U.S. ~~UNITED STATES~~SECURITIES AND EXCHANGE COMMISSION

~~SECURITIES~~Washington, ~~AND~~D.C. ~~EXCHANGE COMMISSION~~20549

FORM 10-Q

(Mark one)

x	Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended ~~September~~March 3031, ~~2009~~2010

¨	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 001-33353

INNOVATIVE CARD TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware		90-0249676
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)

633 West Fifth Street, Suite 2600 Los Angeles, CA		90071
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (310) 312-0700

Indicate by check mark whether the registrant (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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

~~¨Yes~~x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a small reporting company)	Smaller reporting company x

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

¨ Yes x No

As of ~~November~~ 9May 10, ~~2009~~2010 there were 2830,~~640~~558,~~920~~562 shares of common stock, $.001 par value, ~~issued~~ issued and outstanding.

Innovative Card Technologies, Inc.

Table of Contents

		Page
PART I -	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008	3
	Condensed Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December 31, 2009	3
	Condensed Consolidated Statements of Operations (Unaudited) Three months ended September 30, 2009 and 2008 and Nine months ended September 30, 2009 and 2008	4
	Condensed Consolidated Statements of Operations (Unaudited)
	Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2009 and 2008	5
	Three months ended March 31, 2010 and 2009	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)
	Three months ended March 31, 2010 and 2009	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1913
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3221
Item 4.	Controls and Procedures	3221
PART II -	OTHER INFORMATION	34
Item 1.	Legal Proceedings	3422
Item 1A.	Risk Factors	3422
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4026
Item 3.	Defaults Upon Senior Securities	4127
Item 4.	~~Submission~~(Removed ofand ~~Matters to a Vote of Security Holders.~~Reserved)	4127
Item 5.	Other Information	4127
Item 6.	Exhibits	4127

PART I

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

INNOVATIVE CARD TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	March 31,			December 31,
	2009			2008
	2010			2009
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	~~852~~186,~~904~~306		$	76245,~~645~~765
Accounts receivable, net of allowance for doubtful accounts of $60,000 and $60,000, respectively		365,800			190,767
Accounts receivable, net of allowance for doubtful accounts of $61,398 and $61,398, respectively		399,582			699,854
Prepaids and other current assets		2756,~~906~~983			~~174~~76,~~178~~130
Deposits on raw materials held for production		~~240~~70,~~787~~448			~~268~~165,~~318~~138
Raw materials held for production		~~264~~114,~~032~~416			~~347~~134,~~529~~754
Work in progress inventory, net of allowance of $115,059 at December 31, 2008		386,979			1,454,940
Work in progress inventory, net		138,729			107,212
Finished goods inventory		5238,~~215~~053			-34,421
Total current assets		21,~~190~~004,~~623~~517			21,~~512~~463,~~377~~274
Property and equipment		121,338			171,722
Property and equipment, net		80,393			93,763
Deferred debt issuance cost		-			449,052
Deposits		3,720			3,720
Deposits		6,220			62,971
Total assets	$	1,088,630		$	1,560,757
Total assets	$	2,318,181		$	3,196,122
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable and accrued expenses	$	1805,~~404,960~~781		$	1912,~~281,602~~271
Accounts payable - related parties		-			600,010
Accrued interest		29,837			27,737
Accrued interest		17,471			31,689
Warranty reserve		299,821			289,135
Warranty reserve		313,787			198,854
Deferred revenue		496,472			450,189
Deferred rent		-			56,929
8% convertible debentures, net of discount of $718,896 at March 31, 2010		4,702,188			-
Deferred revenue		544,054			1,169,957
Total current liabilities		6,334,099			1,679,332
Note payable		50,000			-
8% convertible debentures, net of discount of $1,074,752 at December 31, 2009		-			4,687,576
Total current liabilities		2,330,272			3,339,041
Warrant liability		497,351			470,592
8% convertible debentures, net of discount of $1,423,932 and $5,384,054 at September 30, 2009 and December 31, 2008, respectively		4,424,812			3,425,111
Derivative liability		1,560,693			2,151,632
Warrant liability		926,386			19,055
Total liabilities		8,392,143			8,989,132
Derivative liability		5,077,866			-
Total liabilities		12,759,336			6,783,207
Stockholders' deficit
Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock, $0.001 par value, 75,000,000 shares authorized, 28,495,256 shares issued and outstanding, respectively		28,495			28,495
Common stock, $0.001 par value, 75,000,000 shares authorized, 30,558,562 and 28,840,920 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively		30,558			28,841
Additional paid-in capital		3031,~~651~~438,~~678~~592			3330,~~381~~902,~~140~~885
Accumulated deficit		(4138,~~121~~772,~~328~~663	)		(3638,~~996~~360,~~720~~101	)
Total deficiency in stockholders' equity		(107,~~441~~303,~~155~~513	)		(37,~~587~~428,~~085~~375	)
Total liabilities and deficiency in stockholders' equity	$	21,~~318~~088,~~181~~630		$	31,~~196~~560,~~122~~757

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

INNOVATIVE CARD TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009
	2009			2008			2009			2008
Revenues	$	741,079		$	534,223
Revenues	$	1,011,760		$	840,098		$	2,842,628		$	1,857,523
Cost of goods sold		669,614			586,960
Cost of goods sold		927,015			984,024			2,690,893			2,054,232
Gross profit/(loss)		71,465			(52,737	)
Gross profit/margin		84,745			(143,926	)		151,735			(196,709	)
Operating expenses
Operating expenses
Administrative		471,873			549,914
Administrative		735,913			1,306,148			1,879,967			4,355,576
Consulting fees		-			15,593
Consulting fees		73,286			169,996			118,902			424,521
Professional fees		80,998			72,199
Professional fees		87,789			189,698			309,759			638,921
Research and development		75,149			43,209
Research and development		69,467			98,230			183,315			396,585
Total operating expense		628,020			680,915
Total operating expense		966,455			1,764,072			2,491,943			5,815,603
Loss from operations		(556,555	)		(733,652	)
Loss from operations		(881,710	)		(1,907,998	)		(2,340,208	)		(6,012,312	)
Other income (expense)
Other income (expense)
Change in fair value of warrant and conversion liability		351,764			(103,267	)
Change in fair value of warrant and conversion liability		(4,300,534	)		841,513			(4,461,202	)		2,866,067
Gain on extinguishment of debt		136,321			-
Gain on extinguishment of debt		9,520,784			-			9,520,784			-
Interest income		18			29
Other income		616,315			-			616,315			-
Interest expense		(344,110	)		(10,069,379	)
Other expense		-			-			-			(120,794	)
Total other income (expense)		143,993			(10,172,617	)
Interest income		2			2,978			53			26,535
Loss before provision for income taxes		(412,562	)		(10,906,269	)
Interest expense		(1,383,750	)		(498,336	)		(11,980,024	)		(1,083,695	)
Provision for income taxes		-			-
Total other income (expense)		4,452,817			346,155			(6,304,074	)		1,688,113
Net loss		(412,562	)		(10,906,269	)
Income (loss) before provision for income taxes		3,571,107			(1,561,843	)		(8,644,282	)		(4,324,199	)
Basic and diluted loss per share	$	(0.01	)	$	(0.38	)
Provision for income taxes		-			-			-			(800	)
Weighted average shares outstanding, basic and diluted		29,761,986			28,495,256
Net income (loss)	$	3,571,107		$	(1,561,843	)	$	(8,644,282	)	$	(4,324,999	)
Basic income (loss) per share	$	0.13		$	(0.05	)	$	(0.30	)	$	(0.15	)
Diluted income (loss) per share	$	0.12		$	(0.05	)	$	(0.30	)	$	(0.15	)
Weighted average shares outstanding,
Basic		28,495,256			28,495,256			28,495,256			28,471,681
Diluted		29,615,853			28,495,256			28,495,256			28,471,681

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

INNOVATIVE CARD TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2009~~2010 AND ~~2008~~2009

(Unaudited)

	2009			2008
	2010			2009
Cash flows from operating activities:
Net loss	$	(8412,~~644,282~~562	)	$	(410,~~324~~906,~~999~~269	)
Adjustments to reconcile net loss to net
Adjustments to reconcile net loss to net cash used in operating activities:
cash used in operating activities:
Depreciation and amortization		13,370			17,076
Depreciation and amortization		44,566			530,552
Change in fair value of warrant liability		26,759			57,220
Change in fair value of warrant liability		501,920			(2,866,069	)
Change in fair value of conversion liability		(378,523	)		46,047
Change in fair value of conversion liability		3,959,282			-
Amortization of debt discount		342,010			6,671,835
Amortization of debt discount		7,513,000			609,523
Amortization of deferred debt issuance costs		-			449,052
Amortization of deferred debt issuance costs		449,052			51,181
Debt default penalty		-			2,642,749
Debt default penalty		2,642,750			-
Stock based compensation expense		104,545			144,083
Stock based compensation expense		430,054			1,334,622
Noncash gain on extinguishment of debt		(136,321	)		-
Fees paid with debenture		45,000			-
Change in provision for obsolete inventory		40,771			106,585
Noncash gain on extinguishment of debt		(9,580,784	)		-
(Increase) decrease in accounts receivable		300,272			(11,363	)
Deposit forfeitures		(616,315	)		-
(Increase) decrease in prepaids and other current assets		19,147			43,879
Change in provision for obsolete inventory		238,200			-
(Increase) decrease in deposits on raw materials held for production		94,690			(3,751	)
(Increase) decrease in accounts receivable		(175,033	)		(657,680	)
(Increase) decrease in raw materials held for production		15,909			(213,604	)
(Increase) decrease in prepaids and other current assets		146,272			41,100
(Increase) decrease in work in progress inventory		(67,859	)		255,412
(Increase) decrease in deposits on raw materials held for production		27,531			244,312
(Increase) decrease in finished goods inventory		(3,632	)		-
(Increase) decrease in raw materials held for production		(22,890	)		322,885
(Increase) decrease in deposits		-			5,052
(Increase) decrease in work in progress inventory		936,147			(1,674,706	)
Increase (decrease) in accounts payable and accrued expenses		(82,354	)		(81,456	)
(Increase) decrease in work in finished goods inventory		(52,215	)		-
Increase (decrease) in accrued interest		2,100			302,134
(Increase) decrease in deposits		56,751			86,803
Increase (decrease) in warranty reserve		10,686			40,787
Increase (decrease) in accounts payable and accrued expenses		129,176			(2,034,634	)
Increase (decrease) in deferred rent		-			(17,216	)
Increase (decrease) in accounts payable - related parties		-			(61,889	)
Increase (decrease) in deferred revenue		46,283			641,601
Increase (decrease) in accrued interest		1,380,334			-
Net cash used in operating activities		(64,709	)		189,853
Increase (decrease) in warranty reserve		114,933			136,776
Increase (decrease) in deferred rent		(56,929	)		-
Increase (decrease) in deferred revenue		132,418			137,909
Net cash used in operating activities		(401,062	)		(8,124,314	)
Cash flows from investing activities:
Purchase of property and equipment		-			(36,942	)
Net cash used in investing activities		-			(36,942	)
Cash flows from financing activities:
Proceeds from issuance of 8% convertible debentures		1,127,321			8,500,000
Proceeds from exercise of options/warrants		5,250			-
Proceeds from note		100,000			-
Net cash provided by financing activities		5,250			-
Repayment of note		(50,000	)		-
Net increase (decrease) in cash and cash equivalents		(59,459	)		189,853
Payments on debt issuance cost		-			(527,500	)
Cash and cash equivalents, beginning of period		245,765			76,645
Proceeds from exercise of options/warrants		-			50,000
Cash and cash equivalents, end of period	$	186,306		$	266,498
Net cash provided by financing activities		1,177,321			8,022,500
Net increase (decrease) in cash and cash equivalents		776,259			(138,756	)
Cash and cash equivalents, beginning of period		76,645			339,600
Cash and cash equivalents, end of period	$	852,904		$	200,844
Supplemental Schedule of Cash Flow Information:
Cash paid for interest	$	~~2,705~~-		$	~~222~~1,~~000~~885
Non-Cash Financial Activity:
Debt discount attributable to beneficial conversion feature	$	-		$	3,237,953
Debt converted to common stock	$	341,244		$	-
Debt discount attributable to warrants		-			3,087,307
Conversion liability extinguished upon conversion of debt		212,416			-
Value of warrants issued as non-employee compensation included in prepaid expenses and other current assets		-			254,580
Options exercised by application of accrued compensation to exercise price		24,137			-
Warrant liability for warrants issued with debentures		639,522			-
Warrants issued with debentures		33,756			-
Derivative conversion feature liability of convertible debt		1,373,964			-
Liabilities settled with debentures and warrants		672,243			-

