revenues will be generated from the sales of our
      product in order to sustain our operations. Should our cash and liquidity
      position become severe, we would need to limit our operations which would harm
      the value of your investment in the Company.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




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





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





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




18




We
      anticipate that future revenues in the next twelve months will come from the
      ICT
      DisplayCard. We intend to sell these cards through resellers.





To
      date
      we have entered into nine reseller agreements whereby the resellers agree to
      sell our ICT DisplayCard to their customers. These reseller agreements have
      generated several testing or “pilot” programs to test the ICT DisplayCard.
      Because these are programs to test our card and not a deployment within an
      organization or to customers, we credit any cash received from these testing
      or
“pilot” programs against research and development expense.





We
      have
      one agreement with a bank that issues financial cards for the LensCard product.
      The revenue generated from the LensCard agreements is negligible, and we expect
      that the sales of the LensCard will have no impact on our results of
      operations.





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





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





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





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




Research
      and Development. Costs of research and development, principally the design
      and
      development of hardware and software prior to the determination of technological
      feasibility, are expensed as incurred. Inventory reserves are also considered
      costs of research and development and are expensed as determined by management.
      Cash received from customers for testing or “pilot” programs are credited
      against research and development expense.





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





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




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




**RESULTS
      OF OPERATIONS**




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




**OVERVIEW**




Our
      financial results for the three months ended June 30, 2007 reflect a net loss
      of
      $2,656,224, or $0.09 per share (basic and diluted), compared to a net loss
      of
      $2,023,732, or $0.10 per share (basic and diluted), for the three months ended
      June 30, 2006.




The
      major
      factors contributing to our increased net loss of $2,656,224 during the second
      quarter of 2007 were administrative expenses, professional fees and research
      and
      development expenses relating to new products and improving existing
      products.




Revenue.
      Revenue consists of royalties from the LensCard.




19




Total
      revenue decreased from $1,978 for the three months ended June 30, 2006 to $1,089
      for the three months ended June 30, 2007. The decrease resulted primarily from
      less LensCard royalties received during the three months ended June 30, 2007.
      We
      believe that future revenue will be primarily from the sales of the ICT
      DisplayCard; we anticipate that such revenues will begin in the fourth quarter
      of 2007.




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




Administrative
      expense increased from $1,424,932 for the three months ended June 30, 2006
      to
      $1,926,943 for the three months ended June 30, 2007. Administrative expense
      increased primarily due to the hiring of additional employees, insurance costs,
      compensation expenses relating to the vesting of employee and director's stock
      options, and travel expenses relating to business development. We anticipate
      that administrative expenses will increase in 2007 as we incur increased costs
      associated with establishing our operations.




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




Consulting
      expense remained constant at $21,250 for the three months ended June 30, 2007
      and 2006. We anticipate that our consulting expense will remain constant as
      we
      do not presently have the intention of hiring additional outside
      consultants.




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




Professional
      fees expense decreased from $461,248 for the three months ended June 30, 2006
      to
      $203,695 for the three months ended June 30, 2007. Professional fees expense
      decreased as the three months ended June 30, 2006 included legal costs related
      to the DisplayCard acquisition of nCryptone. We anticipate that professional
      fees will continue to increase as we will have to assess our internal controls
      relating to Sarbanes-Oxley in order to furnish our report on our assessment
      for
      the year ended December 31,2007 and the related legal costs associated with
      being a public company.




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




Research
      and development costs increased from $179,965 for the three months ended June
      30, 2006 to $568,477 for the three months ended June 30, 2007 due to increased
      inventory reserves relating to the components purchased for the ICT DisplayCard.
      We expect our research and development expenses to increase as we continue
      to
      invest in developing enhancements of our ICT DisplayCard with one time
      password.




Interest
      income. Interest income decreased from $64,373 for the three months ended June
      30, 2006 to $63,152 for the three months ended June 30, 2007 due to a decreased
      operating cash balance that was earning interest during the three months ended
      June 30, 2007.




Interest
      expense. Interest expense decreased from $288 for the three months ended June
      30, 2006 to $100 for the three months ended June 30, 2007.