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

INNOVATIVE CARD TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~MARCH 3031, ~~2009~~2010

(Unaudited)

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

COMPANY OVERVIEW

The Company develops and markets secure powered cards for payment, identification, physical and logical access applications. Our main focus is on developing One-Time-Password (“OTP”) solutions. An OTP is a password that is only valid for a single login session or transaction. OTPs avoid a number of shortcomings that are associated with traditional (static) passwords. The most important shortcoming that is addressed by OTPs is that, in contrast to static passwords, they are not vulnerable to replay attacks. This means that, if a potential intruder manages to record an OTP that was already used to log into a service or to conduct a transaction, he will not be able to abuse it since it will be no longer valid.

Currently, our main OTP product is the ICT DisplayCard. The ICT DisplayCard integrates the security of an OTP token directly into a card the size of a standard credit or debit card. A token is a portable physical device, typically in a key-fob form factor, that generates the OTP (also referred to as a one-time passcode). At the push of a button, the ICT DisplayCard displays, a one-time passcode. During a transaction, this number is entered into a user interface with other information (such as the user’s static PIN and login name). This information is relayed to a backend system for multi-factor authentication. InCard does not provide the backend authentication server, but rather will integrate the ICT DisplayCard into authentication systems provided by other companies including distributors and other resellers of the ICT DisplayCard. The ICT DisplayCard’s authentication works like tokens issued by VASCO, RSA, and ActivIdentity, but in a more convenient, wallet-sized card. In December of 2009, we introduced the ICard, our new low cost OTP product intended to serve the masses.

BASIS OF PRESENTATION AND GOING CONCERN

The accompanying unaudited condensed consolidated financial statements of Innovative ~~Card~~ Card Technologies, Inc. (“ICTI”) include the amounts of its wholly-owned subsidiary, PSA Co. (“PSAC”) which was incorporated in the State of Delaware on August 27, 2003.

~~The~~For the ~~Company~~three ~~has~~months aended ~~history~~March of31, ~~recurring~~2010, ~~losses~~the ~~from~~Company ~~operations~~has ~~and~~incurred ~~has~~a annet ~~accumulated deficit~~loss of $41412,~~121,328~~562. asAs of ~~September~~March 3031, ~~2009.~~2010, Wewe ~~incurred~~have ~~net~~negative ~~losses~~working capital of $85,~~929~~329,~~537 for the twelve months ending December 31~~582, ~~2008. During the nine~~ ~~months~~an ~~ending~~accumulated ~~September~~deficit ~~30,~~of ~~2009~~$38,772,663 weand ~~incurred~~a ~~additional~~stockholders’ ~~net~~deficiency ~~losses~~ of $87,~~644~~303,~~282~~513. Sales of the ICT DisplayCard and newly introduced OTP products, the Company’s main products, are not expected to generate positive cash flow until the ~~second~~fourth quarter of 2010. As a result, there is substantial doubt about the Company’s ability to continue as a going concern at ~~September 30~~March 31, ~~2009~~2010.

Management’s plan regarding these matters is to increase sales, resulting in reduced losses and raise additional debt and/or equity financing to cover operating costs as well as its obligations as they become due.

There can be no assurances that funds will be available to the Company when needed or, if available, that such funds would be available under favorable terms. In the event that the Company is unable to generate adequate revenues to cover expenses and cannot obtain additional funds in the near future, the Company may seek protection under bankruptcy laws.

The accompanying unaudited condensed consolidated financial statements have been ~~prepared~~ prepared assuming that the Company will continue as a going concern. This basis of of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

As of ~~October~~ 31May 10, ~~2009~~2010 the Company has approximately $~~678~~74,000 in cash. Combined ~~with~~ with anticipated revenue collections and planned expense reductions, the Company believes this amount will ~~last~~be ~~through~~enough ~~the~~to ~~first~~fund ~~quarter~~our ofoperations until July, 2010.

The accompanying unaudited condensed consolidated financial statements as of ~~September~~ 30March 31, ~~2009~~2010 and for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~ 2010 and ~~2008~~2009 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission, including Form 10-Q and Regulation S-X. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual ~~financial~~ financial statements prepared in accordance with accounting principles generally ~~accepted~~ accepted in the United States of America have been omitted pursuant to such rules and regulations. The Company believes that the disclosures provided are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and explanatory notes for the year ended December 31, ~~2008~~2009 as disclosed in the company's 10-K for that year as filed with the SEC, as it may be amended.

The results for the ~~nine~~three months ended ~~September~~March 3031, ~~2009~~2010 are not necessarily ~~indicative~~ indicative of the results to be expected for the pending full year ending December 31, ~~2009~~ 2010.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

USE OF 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.

REVENUE RECOGNITION

The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605 “Revenue Recognition”. Revenue is 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. Revenue is not recognized on product sales transacted on a test or pilot basis. Instead, receipts from these types of transactions offset marketing expenses. Revenue from royalties is recognized with the passage of time in accordance with the underlying agreement.

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 twelve months and impair the Company’s ability to manufacture and sell products.

The Company obtains the display, a key component for the Company’s ICT DisplayCard, from a single source, SmartDisplayer, pursuant to the Company’s agreement with SmartDisplayer. On November 10, 2007, the Company was required to make a deposit on a purchase order to maintain its exclusivity. The Company was unable to make the deposit and therefore does not have exclusivity with SmartDisplayer. The Company believes that alternative sources for this component in the event of a disruption or discontinuation in supply would not be available on a timely basis, which could disrupt Company operations relating to the ICT DisplayCard, delay production of the ICT DisplayCard for up to twelve months and impair the Company’s ability to manufacture and sell the ICT DisplayCard.

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

MAJOR CUSTOMERS

Two customers accounted for ~~100~~99% ~~and 97%~~ of the Company’s revenues for the three ~~and nine~~ months ended March ~~September 30~~31, ~~2009,~~2010 ~~respectively,~~ and ~~two~~ three customers accounted for 7399% ~~and 75%~~ of the Company’s revenue for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2008, respectively~~2009.

~~One~~Two ~~customer~~customers accounted for ~~93%~~all of our accounts receivable at ~~September~~March 3031, ~~2009~~ 2010.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value of financial instruments

In April 2009, we adopted accounting guidance which requires disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements.

Our short-term financial instruments, including cash, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses, warranty reserve and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of our convertible notes is based on management estimates and reasonably approximates their book value based on their current maturity. The fair value of the Company’s derivative instruments is determined using option pricing models.

Fair value measurements

~~Effective November 1,~~We ~~2008, we~~ have adopted ~~new~~ accounting guidance pursuant to ASC 820 “Fair Value Measurements and Disclosure”, which established a framework for measuring fair value and expands ~~disclosure~~ disclosure about fair value measurements. The Company did not elect fair value accounting for any assets and liabilities allowed by previous guidance. Effective January 1, 2009, the Company adopted the provisions of new accounting guidance that relate to non-financial assets and liabilities that are not required or permitted to be recognized or disclosed at fair value on a recurring basis. Effective April 1, 2009, the Company adopted new accounting guidance which provides additional guidance for estimating fair value in accordance with ASC 820, when the volume and level of activity for the asset or liability have significantly decreased. The adoptions of the provisions of ASC 820 did not have a material impact on our financial position or results of operations.

ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In accordance with ASC 820, the following table represents the Company’s fair value hierarchy for its financial assets and (liabilities) measured at fair value on a recurring basis as of ~~September~~March 3031, ~~2009~~2010:

	Level 1		~~Level 2~~	Level 2	~~Level 3~~		~~Total~~	Level 3		Total
Cash and cash equivalents		852,904					852,904
Assets
Derivative liabilities					(6,173,909	)	(6,173,909	)
Cash and cash equivalents		186,306			-				-		186,306
Total Assets		186,306			-				-		186,306
Liabilities
Convertible debentures		-			-				4,702,188		4,702,188
Warrant Liability		-			-				497,351		497,351
Derivative liabilities		-			-				1,560,693		1,560,693
Total liabilities		-			-				6,760,232		6,760,232

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (warrant derivative liability and conversion derivative liability) for the three months ended March 31, 2010 and 2009.

	2010			2009
Balance at beginning of year	$	2,622,224		$	19,055
Additions to derivative instruments		-			6,061
Change in fair value of derivative liabilities		(351,764	)		103,267
Reclassification to equity upon conversion of debentures		(212,416	)		-

Balance at end of period	$	2,058,044		$	128,383

LOSS PER SHARE

The Company utilizes ASC 260, “Earnings Per Share” for calculating the basic and diluted loss 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.

Common equivalent shares are excluded from the computation of diluted loss per share if their effect would be anti-dilutive. There were 3231,~~977~~572,~~307~~500 common share equivalents at ~~September~~March 3031, ~~2009~~2010 and 1315,~~934~~097,~~756~~653 at ~~September~~March 3031, ~~2008~~2009. Common equivalent shares were excluded from the calculation of diluted loss per share for the three ~~month~~months ~~period~~ ended ~~September~~March 3031, ~~2008~~2010 and ~~for the nine month periods ended September 30,~~ 2009 ~~and 2008~~ as their inclusion would ~~reduce~~ reduce diluted loss per share for those periods.

For the three month period ended September 30, 2009, diluted weighted average shares used in the calculation of diluted earnings per share total 29,615,853. This amount consists of weighted average shares outstanding of 28,495,256 plus 1,120,597 dilutive potential common shares.

USE OF ESTIMATES

WARRANTY RESERVE

The Company generally warrants its products against defects over a period of one to three years. An accrual for estimated future costs relating to products returned under warrants is recorded as a charge to cost of sales when products are shipped. The accrual is based on a percentage of sales. This percentage was 10% through March 31, 2009, 5% for the second quarter of 2009 and 3% effective July 1, 2009 (the changes in estimate based on historical trends). Activity in the accrued warranty reserve liability for the three and nine month periods ended September 30, 2009 and 2008 is as follows:

	Three months ended September 30,					Nine months ended September 30,
	2009		2008			2009			2008
Balance at beginning of period	$	288,666	$	108,806		$	198,854		$	27,816
Charged to cost of sales		25,121		75,745			118,282			160,335
Deductions		-		(19,959	)		(3,349	)		(23,559	)
Balance at end of period	$	313,787	$	164,592		$	313,787		$	164,592

WARRANTY RESERVE

The Company generally warrants its products against defects over a period of one to three years. An accrual for estimated future costs relating to products returned under warrants is recorded as a charge to cost of sales when products are shipped. The accrual is based on a percentage of sales. This percentage was 10% through December 31, 2008, 3% for the period January 1 to September 30, 2009 and 2% effective October 1, 2009 (the changes in estimate based on historical trends). Activity in the accrued warranty reserve liability for the three months ended March 31, 2010 and 2009 is as follows:

	2010		2009
Balance at beginning of year	$	289,135	$	198,854
Charged to cost of sales		10,686		42,662
Deductions		-		(1,875	)

Balance at end of period	$	299,821	$	239,641

STOCK BASED COMPENSATION

The Company accounts for its stock based compensation under ASC 718 “Compensation – Stock Compensation” which was adopted in 2006, 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. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

INCOME TAXES

The Company utilizes ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

The Company adopted new accounting guidance effective January 1, 2007. As a result of the implementation of this new guidance, the Company made a comprehensive review of its portfolio of uncertain tax positions in accordance with recognition standards established by the guidance. As a result of this review, the Company concluded that at this time there are no uncertain tax positions that would result in tax liability to the Company. There was no cumulative effect on retained earnings as a result of applying the provisions of this guidance.

CHANGE IN ACCOUNTING PRINCIPLE

In June 2008, the FASB issued new accounting guidance which requires entities to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement provisions. Instruments not indexed to their own stock fail to meet the scope exception of ASC 815 and should be classified as a liability and marked-to-market. The statement is effective for fiscal years beginning after December 15, 2008 and is to be applied to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings. The Company has assessed its outstanding equity-linked financial instruments and has concluded that, effective January 1, 2009, the conversion feature of our convertible debentures will need to be recorded as a derivative liability due to the fact that the conversion price is subject to adjustment based on subsequent sales of securities. The cumulative effect of the change in accounting principle on January 1, 2009 is an increase in our derivative liability related to the fair value of the conversion feature of $6,061, an increase in the unamortized discount related to our convertible debentures of $1,287,781, a decrease in additional paid-in capital of $3,237,954 related to the decrease in beneficial conversion feature attributable to the debentures, and a $4,519,674 net decrease in accumulated deficit, comprised of a credit to reflect the change in fair value of the derivative liability from date of issue to January 1, 2009 of $5,235,242 partially offset by a charge of $715,568 for additional expense for amortization of debt discount.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

~~Accounting~~In June ~~Standards~~2009, ~~Codification~~the ~~and~~FASB ~~GAAP~~issued ~~Hierarchy~~new —accounting ~~Effective~~guidance ~~for~~which ~~interim~~will ~~and~~require ~~annual~~more ~~periods~~information ~~ending~~about ~~after~~the ~~September~~transfer ~~15,~~of ~~2009,~~financial ~~the~~assets ~~Accounting~~where ~~Standards~~companies ~~Codification~~have ~~and~~continuing ~~related~~exposure ~~disclosure~~to ~~requirements~~the ~~issued~~risks byrelated ~~the~~to ~~FASB~~transferred ~~became~~financial ~~the~~assets. ~~single~~This ~~official~~guidance ~~source~~is ofeffective ~~authoritative,~~at ~~nongovernmental~~the ~~GAAP.~~start ~~The~~of ~~ASC~~a ~~simplifies~~company’s ~~GAAP, without~~first ~~change,~~fiscal byyear ~~consolidating~~beginning after ~~the~~November ~~numerous~~15, ~~predecessor~~2009, ~~accounting~~or ~~standards and~~January ~~requirements~~1, ~~into~~2010 ~~logically~~for ~~organized~~companies ~~topics.~~reporting ~~All~~earnings ~~other literature not~~on ~~included~~a ~~in the ASC is non~~calendar-~~authoritative~~year basis. WeThe ~~adopted~~adoption ~~the ASC as~~ of ~~September~~this ~~30, 2009,~~guidance ~~which~~ did not have ~~any~~a material impact on ~~our~~the ~~results~~Company’s ~~of operations,~~ financial ~~condition~~ orposition ~~cash flows as it does not represent new accounting literature~~ or ~~requirements. All~~ ~~references~~results ~~to pre-codified U.S. GAAP have~~of ~~been removed from this Form 10-Q~~operations.

In June ~~September 2006~~2009, the FASB issued new accounting guidance which ~~clarifies~~will ~~the principle~~change ~~that~~how ~~fair~~a ~~value should be based on the assumptions market participants~~company ~~would~~determines ~~use~~ when ~~pricing~~ an ~~asset~~entity orthat ~~liability~~is ~~and~~insufficiently ~~establishes~~capitalized aor ~~fair~~is ~~value~~not ~~hierarchy~~controlled ~~that~~through ~~prioritizes~~voting ~~the~~(or ~~information~~similar ~~used~~rights) toshould ~~develop~~be ~~those assumptions~~consolidated. Under ~~the~~ this guidance, ~~fair~~determining ~~value~~whether ~~measurements~~a ~~would~~company ~~be separately disclosed by level within the fair value hierarchy. The guidance~~ is ~~effective~~required ~~for~~to ~~financial statements~~consolidate ~~issued~~an ~~for fiscal years beginning after November 15, 2007, and~~entity ~~interim~~will ~~periods~~be ~~within~~based ~~those fiscal years~~on, ~~with~~among ~~early~~other ~~adoption permitted. In February 2008~~things, ~~FASB~~an ~~issued~~entity's ~~additional~~purpose ~~guidance~~and ~~which~~design ~~delayed~~and ~~the effective date~~a ofcompany's ~~previous~~ability ~~guidance~~ to ~~fiscal~~direct ~~years~~the ~~and~~activities ~~interim~~of ~~periods~~the ~~within~~entity ~~those fiscal years beginning after November 15, 2008 for non-financial assets and non-financial liabilities, except for items~~ that ~~are~~most ~~recognized or disclosed at~~significantly ~~fair~~impact ~~value in~~ the ~~financial~~entity's ~~statements~~economic onperformance. aThis ~~recurring~~guidance ~~basis~~is (effective at ~~least annually).~~the Westart ~~elected to defer the adoption~~ of ~~the~~a ~~guidance~~company’s ~~for~~first ~~these~~fiscal ~~non-financial~~year ~~assets and~~beginning ~~liabilities,~~after ~~and~~November ~~are currently evaluating the impact~~15, ~~if any~~2009, ~~that the~~or ~~deferred~~January ~~provisions~~1, of2010 ~~the~~for ~~guidance~~companies ~~will~~reporting ~~have~~earnings on ~~our~~a ~~consolidated~~calendar-year ~~financial statements~~basis. The adoption of ~~the~~this guidance ~~for our financial assets and liabilities~~ did not have ana material impact on ~~our~~the ~~consolidated~~ Company’s financial position or ~~operating~~ results of operations.

In December 2007 the FASB issued new accounting guidance which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This guidance changes the way the consolidated income statement is presented. It requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. This guidance establishes disclosure requirements in the consolidated financial statements, which will enable users to clearly distinguish between the interests of the parent’s owners and the interests of the non-controlling owners of a subsidiary. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008; earlier adoption is prohibited. The adoption of this guidance had no impact to the Company’s consolidated financial position, results of operations, or cash flows.

In December 2007, the FASB issued new accounting guidance which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired and the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. This guidance also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. This guidance is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this guidance had no impact to the Company’s consolidated financial position, results of operations, or cash flows.

In March 2008, the FASB issued new accounting guidance which requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008; earlier adoption is encouraged. The adoption of this guidance had no impact to the Company’s consolidated financial position, results of operations, or cash flows.

In April 2008, the FASB issued new accounting guidance which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This change is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The adoption of this guidance had no impact on the Company’s consolidated financial position, results of operations, or cash flows.

In June 2008, the FASB issued new accounting guidance which requires that all unvested share-based payment awards that contain nonforfeitable rights to dividends should be included in the basic Earnings Per Share (EPS) calculation. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008. The adoption of this guidance had no impact on the Company’s consolidated financial position, results of operations, or cash flows.

In April 2009, the FASB issued new accounting guidance to be utilized in determining whether impairments in debt securities are other than temporary, and which modifies the presentation and disclosures surrounding such instruments. This guidance is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The adoption of this guidance during the second quarter of 2009 had no impact on the Company’s consolidated financial position, results of operations, or cash flows.

In April 2009, the FASB issued new accounting which provides additional guidance in determining whether the market for a financial asset is not active and a transaction is not distressed for fair value measurement purposes. The guidance is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The adoption of this guidance during the second quarter of 2009 had no impact on the Company’s consolidated financial position, results of operations, or cash flows.

In April 2009, the FASB issued new accounting guidance which requires disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. This guidance is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The adoption of this guidance during the second quarter of 2009 had no impact on the Company’s consolidated financial position, results of operations, or cash flows.