**COMPARISON
      OF THE SIX MONTH PERIODS ENDED JUNE 30, 2007 AND JUNE 30,
      2006**




**OVERVIEW**




Our
      financial results for the six months ended June 30, 2007 reflect a net loss
      of
      $4,863,031, or $0.17 per share (basic and diluted), compared to a net loss
      of
      $2,792,215, or $0.15 per share (basic and diluted), for the six months ended
      June 30, 2006.




The
      major
      factors contributing to our increased net loss of $4,863,031 during the second
      quarter of 2007 were administrative expenses and research and development
      expenses relating to new products and improving existing products.




Revenue.
      Revenue consists of royalties from the LensCard.




20




Total
      revenue increased from $2,228 for the six months ended June 30, 2006 to $2,509
      for the six months ended June 30, 2007. The increase resulted primarily from
      additional LensCard royalties received during the six months ended June 30,
      2007. We believe that future revenue will be primarily from the sales of the
      ICT
      DisplayCard; we anticipate that such revenues may begin in the fourth quarter
      of
      2007.




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




Administrative
      expense increased from $1,849,856 for the six months ended June 30, 2006 to
      $3,533,460 for the six months ended June 30, 2007. Administrative expense
      increased primarily due to the hiring of additional employees, insurance costs,
      compensation expenses relating to the vesting of employee and director's stock
      options, and travel expenses relating to business development. We anticipate
      that administrative expenses will increase in 2007 as we incur increased costs
      associated with establishing our operations.




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




Consulting
      expense remained constant at $42,500 for the six months ended June 30, 2007
      and
      2006. We anticipate that our consulting expense will remain constant as we
      do
      not presently have the intention of hiring additional outside
      consultants.




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




Professional
      fees expense decreased from $643,627 for the six months ended June 30, 2006
      to $567,218 for the six months ended June 30, 2007. Professional fees
      expense decreased as the six months ended June 30, 2006 included costs related
      to the DisplayCard acquisition from nCryptone. We anticipate that
      professional fees will continue to increase as we will have to assess our
      internal controls relating to Sarbanes-Oxley and the related legal costs
      associated with being a public company.




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




Research
      and development costs increased from $343,643 for the six months ended June
      30,
      2006 to $864,806 for the six months ended June 30, 2007 due to increased
      expenses as they related to the further development of our ICT DisplayCard
      and
      increased inventory reserves relating to the ICT DisplayCard. We expect our
      research and development expenses to increase as we continue to invest in
      developing enhancements of our ICT DisplayCard with one time
      password.




Interest
      income. Interest income increased from $88,384 for the six months ended June
      30,
      2006 to $142,692 for the six months ended June 30, 2007 due to an increased
      operating cash balance that was earning interest during the six months ended
      June 30, 2007.




Interest
      expense. Interest expense decreased from $801 for the six months ended June
      30,
      2006 to $248 for the six months ended June 30, 2007.





**LIQUIDITY
      AND CAPITAL RESOURCES**




Our
      principal sources of liquidity had been cash and cash equivalent balances,
      which
      were $8,270,096 at December 31, 2006 and $4,208,895 as of June 30, 2007. Since
      our inception, we have incurred significant losses, and as of December 31,
      2006
      and June 30, 2007 we had an accumulated deficit of $13,733,561 and $18,596,592,
      respectively.




Net
      cash
      used in operating activities was $4,012,445 for the six months ended June 30,
      2007 as compared with $2,237,382 for the six months ended June 30, 2006. This
      significant increase in cash used was primarily due to a greater net loss as
      we
      continue to further establish our operations, deposits and inventory purchases
      paid to our suppliers some of which are to maintain our exclusivity arrangements
      with certain suppliers.




Net
      cash
      used in investing activities was $64,509 for the six months ended June 30,
      2007
      as compared with $51,625 for the six months ended June 30, 2006. The increase
      was due to more computer and production equipment being purchased during the
      six
      months ended June 30, 2007.




21




Net
      cash
      provided by financing activities was $15,753 for the six months ended June
      30,
      2007 as compared to $11,043,475 for the six months ended June 30, 2006. The
      decrease occurred because of the 11,356,500 in gross proceeds from the private
      offering that took place during the six month ended June 30, 2006.




**EQUITY
      AND DEBT FINANCINGS AND ACCOUNTS PAYABLE**




To
      date,
      our operations have been funded primarily through equity financings totaling
      $21,803,691. In order to continue our operations beyond November 2007, we will
      need to raise additional capital. If we are to exercise our right to acquire
      control over a supplier, then we will need financing both for that transaction
      and for the supplier’s operating expenses, in addition to the cash needed
      to continue our operations beyond November 2007. Our significant equity and
      debt
      financings from January 1, 2006 through August 14, 2007 are described
      below.





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





On
      June
      28, 2006, we purchased rights relating to the ICT DisplayCard from nCryptone
      for
      4,500,000 shares of our common stock and acquired a license to use a patent
      for
      $1,000,010 USD that was payable by June 27, 2007. On July 2, 2007, we paid
      $300,000 to nCryptone towards this payable. On July 12, 2007, we agreed to
      make
      additional payments to nCryptone as follows: $200,000 on September 30, 2007
      and
      $500,010 on December 31, 2007 with any unpaid balance from June 28, 2007
      accruing annual interest of  6.36% per year. If we complete a fundraise
      prior to any of the remaining balance becoming due, we agreed to pay the
      full remaining balance to nCryptone upon completion of such financing.




**FUTURE
        NEEDS - OPERATING CAPITAL REQUIREMENTS AND POTENTIAL
        ACQUISITIONS**
  We
        believe that our current cash of $2,885,171 as of August 9, 2007, is sufficient
        to meet our short term needs and continue our current operations through
        November 2007. We anticipate that we will not be able to generate sales of
        the
        ICT DisplayCard in substantial quantities until 2008 to support our operating
        cash needs since the sales cycle for that product is longer than originally
        anticipated. As such, we will be required to raise operating capital in order
        to
        continue our current operations.
 
 We
        will
        also be required to raise operating capital if we are to exercise our purchase
        option  to acquire a significant supplier or if we intend to pursue
        any other acquisitions of products or entities.
  We
        do not
        have any binding commitments for, or readily available sources of, additional
        financing at this time. Additional financing, whether through public or private
        equity or debt financing, arrangements with stockholders or other sources
        to
        fund operations, may not be available, or if available, may be on terms
        unacceptable to us. If we issue additional equity securities to raise funds,
        the
        ownership percentage of our existing stockholders would be reduced. New
        investors may demand rights, preferences or privileges senior to those of
        existing holders of our common stock. Debt incurred by us would be senior
        to
        equity in the ability of debt holders to make claims on our assets. The terms
        of
        any debt issued could impose restrictions on our operations. If adequate
        funds
        are not available to satisfy our capital requirements, our operations and
        liquidity could be materially adversely affected. There can be no assurances
        that we will be able to raise operating capital on satisfactory terms, or
        that
        sufficient revenues will be generated from the sales of our product in order
        to
        sustain our operations. Should our cash and liquidity position become severe,
        we
        would need to limit our operations which would harm the value of your investment
        in the Company.


**ITEM
      3. CONTROLS AND PROCEDURES**




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




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




22





**PART
      II - OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**




Not
      Applicable





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





Not
      Applicable.




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




Not
      Applicable





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




Not
      Applicable





**ITEM
      5. OTHER INFORMATION**





On
      July
      3, 2007, the Company issued a press release announcing that Nasdaq Listing
      Qualifications notified the Company that it has regained compliance with the
      independent director and audit committee requirements for continued listing
      on
      The Nasdaq Capital Market set forth in Marketplace Rules 4350(c) and 4350(d)(2),
      respectively as a result of appointing Mr. W. Robert Ramsdell to its Board
      of
      Directors and its Audit Committee on June 29, 2007.





On
      July
      23, 2007, Mr. Donald Killian submitted his resignation as a director of the
      Company, effective as of July 23, 2007.





On
      July
      26, 2007, the Company issued a press release announcing that the Company
      received written notice from Nasdaq Listing Qualifications on July 25, 2007
      stating that solely as a result of the resignation of Mr. Donald Killian from
      the Company’s Board of Directors, effective as of July 23, 2007, the Company is
      currently not in compliance with Nasdaq’s independent director and audit
      committee requirements as set forth in Marketplace Rule 4350.