In May 2009, the FASB issued new accounting guidance which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance will be effective for interim and annual financial periods ending after June 15, 2009. The Company adopted the guidance during the three months ended June 30, 2009 and has evaluated subsequent events through the issuance date of these financial statements. The adoption of this guidance had no impact on the Company’s consolidated financial position, results of operations, or cash flows.

In June 2009, the FASB issued new accounting guidance which will require more information about the transfer of financial assets where companies have continuing exposure to the risks related to transferred financial assets. This guidance is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis.

In June 2009, the FASB issued new accounting guidance which will change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. Under this guidance, determining whether a company is required to consolidate an entity will be based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. This guidance is effective at the start of a company’s first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future consolidated financial statements.

~~NOTE 3 - INCOME TAXES~~10

~~Our~~NOTE ~~effective~~3 ~~tax~~- ~~rate was estimated at 0~~8% ~~for~~SENIOR ~~the~~SECURED ~~three~~CONVERTIBLE ~~and nine months ended September 30, 2009 and 2008.~~DEBENTURES

~~NOTE~~During 4the -first ~~STOCKHOLDER’S~~quarter ~~EQUITY~~of 2010, certain debenture holders converted an aggregate of $341,244 of debentures into 1,364,975 shares of common stock. We recorded a charge of $46,424 related to the change in fair value of the conversion feature of the converted debentures through the dates of conversion. At the dates of conversion, we extinguished a conversion feature liability in the amount of $212,416. Since the conversion feature was accounted for as a liability, we have recorded a gain upon conversion of debt in the amount of $136,321.

NOTE 4 – DERIVATIVE LIABILITIES

During the first quarter of 2010, certain debenture holders converted an aggregate of $341,244 of debentures into 1,364,975 shares of common stock. We recorded a charge of $46,424 related to the change in fair value of the conversion feature of the converted debentures through the dates of conversion. At the dates of conversion, we extinguished a conversion feature liability in the amount of $212,416. The fair value of the conversion feature was determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 0.32%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 138%; and (4) an expected life of the conversion feature of 0.88 years.

At March 31, 2010 we recalculated the fair value of the conversion feature of the remaining debentures subject to derivative accounting and have determined that the fair value at March 31, 2010 is $2,060,199. The fair value of the conversion feature was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.363%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 115%; and (4) an expected life of the conversion feature of 0.75 years. We recorded a credit of $424,947 during 2010 related to the change in fair value of the conversion feature of the debentures.

At March 31, 2010, we recalculated the fair value of our warrants subject to derivative accounting and have determined that the fair value at March 31, 2010 is $497,351. The fair value of the warrant liability was determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 0.60%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 142%; and (4) an expected life of the warrants of 1.1 years. We recorded a charge of $26,759 during 2010 related to the change in fair value of the warrant liability.

NOTE 5 - STOCKHOLDER’S EQUITY

PREFERRED STOCK

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

COMMON STOCK

The Company has 75,000,000 authorized shares of $0.001 par value common stock.

~~In April~~During ~~2009~~ the ~~Company’s~~first ~~board~~quarter of ~~directors~~2010 ~~approved~~the ~~stock~~Company ~~option~~issued ~~awards to two employees aggregating 150~~1,~~000~~364,975 shares of common stock~~, 100,000 options with an~~ ~~exercise~~upon ~~price~~conversion ofdebentures ~~$0.072~~in ~~per~~the ~~share~~amount ~~and vest over one year and 50,000 options with an exercise price~~ of $0341,244.~~062 per share and vest over three years. Both options expire after five years.~~

~~In July~~During ~~2009~~ the ~~Company’s~~first ~~board~~quarter of ~~directors~~2010 ~~approved~~the ~~stock~~Company ~~option~~issued ~~awards to its directors aggregating 825~~352,~~000~~667 shares of common stock ~~with~~upon the an exercise ~~price~~ of ~~$0.18~~ ~~per~~352,667 ~~share.~~employee ~~These~~stock options. ~~vest~~We ~~quarterly~~received ~~over~~$5,250 ~~one~~in ~~year.~~cash proceeds ~~All~~from the exercise of the options; ~~expire after~~the ~~ten~~balance ~~years.~~of ~~The~~the ~~options~~exercise ~~had~~price anwas paid ~~aggregate~~through ~~grant~~the ~~date~~reduction ~~fair~~of ~~value~~accrued compensation in the amount of $5524,~~146~~137.

In July 2009 the Company’s board of directors approved stock option awards to employees aggregating 907,000 shares of common stock with an exercise price of $0.18 per share. These options vest one third on the one year anniversary of the grant and the remaining two thirds vest quarterly over the following two years. Of these options, 525,000 expire after ten years and 382,000 expire after five years. The options had an aggregate grant date fair value of $95,040.11

InNOTE ~~July 2009~~6- ~~the~~STOCK ~~Company’s~~OPTIONS ~~board of directors approved stock option awards to~~AND consultants aggregating 190,000 shares of common stock with an exercise price of $0.18 per share. These options vest one third on the one year anniversary of the grant and the remaining two thirds vest quarterly over the following two years. All options expire after five years. The options will be valued as they vest, with estimated compensation cost recorded between vesting periods.WARRANTS

13On February 22, 2010, our Board and Compensation Committee approved the 2010 Equity Compensation Plan (“2010 Plan”). The 2010 Plan permits the granting of up to 6,000,000 shares of common stock through the issuance of Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock, Stock Appreciation Rights, Restricted Stock Units, Performance Units, Performance Shares and Other Stock Based Awards to our employees, directors and consultants. We anticipate submitting the plan for shareholder approval during the following 12 months. In the event the Plan is not approved by our shareholders during this time, the 2010 Plan will be considered a non-qualified plan.

~~The~~In January 2010 the Company’s ~~recorded~~board ~~$430,054~~of ~~and~~directors $1approved a stock option award to a director in the amount of 100,~~334,622~~000 shares of ~~compensation~~common ~~expense~~stock ~~for~~with ~~employee~~an exercise price ~~and~~of ~~consultant~~$0.35 ~~stock~~per ~~options~~share. ~~during~~The ~~the~~option ~~nine~~vests ~~months~~over ~~ending~~one ~~September~~year. ~~30,~~The ~~2009~~option expires after ten ~~and~~years. ~~2008,~~The ~~respectively,~~option ~~and~~had ~~recorded~~a ~~$134,096~~grant ~~and~~date fair value of $~~419~~9,~~665~~702. The fair value of ~~compensation~~the ~~expense~~option ~~for~~was ~~employee~~determined ~~and~~using ~~consultant~~the ~~stock~~Black-Scholes ~~options~~method ~~during~~based on the ~~three~~following assumptions: (1) risk ~~months~~free ~~ending~~interest rate of 0.25%; ~~September~~(2) dividend ~~30,~~yield ~~2009~~of ~~and~~0%; ~~2008,~~(3) volatility ~~respectively,~~factor ~~which~~of isthe ~~included~~expected inmarket price of our common stock of 161%; and (4) an expected life of the ~~administrative~~option ~~expense~~of 0.625 ~~category~~years.

~~NOTE~~The Company recorded $7,361 of compensation expense for consultant stock options during the three months ended March 31, 2010, of which $1,591 is included in professional fees and $5,770 -is 8%included in ~~SENIOR~~the ~~SECURED~~administrative expense ~~CONVERTIBLE~~category. ~~DEBENTURES~~During the three months ended March 31, 2009, the Company recorded $1,840 of compensation expense for consultant stock options which is included in the administrative expense category.

OnThe ~~February~~Company ~~20,~~recorded ~~2009~~$97,184 ~~the~~and ~~Company’s~~$142,243 ~~stock~~of ~~was~~compensation ~~delisted~~expense ~~from~~for ~~the~~employee ~~NASDAQ National~~stock ~~Market~~options ~~System~~during ~~due~~the tothree amonths ~~failure~~ended toMarch ~~maintain adequate share pricing. As a result~~31, ~~the~~ ~~Company~~2010 ~~defaulted~~and ~~on its 8% Senior Secured Convertible Debentures. Such default results in acceleration of the debentures~~2009, arespectively, ~~thirty~~which ~~percent~~is ~~(30%)~~included ~~increase~~ in the ~~principal~~administrative ~~amount~~expense ~~of the debentures, and an increase in the interest rate on the debentures from eight percent (8%) to eighteen percent (18%)~~category. ~~We have accounted for the default in the financial statements.~~

~~In June~~NOTE ~~2008,~~7 ~~the FASB issued new accounting guidance which requires entities to evaluate whether an equity~~-~~linked~~ ~~financial~~PROVISION ~~instrument~~FOR ~~(or~~INCOME embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement provisions. Instruments not indexed to their own stock fail to meet the scope exception of ASC 815 and should be classified as a liability and marked-to-market. The statement is effective for fiscal years beginning after December 15, 2008 and is to be applied to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings. The Company has assessed its outstanding equity-linked financial instruments and has concluded that, effective January 1, 2009, the conversion feature of our convertible debentures will need to be recorded as a derivative liability due to the fact that the conversion price is subject to adjustment based on subsequent sales of securities. The cumulative effect of the change in accounting principle on January 1, 2009 includes an increase in our derivative liability related to the fair value of the conversion feature of $6,061. Fair value at January 1, 2009 was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.875%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 101%; and (4) an expected life of the conversion feature of 2 years. At January 1, 2009 the Company has also recorded an additional discount related to the debentures of $1,287,781 as a result of the implementation of EITF 07-05.TAXES

~~As a~~Our ~~result~~effective oftax ~~the~~rate ~~default described above, the principal amount of the debentures~~ was ~~increased~~estimated byat 300%, orfor ~~$2,642,750. We have recorded a charge to interest expense related to this increase during~~ the ~~quarter~~three months ended March 31, 2010 and 2009.

~~Also as a~~NOTE ~~result~~8 of- ~~the~~COMMITMENTS ~~default,~~AND the maturity date of the debentures has been accelerated. The Company has fully amortized the remaining discount and deferred debt issue costs during the period ended March 31, 2009. The charge to interest expense for the amortization of debt discount is $6,671,835 and for amortization of debt issue costs is $449,052 during the quarter ended March 31, 2009.CONTINGENCIES

At September 30, 2009 we recalculated the fair value of the conversion feature subject to derivative accounting and have determined that the fair value at September 30, 2009 (prior to the debt extinguishment transactions described below) is $363,477. The fair value of the conversion feature was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1.0%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 121%; and (4) an expected life of the conversion feature of 1.4 years.LEASE

WeThe ~~recorded~~Company ~~charges~~leases ofoffice ~~$288,088~~space ~~and~~on ~~$357,416~~a ~~during the three and nine months ended September 30, 2009, respectively, related~~ month-to-month ~~the change in fair value of the conversion feature during those periods~~basis.

14Rent expense was $12,997 and $12,447 for the three months ended March 31, 2010 and 2009, respectively.

The Company is accounting for the warrants, issued in connection with the debentures as derivative liabilities in accordance with ASC 815. At September 30, 2009, the warrant liability was valued at $347,010 (prior to the debt extinguishment transactions described below). The Company recorded charges of $236,615 and $327,955 during the three and nine months ended September 30, 2009, respectively, related to the change in fair value of the warrant liability during those periods. The fair value of the warrant liability was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 121%; and (4) an expected life of the warrants of 3.6 years. The Company recorded gains of $841,513 and $2,866,067 during the three and nine months ended September 30, 2008, respectively, related to the change in fair value of the warrant liability during those periods.

2009 Debenture Transactions

Assignment of Debenture and Common Stock Warrant agreement

On July 11, 2009, we entered into an Assignment of Debenture and Common Stock Warrant agreement with EMC Corporation and RSA Security Inc., its wholly owned subsidiary (collectively “EMC”). Pursuant to the terms of the agreement, EMC has agreed to assign and transfer to us approximately $7.1 million of our 8% Senior Secured Convertible Debentures and approximately 1.01 million common stock purchase warrants upon the receipt of certain deliverables and the certification of the content of such deliverables. The aforementioned deliverables are as follows: (i) pay EMC cash in the amount of $1.00; (ii) return to EMC all intellectual property belonging to EMC that is in our and SmartDisplayer Technology’s possession; (iii) return to EMC certain inventory containing EMC-related materials; (iv) grant to EMC certain audit and confirmation rights as further described in the Agreement; and (v) cancel a pre-existing Supply Agreement between EMC and us. Additionally, the Agreement provides for the mutual release of all claims, whether known or unknown, between the parties which relate to the securities and the Supply Agreement. On September 29, 2009 we were notified by EMC Corporation that we had fulfilled all of our obligations and conditions under the Assignment. As a result, approximately $7,600,000 (which includes interest, penalties and all other costs, expenses and charges associated therewith) of the Company’s 8% Senior Secured Convertible Debentures along with 1,008,064 common stock purchase warrants were assigned back to the Company and retired. Also, the conversion feature subject to derivative accounting related to these debentures in the amount of approximately $240,000 and the warrant liability related to these warrants of approximately $211,000 have been cancelled. We have made a payment of $60,000 pursuant to the agreement; have been released from our obligation pursuant to a deposit received from RSA Security, Inc. in the amount of $142,006; and all parties have been mutually released from all claims. We have recorded a gain on extinguishment of debt of approximately $8,115,000 as a result of the above transactions.

On September 30, 2009, the Company also entered into a series of transactions with the holders of the remaining Debentures (“Holders”) and certain creditors as described below.

Waiver, Amendment and Exchange Agreement

Pursuant to the terms of the Waiver, Amendment and Exchange Agreement, the holders agreed to waive all existing events of default under the Debentures and to waive any late fees, increased interest and liquidated damages that accrued prior through September 30, 2009. Such amounts aggregated approximately $1,405,000 at September 30, 2009.

The Company also agreed to issue to each of the holders, in exchange for their debentures and warrants, amended and exchanged original issuance discount debentures (“Amended Debenture”), with a principal amount equal to each Holder’s current Debenture plus interest through April 2, 2010 (for an aggregate face amount of $3,975,975) and amended and exchanged warrants (“Amended Warrant”) in an amount equal to each Holders current Warrant (for an aggregate of 700,000 warrants). Each Amended Debenture (i) bears interest at 8% per year commencing on April 1, 2010, paid quarterly, commencing July 1, 2010, in cash or, subject to certain conditions, registered shares of our common stock; (ii) has a maturity of January 8, 2011, (iii) is convertible at the holders’ option into shares of our common stock at either $1.00 per share (for $686,502 of Debentures) or $0.25 per share (for $3,289,473 of Debentures), (iv) is secured by all of our and our subsidiaries’ assets, including inventory, receivables, unencumbered equipment and intellectual property, and (v) has a forced conversion feature which allows us to force the conversion of the Amended Debenture if our common stock trades above $1.00 for 10 consecutive trading days. Such a forced conversion may be limited by contractual restrictions on the amount of our common stock which the holder may own and certain other conditions. Each Amended Warrant has a term of 5 years from the initial issuance date which is January 8, 2008 and an exercise price of $0.25 per share. The original issue discount of $144,649 will be amortized over the period October 1, 2009 to April 2, 2010.

Both the conversion price of the $3,289,473 Amended Debentures initially convertible at $0.25 per share and the exercise price of 580,000 of the Amended Warrants are subject to “full-ratchet” price protection in the event of stock issuances below their respective conversion or exercise prices, except for specified exempted issuances including grants of stock options and stock issuances to officers, directors, employees and consultants. For the Debentures and Warrants for which price protection have been removed, the related conversion liability of $21,324 and related warrant liability of $23,358 at September 30, 2009 have been reclassified to additional paid-in capital.

At September 30, 2009 we recalculated the fair value of the re-priced conversion feature of the Amended Debentures with price protection subject to derivative accounting and have determined that the fair value at September 30, 2009 is $3,703,903. The fair value of the conversion feature was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1.0%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 121%; and (4) an expected life of the conversion feature of 1.25 years. We recorded a charge of $3,601,866 at September 30, 2009 related to the change in fair value of the conversion feature of the repriced debentures.

At September 30, 2009, we recalculated the fair value of the re-priced warrant liability for the warrants with price protection and have determined that the fair value at September 30, 2009 is $163,268. The fair value of the warrant liability was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 121%; and (4) an expected life of the warrants of 1.25 years. We recorded a charge of $50,370 at September 30, 2009 related to the change in fair value of the re-priced warrant liability.

We have recorded a gain on extinguishment of debt of approximately $1,405,000 as a result of the above transactions.

Debt Settlement

In addition to the exchange of the Debentures and Warrants, we also settled certain outstanding obligations owed to creditors of the Company in an aggregate amount of $672,243 in exchange for Amended Debentures in the amount of $699,354 and Amended Warrants to purchase 135,533 shares of common stock. The Debentures are convertible at the holders’ option into shares of our common stock at either $1.00 per share (for $652,539 of Debentures) or $0.25 per share (for $46,815 of Debentures). The original issue discount of $27,111 will be amortized over the period October 1, 2009 to April 2, 2010.

Both the conversion price of the $46,815 Amended Debentures initially convertible at $0.25 per share and the exercise price of 9,073 of the Amended Warrants are subject to “full-ratchet” price protection in the event of stock issuances below their respective conversion or exercise prices, except for specified exempted issuances including grants of stock options and stock issuances to officers, directors, employees and consultants.

At September 30, 2009 we calculated the fair value of the conversion feature of the Amended Debentures with price protection subject to derivative accounting and have determined that the fair value at September 30, 2009 is $52,713. The fair value of the conversion feature was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1.0%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 121%; and (4) an expected life of the conversion feature of 1.25 years. We recorded a discount of $52,713 at September 30, 2009 related to the fair value of the conversion feature of the debentures, of which $10,267 has been immediately charged to expense. The remaining discount of $42,446 will be amortized to the date of maturity, January 8, 2011.

At September 30, 2009, we calculated the fair value of the warrant liability for the warrants with price protection and have determined that the fair value at September 30, 2009 is $2,554. The fair value of the warrant liability was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 121%; and (4) an expected life of the warrants of 1.25 years. We recorded a discount of $2,554 at September 30, 2009 related to the fair value of the warrant liability. The discount will be amortized to the date of maturity, January 8, 2011.

At September 30, 2009, we calculated the relative fair value of the warrants without price protection and have determined that the relative fair value at September 30, 2009 is $33,756. The relative fair value of the warrants was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 121%; and (4) an expected life of the warrants of 1.25 years. We recorded a discount of $33,756 at September 30, 2009 related to the relative fair value of the warrants. The discount will be amortized to the date of maturity, January 8, 2011.

Debenture & Warrant Purchase Agreement

Pursuant to the terms of a Debenture and Warrant Purchase Agreement, the Company issued an additional $1,173,416 face value of its Amended Debentures (convertible into 4,693,664 common shares) and 2,254,642 Amended Warrants. We received cash proceeds of $1,127,321. The Amended Debentures and Warrants issued to these investors have a conversion price and exercise price of $0.25 and $0.25, respectively. Both the conversion price of the Amended Debentures and the exercise price of the Amended Warrants are subject to “full-ratchet” price protection in the event of stock issuances below their respective conversion or exercise prices, except for specified exempted issuances including grants of stock options and stock issuances to officers, directors, employees and consultants. The original issue discount of $46,095 will be amortized over the period October 1, 2009 to April 2, 2010.

At September 30, 2009 we calculated the fair value of the conversion feature of the Amended Debentures subject to derivative accounting and have determined that the fair value at September 30, 2009 is $1,321,251. The fair value of the conversion feature was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1.0%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 121%; and (4) an expected life of the conversion feature of 1.25 years. We recorded a discount of $1,321,251 at September 30, 2009 related to the fair value of the conversion feature of the debentures, of which $828,604 has been immediately charged to expense. The remaining discount of $492,647 will be amortized to the date of maturity, January 8, 2011.

At September 30, 2009, we calculated the fair value of the warrant liability for the warrants with price protection and have determined that the fair value at September 30, 2009 is $634,674. The fair value of the warrant liability was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 121%; and (4) an expected life of the warrants of 1.25 years. We recorded a discount of $634,674 at September 30, 2009 related to the fair value of the warrant liability. The discount will be amortized to the date of maturity, January 8, 2011.

NOTE 6 – NOTE PAYABLE

On September 9, 2009 we executed a promissory note in the amount of $100,000. The full amount of principal and accrued but unpaid interest under this note is due on the earlier of: (i) October 31, 2009; or (ii) the date on which we complete the restructuring of our 8% Senior Secured Convertible Debentures described above. We repaid $50,000 on September 30, 2009 and $50,000 on October 1, 2009. As a result of these repayments, no interest was payable on the note.

The holder of the note also received a warrant to purchase 40,000 shares of our common stock at an exercise price of $2.50 per share. The warrant has a term of 5 years. The warrant is subject to “full-ratchet” price protection in the event of stock issuances below its exercise price, except for specified exempted issuances including grants of stock options and stock issuances to officers, directors, employees and consultants. At September 9, 2009, we calculated the fair value of the warrant liability for the warrant and have determined that the fair value at September 9, 2009 is $2,294. The fair value of the warrant liability was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 121%; and (4) an expected life of the warrant of 2 years. We recorded a discount of $2,294 at September 9, 2009 related to the fair value of the warrant liability and this discount has been fully expensed at September 30, 2009.