23




Pursuant
      to Marketplace Rules 4350(c)(1) and 4350(d)(4), Nasdaq is providing the Company
      a cure period in order to regain compliance with the independent director and
      audit committee requirements as follows: (1) until the earlier of the Company’s
      next annual shareholders’ meeting or July 23, 2008; or (2) if the next annual
      shareholders’ meeting is held before January 22, 2008, then the Company must
      evidence compliance no later than January 23, 2008.





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





**ITEM
      6. EXHIBITS**




(a)
      Exhibits




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





**SIGNATURES**




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


**INNOVATIVE
                CARD TECHNOLOGIES, INC.**Date:
                August 14, 2007
            
            /s/ John
                A. Ward, IIIJohn
                A. Ward, IIIChairman and
                CEO




Date:
                August 14, 2007
            
            /s/ Bennet
                P. TchaikovskyBennet
                P. TchaikovskyChief
                Financial Officer




**EXHIBIT
      INDEX**


2.1(2)
              
              Exchange
                  agreement by and among the registrant, LensCard US, LLC, Alan Finkelstein,
                  Forest Finkelstein, Bradley Ross and Luc Berthoud, dated April
                  1,
                  20042.2(2)
              
              Exchange
                  agreement by and among the registrant, Alan Finkelstein,  Bradley
                  Ross and Michael Paradise, dated April 1, 20042.3(2)
              
              Exchange
                  agreement between the registrant and its wholly-owned subsidiary,
                  PSACo,
                  Inc., dated April 1, 2004
  24
 
 2.4(2)
              
              Merger
                  agreement between the registrant and LensCard International Limited,
                  a
                  British Virgin Islands International Business Company, dated April
                  6,
                  20043.1(2)
              
              Amended
                  and Restated Certificate of incorporation of the registrant, as
                  currently
                  in effect3.2(2)
              
              Amended
                  and Restated Bylaws of the registrant, as currently in
                  effect10.1(2)
              
              2004
                  stock incentive plan10.2(2)
              
              Sublease
                  agreement between registrant and Bemel & Ross for premises at 11601
                  Wilshire Blvd., #2160, Los Angeles, California 90025, dated January
                  5,
                  200310.3(2)
              
              Guaranty
                  of lease between Alan Finkelstein and Bemel & Ross, dated January 5,
                  200310.4(3)
              
              Form
                  of common stock warrant, as amended on September 7,
                  2005.10.5(2)
              
              Securities
                  purchase agreement between registrant and Bristol Capital, LLC
                  dated
                  December 23, 200310.5(a)
                  (2)
              
              Waiver
                  of section 2.3 of the securities purchase agreement between registrant
                  and
                  Bristol Capital, LLC10.6(2)
              
              Shares
                  for debt agreement between registrant and Alan Finkelstein, dated
                  June 22,
                  200410.7(2)
              
              Shares
                  for debt agreement between registrant and Bradley Ross, dated June
                  22,
                  200410.8(2)
              
              Shares
                  for debt agreement between registrant and Luc Berthoud, dated June
                  22,
                  200410.9(2)
              
              Promissory
                  note (loan no. 00003) between registrant and City National Bank,
                  dated May
                  24, 200410.10(2)
              
              Promissory
                  note (loan no. 00005) between registrant and City National Bank,
                  dated May
                  24, 2004 10.11** Promissory note (loan no. 00004) between registrant
                  and
                  City National Bank, dated May 24, 200410.12(2)
              
              Promissory
                  note (loan no. 00006) between registrant and City National Bank,
                  dated May
                  24 ,2004
  10.13(2)
              
              Commercial
                  guaranty between Alan Finkelstein and City National Bank dated
                  May 24,
                  200410.14(2)
              
              Commercial
                  guaranty between Bradley Ross and City National Bank dated May
                  24,
                  200410.15(2)
              
              Commercial
                  guaranty between Luc Berthoud and City National Bank dated May
                  24,
                  200410.16(2)
              