As a result of the restructuring of our 8% Senior Secured Convertible Debentures described above, the warrant was increased to 400,000 shares and the exercise price was reduced to $0.25 per share. At September 30, 2009, we recalculated the fair value of the re-priced warrant liability and have determined that the fair value at September 30, 2009 is $125,889. The fair value of the warrant liability was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 1%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 121%; and (4) an expected life of the warrants of 2 years. We recorded a charge of $123,595 at September 30, 2009 related to the change in fair value of the re-priced warrant liability.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

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.

~~EMPLOYMENT AGREEMENT~~12

On February 20, 2009, we entered in into a written employment agreement with Richard Nathan. The agreement provides for a bonus equal to: (i) 3% of increase in market capitalization occurring during first year of employment; and (ii) 2% of increase in market capitalization year after year for all periods thereafter. Mr. Nathan’s employment under the agreement is “At-Will.”

NOTE 7 - SUBSEQUENT EVENTS

The date through which the Company has evaluated subsequent events is November 13, 2009

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ADVISEMENT

We urge you to read this entire Quarterly Report on Form 10-Q, including the ” Risk Factors” section, the ~~consolidated~~ financial statements, and related notes ~~included~~ included herein. As used in this Quarterly Report, unless the context otherwise requires, the words “we,” “us,”“our,” “the Company,” “InCard” “Innovative Card” and “Registrant” refer to Innovative Card Technologies, Inc. and our subsidiaries. Also, any reference to “common shares,” or“Common Stock,” “common stock” or “Common Shares” refers to our $.001 par value common stock. The information contained herein is current as of the date of this Quarterly Report (~~September~~March 3031, ~~2009~~2010), unless another date is specified.

We prepare our interim financial statements in accordance with United States generally accepted accounting principles (“GAAP”). Our financials and results of operation for the three ~~and nine~~ month ~~periods~~period ended ~~September~~March 3031, ~~2009~~2010 are not ~~necessarily~~ necessarily indicative of our prospective financial condition and results of operations for the pending full fiscal year ending December 31, ~~2009~~2010. The interim financial statements presented in this Quarterly Report as well as other information relating to our company contained ~~herein~~in this Quarterly Report should be read in conjunction and together with the reports, statements and information filed by us with the United States Securities and Exchange Commission (“SEC”).

FORWARD LOOKING STATEMENTS

Certain statements contained in this Quarterly Report ~~constitute~~on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements included in this Quarterly Report, including those related to our cash, liquidity, resources and our anticipated cash expenditures, as well as any statements (other than statements of historical fact), regarding our strategy, future operations, financial position, projected costs, prospects, plans and objectives are forward-looking statements. These forward-looking statements are derived, in part, from various assumptions and analyses we have made in the context of our current business plan and information currently available to us and in light of our experience and perceptions of historical trends, current conditions and expected future developments and other factors we believe are appropriate in the circumstances. You can generally identify forward looking statements through words and phrases such as “believe”, “expect”, “seek”, “estimate”, “anticipate”, “intend”, “plan”, “budget”, “project”, “may likely result”, “may be”, “may continue” and other similar expressions, although not all forward-looking statements contain these identifying words. We cannot guarantee future results, levels of activity, performance or achievements, and you should not place undue reliance on our forward-looking statements.

~~When~~Our ~~reading~~actual ~~any~~results ~~forward-looking~~could ~~statement,~~differ ~~you~~materially ~~should~~from ~~remain~~those ~~mindful~~anticipated ~~that~~in ~~actual~~these ~~results~~forward-looking orstatements ~~developments~~as ~~may~~a ~~vary~~result ~~substantially~~of ~~from~~various ~~those~~factors, ~~expressed~~including orthe ~~implied~~risks bydescribed ~~such~~in ~~statement~~Part II, ~~for~~Item 1A, a“Risk ~~number~~Factors” ofand ~~reasons~~elsewhere in orthis ~~factors~~Report. ~~Each~~ Our forward-looking ~~statement~~statements ~~should~~do benot ~~read~~reflect inthe ~~context~~potential impact ~~with~~of ~~the~~any ~~various~~future ~~other~~acquisitions, mergers, dispositions, joint ventures, new ~~disclosures~~products ~~concerning~~or ~~our~~strategic ~~company~~investments. ~~and~~In addition, any forward-looking statement represents our ~~business~~expectation ~~made~~only ~~elsewhere~~as inof the day this ~~Quarterly~~ Report aswas ~~well~~first asfiled ~~our~~with the ~~public~~Securities ~~filings~~and ~~with~~Exchange ~~the~~Commission (“SEC.”) ~~You~~and should not ~~place~~ ~~undue~~be ~~reliance~~relied on as representing our expectations as of any ~~forward-looking~~subsequent ~~statement~~date. WeWhile ~~are~~we ~~not~~may ~~obligated~~elect to update ~~or revise any~~ forward-looking statements ~~contained~~at some point in ~~this~~the ~~Quarterly Report~~future, orwe specifically disclaim any ~~other~~obligation ~~filing~~ to ~~reflect~~do ~~new~~so, ~~events~~even orif ~~circumstances~~our ~~unless~~expectations ~~and to the extent required by applicable law~~change.

When reading any forward-looking statement, you should remain mindful that actual results or developments may vary substantially from those expressed in or implied by such statement for a number of reasons or factors. Each forward-looking statement should be read in context with and in understanding of the various other disclosures concerning our company and our business made elsewhere in this Quarterly Report as well as our public filings with the SEC. You should not place undue reliance on any forward-looking statement. We are not obligated to update or revise any forward-looking statements contained in this Quarterly Report or any other filing to reflect new events or circumstances unless and to the extent required by applicable law.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying consolidated financial statements and notes ~~in order~~ to assist ~~the~~readers ~~reader~~ in understanding our results of operations, financial condition, and cash flows. Our MD&A is organized as follows:

19· Overview — Discussion of our business and overall analysis of financial and other highlights affecting the company in order to provide context for the remainder of MD&A.

· ~~Overview — Discussion of our business and plan of operations, overall analysis of financial and other highlights affecting our business in order to provide context for the remainder of MD&A. ·~~ Critical Accounting Policies — Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts. · Results of Operations — Analysis of our financial results comparing the: (i) 3 months ended September 30, 2009 and 2008; and (ii) 9 months ended September 30, 2009 and 2008. · Liquidity and Capital Resources — An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition including recent developments and potential sources of liquidity.

~~The various~~· ~~sections~~Results of ~~this~~Operations ~~MD&A~~— ~~contain~~Analysis ~~a number~~ of forward-looking statements. Words such as “expects,” “goals,” “plans,” “believes,” “continues,” “may,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our ~~future~~ financial ~~performance,~~results ~~our~~comparing anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the ~~uncertainties~~3 ~~and~~months ~~risk~~ended ~~factors described~~March ~~throughout this filing (see also “Risk Factors” in Part II~~31, ~~Item~~2010 1Ato ~~of this Report)~~2009.

Liquidity and Capital Resources — An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition including recent developments and potential sources of liquidity.

The various sections of this MD&A contain a number of forward-looking statements. Words such as “expects,” “goals,” “plans,” “believes,” “continues,” “may,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in the “Overview” section (see also “Risk Factors” in Part II, Item 1A of this Report). Our actual results may differ materially.

Overview

We develop and market secure products for payment, identification, physical and logical access applications. Our main focus is on developing One-Time-Password (“OTP”) solutions. An OTP is a password that is only valid for a single login session or transaction. OTPs avoid a number of shortcomings that are associated with traditional (static) passwords. The most important shortcoming that is addressed by OTPs is that, in contrast to static passwords, they are not vulnerable to replay attacks. This means that, if a potential intruder manages to record an OTP that was already used to log into a service or to conduct a transaction, he will not be able to abuse it since it will be no longer valid.

Our primary focus is and will continue to be the further development, sales and marketing of OTP solutions. We anticipate we will expand our current ICT DisplayCard product offering with other innovative OTP products. Since 2002, we have ~~continued to develop our power inlay technology that is the basis of our ICT DisplayCard. To date we have~~ devoted a majority of our efforts to developing our ICard and our ICT DisplayCard and accompanying technology, initiating marketing and raising capital to fund our business. We have generated limited revenues.

Since inception, we have been unprofitable. We incurred net losses of $85,~~929~~883,~~537~~055 and $148,~~333~~929,~~622~~537 for ~~the~~2009 ~~twelve months ending December 31, 2008~~ and ~~2007~~2008, respectively. ~~During the nine months ended September 30~~Additionally, ~~2009,~~ we ~~incurred additional~~had net losses of $412,562 and $810,~~644~~906,~~282.~~269 Asfor ofthe ~~September~~three ~~30,~~month ~~2009,~~periods weended ~~had~~March ~~an accumulated~~31, ~~deficit~~2010 ~~of $41~~and 2009,~~121,328~~ respectively. Sales of the ICT DisplayCard and newly introduced OTP products, the Company’s main products, are not expected to generate positive cash flow until the ~~second~~fourth quarter of 2010. As a result, there is is substantial doubt about the Company’s ability to continue as a going concern at March ~~September 30~~31, ~~2009~~2010.

Our continued existence is dependent upon our ability to generate sales from our OTP products or, if we are unable to do so in sufficient quantity to cover our expenses, to obtain additional financing. In 2008, we made our first significant sale of ICT DisplayCards; however we anticipate that we will continue to incur net losses due to our costs exceeding our revenues. Management cannot yet predict when we will achieve an operating profit or net income. Our capital requirements for the next 12 months consist of the research and development of new OTP products, the acquisition of inventory, retention and hiring of key personnel, and implementation of a sales force for our products. These expenditures are anticipated to be significant. To date, our operations have been funded primarily through equity and debt financings.

We believe that our current cash, combined with anticipated revenue collections, will be adequate to fund our operations through the first quarter of 2010. If we are unable to raise additional capital or make significant sales by that date, we may be forced to curtail our operations or seek bankruptcy protection. We anticipate that we will not be able to generate sales of the ICT DisplayCard and newly introduced OTP products in quantities that will sustain a positive cash flow until the second quarter of 2010.14

~~Our~~We believe ~~backlog~~that our current cash, ~~which~~combined with anticipated revenue collections, ~~consists~~will ofbe ~~orders~~adequate ~~received~~to ~~but~~fund ~~not~~our ~~yet~~operations ~~shipped~~until July, ~~totaled~~2010. ~~approximately~~If ~~$1.2~~we are unable ~~million~~to atraise ~~October~~additional ~~31,~~capital ~~2009~~or make significant sales by that date, ~~approximately~~we ~~85%~~may ofbe forced ~~which~~to curtail our operations or seek bankruptcy protection. We anticipate that we ~~expect~~will not be able to ~~deliver~~generate sales of the ICT DisplayCard and newly introduced OTP products in quantities that will sustain a positive cash flow ~~2009~~until the fourth quarter of 2010.

OnOur ~~January 13~~backlog, ~~2009~~which weconsists ~~disclosed~~of ~~that~~orders we received abut ~~purchase~~not ~~order~~yet ~~in the amount of $3~~shipped,~~737,988. Subsequently,~~ ~~we disclosed that our customer intended to delay~~totaled ~~the delivery of~~ approximately 60% of the order. During October of 2009, the customer has informed us of its intent to cancel the unshipped balance of the order, notwithstanding the fact that the order is non-cancellable. Prior to receiving our customer’s notification, we fulfilled approximately $1,~~320~~163,000 ~~worth~~at ofMarch ~~product~~31, ~~deliveries under the order~~2010.

Critical Accounting Policies

Our MD&A is based on our consolidated financial statements, which have been prepared in accordance GAAP. 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.

Accounting Standards Codification and GAAP Hierarchy — Effective for interim and annual periods ending after September 15, 2009, the Accounting Standards Codification and related disclosure requirements issued by the FASB became the single official source of authoritative, nongovernmental GAAP. The ASC simplifies GAAP, without change, by consolidating the numerous, predecessor accounting standards and requirements into logically organized topics. All other literature not included in the ASC is non-authoritative. We adopted the ASC as of ~~September~~July 301, 2009, which did not have any impact on our results of operations, financial ~~condition~~ condition or cash flows as it does not represent new accounting literature or requirements. All references to pre-codified U.S. GAAP have been removed from this ~~Form 10-Q~~Report.

Revenue recognition.

We recognize revenues in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605 “Revenue Recognition”. 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. Revenue is not recognized on product sales transacted on a test or pilot basis. Instead, receipts from these types of transactions offset marketing expenses. Revenue from royalties is recognized with the passage of time in accordance with the underlying agreement. We recognize certain long-term contracts using the completed-contract method in accordance with ASC 605.

We have generated revenue from three sources: sale of the InCard DisplayCard, licensing of the LensCard to various credit card issuers and selling the LightCard 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.

We anticipate that the majority of our revenues in the coming year will come from the InCard DisplayCard and ~~newly~~new ~~introduced~~ OTP products. We intend to sell these items through resellers. We do not recognize revenue when we sell the ~~InCard~~ InCard DisplayCard in small quantities under a test or pilot program. Cash ~~receipts~~ receipts from these transactions are used to offset marketing expenses.

The revenue generated from the LensCard and LightCard is negligible, and we expect that the sales of these products will have an immaterial impact on our results of operations.

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

Accounts receivable allowances.

Our sales to date have been to large credit card issuers and we have been successful in collecting for products and services. We perform a regular review of our customer activity and associated credit risks and do not require collateral from our customers. At ~~September~~March 3031, ~~2009~~2010, based on our review of customer activity, we we recorded an allowance for doubtful accounts of $6061,~~000~~398.

Warranty expense.

We estimate the cost associated with meeting our warranty obligations for the sale of our products. We generally warrant our products against defects over a period of one to three years. The initial estimate and changes to the estimate are charged to cost of goods sold at the time of sale of the product. ~~Effective~~The ~~April~~accrual ~~1, 2009~~is webased ~~reduced~~on ~~our~~a ~~estimate~~percentage ~~for~~of ~~warranty~~sales. ~~reserves~~This percentage was 10% through December 31, 2008, 3% for the ~~second~~period ~~and~~January ~~third~~1 ~~quarters~~to September 30, on a2009 ~~prospective~~and ~~basis~~2% effective October 1, 2009 (the changes in estimate based on historical ~~experience~~trends).

Inventory.

Our inventories are valued at the lower of cost or market. 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 cost of goods sold in the period in which the facts that give rise to the adjustments become known.

Research and Development.

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

Valuation of Long-Lived Assets.

We assess the impairment of identifiable 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 ASC Topic 360, "Property, Plant and Equipment". We have not recorded any impairment of long-lived assets.

Stock Based Compensation.

We account for our stock based compensation under ASC 718 “Compensation – Stock Compensation” which was adopted in 2006, 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. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

Income Taxes

We utilize ASC Topic 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

We adopted new accounting guidance effective January 1, 2007. As a result of the implementation of this new guidance, we made a comprehensive review of our portfolio of uncertain tax positions in accordance with recognition standards established by the guidance. As a result of this review, we concluded that at this time there are no uncertain tax positions that would result in tax liability to the Company. There was no cumulative effect on retained earnings as a result of applying the provisions of this guidance.

Change in Accounting Principle

Recently Issued Accounting Pronouncements

~~Results of Operations~~16

~~Results~~Result ~~for~~of ~~the~~Operations 3– ~~months~~First Quarter of ~~ended~~2010 ~~September~~Compared ~~30,~~to ~~2009~~First ~~compared~~Quarter toof ~~2008~~2009

Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future ~~due to the occurrence of material recurring and nonrecurring events~~.

Revenue

~~Revenue~~Revenues totaled $741,079 and $534,223 for the three months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008 was $1,011,760 and~~ ~~$840~~2009,~~098,~~ respectively.

	Three Months Ended September 30,
					Change in
	2009		2008
					2010
Revenue	$	1,011,760	$	840,098
	Three Months Ended March 31,				Versus 2009
	2010		2009		$		%
Revenue	$	741,079	$	534,223	$	206,856		39	%

The increase of $~~171~~206,~~662,~~856 or 2039%, for the three months ended ~~September~~March 3031, ~~2009~~2010 as compared to the same period ofin ~~2008~~2009 was ~~attributed~~attributable to ~~increased~~an ~~sales~~increase ofin ~~the InCard DisplayCard, primarily from the partial fulfillment of our 2009 $3.7 million purchase order. During October of 2009, the~~ customer ~~has informed~~ ~~us of its intent to cancel the unshipped balance of the order, notwithstanding the fact that the order is non-cancellable~~orders.

Cost of Goods Sold

Cost of ~~goods~~Goods ~~sold~~Sold ~~for~~totaled $669,614 and $586,960 or the three months ended ~~September~~March 3031, 2010 ~~2009~~ and ~~2008~~2009, ~~was $927,015 and $984,024,~~ respectively.

	Three Months Ended September 30,
					Change in
	2009		2008
					2010
Cost of Goods Sold	$	927,015	$	984,024
	Three Months Ended March 31,				Versus 2009
	2010		2009		$		%
Cost of Goods Sold	$	669,614	$	586,960	$	82,654		14	%

Cost of goods ~~sold~~ consists of costs to manufacture, inventory write-offs and reserve ~~adjustments~~adjustment and warranty expense. The ~~decrease~~increase of $5782,~~009,~~654 or 614%, for the three months ended ~~September~~March 3031, ~~2009~~2010 as compared to the same period ofin ~~2008~~2009 was ~~attributed~~attributable to an increase of $80179,~~015~~237 for costs to manufacture, offset by decreases of $8664,~~399~~607 for inventory write-offs and reserve adjustments and $5031,~~625~~976 for warranty expense. The increase in cost to manufacture results primarily from the increase in revenue during the ~~2009~~2010 period.

Operating Expenses

Operating expenses totaled $628,020 and $680,915 for the three months ended ~~September~~March 3031, ~~2009~~ 2010 and ~~2008~~2009, ~~consist of the following:~~respectively.

	Three Months Ended September 30,
					Change in
	2009		2008
					2010
Operating expenses
	Three Months Ended March 31,				Versus 2009
Administrative	$	735,913	$	1,306,148
	2010		2009		$			%
Consulting Fees		73,286		169,996
Operating Expenses
Professional Fees		87,789		189,698
Administrative	$	471,873	$	549,914	$	(78,041	)		(15	) %
Research and Development		69,467		98,230
Consulting Fees		-		15,593		(15,593	)		(100	) %
Total expense	$	966,455	$	1,764,072
Professional Fees		80,998		72,199		8,799			13	%
Research and development		75,149		43,209		31,940			74	%
Total expense	$	628,020	$	680,915	$	(52,895	)		(8	) %

Administrative Expenses

Administrative Expenses ~~expenses~~ totaled $~~735~~471,~~913~~873 and $549,914 for the three months ended ~~September~~March 3031, ~~2009~~2010 ~~compared~~and ~~to $1~~2009,~~306,148~~ ~~for the same period of 2008~~respectively. The decrease of $~~570~~78,~~235~~ 041 or 4415% for the three months ended March ~~September 30~~31, ~~2009~~2010 compared to the ~~comparable~~ same period in ~~2008~~2009 was primarily attributable to a decrease in share based compensation of $~~151~~41,~~093~~129 (resulting from a decrease in issued and outstanding equity awards) and reductions in ~~salaries~~insurance of $8233,~~539~~000, license ~~marketing~~ and ~~investor relations~~fees of $1627,~~295,~~248 ~~travel~~and ofoverall ~~$34,781,~~decreases ~~depreciation~~in ~~and~~other ~~amortization expense~~administrative ~~of $163~~expenses,~~434~~ ~~and~~partially ~~reduction~~offset inby ~~other~~an ~~expenses,~~increase ~~resulting~~in ~~from~~cash ~~managements~~based ~~cost~~compensation expense and ~~cutting~~related ~~measures~~costs of $53,137. Administrative expenses consist of travel, marketing, compensation, administrative fees, and ~~depreciation~~costs, and ~~amortization~~depreciation expense.

Consulting Fees

Consulting fees totaled $730 and $15,~~286~~593 for the three months ended ~~September~~March 3031, ~~2009~~2010 ~~compared~~and ~~to $169~~2009,~~996 for the same period of 2008~~ respectively. The decrease of $9615,~~710~~593 or 57100% for the three months ended March ~~September 30~~31, ~~2009~~2010 compared to the ~~comparable~~same period in ~~2008~~2009 was ~~primarily~~ attributable to the consultant ~~use~~becoming ofan ~~fewer~~employee ~~consultants~~ in ~~the current~~late ~~period~~2009. Consulting ~~fee~~fees ~~expense~~ consists of payments made to independent contractors ~~that~~for ~~provided~~ services ~~to us~~.

Professional Fees

Professional Fees totaled $8780,~~789~~998 and $72,199 for the three months ended ~~September~~March 3031, ~~2009~~2010 ~~compared to~~and ~~$189~~2009,~~698~~ ~~for the same period of 2008~~respectively. The ~~decrease~~increase of $~~101~~8,~~909~~799 or 5413% for the three months ended ~~September~~March 3031, ~~2009~~2010 compared to the ~~comparable~~same period in ~~2008~~2009 was ~~primarily~~ attributable to ~~decreased~~an overall ~~activity~~higher ~~and lower~~ cost of professional fees. ~~Legal~~in ~~fees~~the ~~decreased~~current byperiod due to an increase in professional services. An increase of $2018,~~000~~104 ~~and~~in accounting and audit fees ~~decreased~~ was partially offset by a decrease of $819,~~909.~~305 in legal fees. Professional fees expense primarily consists of amounts related to ~~services~~ services provided by our outside counsel, auditors and other similar providers.