              Offer
                  letter between registrant and Murdoch Henretty dated July 28,
                  200410.17(2)
              
              Employment
                  agreement between registrant and Alan Finkelstein dated January
                  199810.18(2)
              
              Strategic
                  Alliance Agreement between registrant and Visa International Service
                  Association dated May 26, 200410.19(2)
              
              Secured
                  Demand Promissory Note between registrant and Union Finance International
                  Corp. dated March 31, 200510.20(2)
              
              Secured
                  Demand Promissory Note between registrant and Bristol Investment
                  Fund,
                  Ltd. dated March 30, 200510.21(2)
              
              Capital
                  Lease Agreement between registrant and CNC Associates, Inc. dated
                  November
                  30, 200410.22(2)
              
              Guaranty
                  between Alan Finkelstein and CNC Associates, Inc. dated November
                  30,
                  200410.23(2)
              
              Security
                  Agreement between registrant and Union Finance International Corp.
                  dated
                  March 31, 2005 (See Exhibit 10.19)10.24(2)
              
              Security
                  Agreement between registrant and Bristol Investment Fund, Ltd.
                  dated March
                  30, 2005 (See Exhibit 10.20)10.25(2)
              
              Secured
                  Demand Promissory Note between registrant and Bradley Ross dated
                  August
                  31, 200510.26(2)
              
              Secured
                  Demand Promissory Note between registrant and Rodger Bemel dated
                  August
                  31, 2005
  25
  10.27(2)
              
              Joint
                  Development Agreement between registrant and nCryptone dated July
                  25,
                  200510.28(2)
              
              Agreement
                  between registrant and SmartDisplayer Technology, Inc. dated July
                  25,
                  200510.29(5)
              
              Form
                  of Lock-Up agreement by and between registrant's directors and
                  executive
                  officers pursuant to the private placement dated October 19,
                  200510.30(4)
              
              Form
                  of Warrant pursuant to private placement dated October 19,
                  200510.31(4)
              
              Registration
                  Rights Agreement by and between the registrant and each investor
                  pursuant
                  to the private placement dated October 19, 200510.32(4)
              
              Side
                  Letter Agreement between the registrant, T.R. Winston & Company and
                  investors pursuant to the private placement dated October 19,
                  2005
 
 10.33(6)
              
              Letter
                  of Intent by and between VASCO Data Security, nCryptone and Registrant,
                  dated October 28, 2005.10.34(9)
              
              Form
                  of Warrant to TR Winston dated as of May 30, 2006.10.35(9)
              
              Form
                  of Securities Purchase Agreement dated May 30, 2006.10.36(9)
              
              Form
                  of Registration Rights Agreement dated May 30, 2006.10.37(10)
              
              Asset
                  Agreement dated June 28, 2006 by and between Registrant NCryptone,
                  SA and
                  its shareholders.10.38(10)
              
              Registration
                  Rights Agreement dated June 28, 2006 by and between Registrant
                  and
                  NCrytone, SA10.39(10)
              
              License
                  Agreement dated June 28, 2006 by and between Registrant as licensor
                  and
                  NCryptone, SA as licensee10.40(10)
              
              License
                  Agreement dated June 28, 2006 by and between NCryptone, SA as licensor
                  and
                  Registrant as licensee.10.41(11)
              
              Sublease
                  between Registrant as sublessee and Bergman and Dacey, Inc. as
                  sublessor.10.42(8)
              
              Idemnification
                  Agreement10.43(7)
              
              Code
                  of Ethics21.1(2)
              
              List
                  of subsidiaries31.1(1)
              
              Certification
                  of Chief Executive Officer, as required by Rule 13a-14(a) or Rule
                  15d-14(a) of the Securities Exchange Act of 193431.2(1)
              
              Certification
                  of Chief Financial Officer, as required by Rule 13a-14(a) or Rule
                  15d-14(a) of the Securities Exchange Act of 193432(1)
              
              Certification
                  of Chief Executive Officer and Chief Financial Officer, as required
                  by
                  Section 1350 of Chapter 63 of Title 18 of the United States Code
                  (18
                  U.S.C. 1350)




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




26




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




27