Research and Development

Research and development expenses totaled $6975,~~467~~149 and $43,209 for the three months ended ~~September~~ 30March 31, ~~2009~~2010 ~~compared~~and ~~to $98~~2009,~~230~~ ~~for the same period of 2008~~respectively. The ~~decrease~~ increase of $2831,~~763~~940 or 2974% for the three months ended ~~September~~March 3031, ~~2009~~ 2010 compared to the ~~comparable~~same period in ~~2008~~2009 was ~~primarily~~ attributable to an accrual reversal of approximately $30,000 in 2009 with no ~~reduced~~comparable ~~consulting~~item ~~costs.~~in 2010. Research and development expense consists of costs relating to further development of our OTP ~~solutions~~products and ~~products~~solutions.

Other Income (Expense)

Other income (expense) totaled $4143,~~452,817~~993 of income for the three months ended ~~September~~March 3031, ~~2009 compared~~ to2010 and $~~346~~10,~~155~~172,617 of expense for the ~~same~~three ~~period~~months ofended ~~2008~~March 31, 2009.

	Three Months Ended September 30,
							Change in
	2009			2008
							2010
Other income (expense):
	Three Months Ended March 31,						Versus 2009
Change in fair value of warrant and conversion liability	$	(4,300,534	)	$	841,513
	2010			2009			$			%
Gain on extinguishment of debt		9,520,784			-
Other income (expense):
Other income		616,315			-
Change in fair value of warrant and conversion liabilities	$	351,764		$	(103,267	)	$	455,031			441	%
Interest income		2			2,978
Gain on extinguishment of debt		136,321			-			136,321			100	%
Interest expense		(1,383,750	)		(498,336	)
Interest income		18			29			(11	)		(38	) %
Total nonoperating income	$	4,452,817		$	346,155
Interest expense		(344,110	)		(10,069,379	)		9,725,269			97	%
Total other income (expense)	$	143,993		$	(10,172,617	)	$	10,316,610			101	%

26Change in fair value of warrants

~~Change~~The change in the fair value of ~~warrants~~our warrant and conversion ~~liability~~liabilities resulted primarily from the changes in our stock price, the conversion and exercise prices of the instruments and the volatility of our common stock during the reported periods. Refer to Note 4 to the financial statements for further discussion on our warrant liabilities and the related 8% senior secured convertible debentures.

The change in the fair value of our warrant and conversion liabilities resulted primarily from the changes in our stock price, the conversion and exercise prices of the instruments and the volatility of our common stock during the reported periods. We had no warrant liability at January 1, 2008. Refer to Note 5 to the financial statements for further discussion on our warrant liability and the related 8% senior secured convertible debentures.

The securities were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. The securities do not qualify for hedge accounting, and as such, all future changes in the fair value of these securities will be recognized currently in earnings until such time as the securities are exercised or expire.

Gain on extinguishment of debt

~~We have~~During ~~recorded~~the first quarter of 2010, certain debenture holders converted an aggregate of $9341,~~520,784~~244 of ~~gains~~debentures oninto ~~extinguishment~~1,364,975 shares of ~~debt~~common ~~resulting from~~stock. Since the conversion ~~cancellation~~feature orwas ~~restructuring~~accounted offor ~~our~~as ~~2008~~a ~~convertible~~liability, ~~debentures~~we ~~and~~have recorded a gain ~~the~~upon ~~related~~conversion ~~common~~of ~~stock~~debt ~~purchase~~in ~~warrants~~the amount of $136,321. Refer to Note 53 to the financial statements for further discussion ~~on the cancellation and restructuring~~.

Other Income

Other income consists of customer deposit forfeitures.

Interest Income

~~The~~Interest ~~decrease~~income intotaled ~~interest~~$18 ~~income~~and is$29 ~~primarily~~for ~~attributable~~the tothree amonths ~~decrease~~ended inMarch ~~balances~~31, 2010 and 2009, respectively. Interest income consists of earning on balances in interest bearing accounts.

Interest expense

Interest expense totaled $1344,~~383~~110 and $10,~~750~~069,379 for the three months ended ~~September 30~~March 31, ~~2009 compared~~2010 toand ~~$498~~2009,~~336~~ ~~for the same period of 2008~~respectively. Interest expense for ~~the three months ended September 30,~~ 2009 consists of interest accrued on our convertible debentures of $~~519~~303,~~572~~857, ~~discount~~other interest onpaid ~~debt~~ of $~~841~~1,~~165 and~~885, ~~other~~amortization ~~interest~~ of ~~$23,013.~~debt ~~Interest~~discount ~~expense~~of ~~for the three months ended~~$6,671,835, ~~September~~amortization ~~30, 2008 consists~~ of ~~interest~~debt ~~accrued~~issue oncosts ~~our convertible debentures~~ of $~~170~~449,~~000,~~052 ~~other~~and ~~interest~~a charge of $92,~~540~~642,750 ~~amortization~~for the of30% ~~debt~~increase ~~discount~~in ofthe ~~$294,695 and~~principal ~~amortization~~amount ofour ~~debt~~convertible ~~issue~~debentures ~~costs~~as a result of ~~$24,101~~the default described above.

As a result of the default on our debentures, the interest rate was increased from 8% to 18% effective February 20, 2009 and the maturity date of the debentures was accelerated. The Company fully amortized the remaining discount and deferred debt issue costs during the quarter ended March 31, 2009.

Results for the 9 months ended September 30, 2009 compared to 2008

Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future due to the occurrence of material recurring and nonrecurring events..

Revenue

Revenue for the nine months ended September 30, 2009 and 2008 was $2,842,628 and $1,857,523, respectively.

	Nine Months Ended September 30,
	2009		2008
Revenue	$	2,842,628	$	1,857,523

The increase of $985,105, or 53%, for the nine months ended September 30, 2009 as compared to the same period of 2008 was attributable to increased sales of the InCard DisplayCard, primarily from the partial fulfillment of our 2009 $3.7 million purchase order, although sales to other customers increased by approximately $436,000 in 2009 as compared to 2008. During October of 2009, the customer has informed us of its intent to cancel the unshipped balance of the order, notwithstanding the fact that the order is non-cancellable.

Cost of Goods Sold

Cost of goods sold for the nine months ended September 30, 2009 and 2008, was $2,690,893 and $2,054,232, respectively.

	Nine Months Ended September 30,
	2009		2008
Cost of Goods Sold	$	2,690,893	$	2,054,232

Cost of goods sold consists of costs to manufacture, inventory write-offs and reserve adjustments and warranty expense. The increase of $636,661, or 31%, for the nine months ended September 30, 2009 as compared to the same period of 2008 was attributed to an increase of $730,466 for costs to manufacture, partially offset by decreases of $51,679 for inventory write-offs and reserve adjustments and $42,126 for warranty expense. The increase in cost to manufacture results primarily from the increase in revenue during the 2009 period.

Operating Expenses

Operating expenses for the nine months ended September 30, 2009 and 2008, consist of the following:

	Nine Months Ended September 30,
	2009		2008
Operating expenses
Administrative	$	1,879,967	$	4,355,576
Consulting Fees		118,902		424,521
Professional Fees		309,759		638,921
Research and Development		183,315		396,585
Total expense	$	2,491,943	$	5,815,603

Administrative Expenses

Administrative expenses totaled $1,879,967 for the nine months ended September 30, 2009 compared to $4,355,576 for the same period of 2008. The decrease of $2,475,609 or 57% for the nine months ended September 30, 2009 compared to the comparable period in 2008 was primarily attributable to a decrease in share based compensation of $904,568 (resulting from a decrease in issued and outstanding equity awards) and reductions in salaries of $492,861, marketing and investor relations of $133,623, travel of $91,720, and depreciation and amortization expense of $485,987. Administrative expenses consist of travel, marketing, compensation, administrative fees, and depreciation and amortization expense.

Consulting Fees

Consulting fees totaled $118,902 for the nine months ended September 30, 2009 compared to $424,521 for the same period of 2008. The decrease of $305,619 or 72% for the nine months ended September 30, 2009 compared to the comparable period in 2008 was primarily attributable to the use of fewer consultants in the current period. Consulting fee expense consists of payments made to independent contractors that provided services to us.

Professional Fees

Professional Fees totaled $309,759 for the nine months ended September 30, 2009 compared to $638,921 for the same period of 2008. The decrease of $329,162 or 52% for the nine months ended September 30, 2009 compared to the comparable period in 2008 was primarily attributable to decreased activity and lower cost of professional fees. Legal fees decreased by $305,423 and accounting fees decreased by $23,739. Professional fees expense primarily consists of amounts related to services provided by our outside counsel, auditors and other similar providers.

Research and Development

Research and development expenses totaled $183,315 for the nine months ended September 30, 2009 compared to $396,585 for the same period of 2008. The decrease of $213,270 or 54% for the nine months ended September 30, 2009 compared to the comparable period in 2008 was primarily attributable to reduced consulting costs. Research and development expense consists of costs relating to further development of our OTP products and solutions.

Other Income (Expense)

Other expense totaled $6,304,074 for the nine months ended September 30, 2009. We reported net other income of $1,688,113 for the nine months ended September 30, 2008.

	Nine Months Ended June 30,
	2009			2008
Other income (expense):
Change in fair value of warrant and conversion liability	$	(4,461,202	)	$	2,866,067
Gain on extinguishment of debt		9,520,784			-
Other income		616,315			-
Other expense		-			(120,794	)
Interest income		53			26,535
Interest expense		(11,980,024	)		(1,083,695	)
Total nonoperating income	$	(6,304,074	)	$	1,688,113

Change in fair value of warrants and conversion liability

Gain on extinguishment of debt

We have recorded an aggregate of $9,520,784 of gains on extinguishment of debt resulting from the cancellation or restructuring of our 2008 convertible debentures and the related common stock purchase warrants. Refer to Note 5 to the financial statements for further discussion on the cancellation and restructuring.

Other Income

Other income consists of customer deposit forfeitures.

Other Expense

Other expense for the nine months ended September 30, 2008 consists of a loss recognized on a sublease.

Interest Income

The decrease in interest income is primarily attributable to a decrease in balances in interest bearing accounts.

Interest expense

Interest expense totaled $11,980,024 for the nine months ended September 30, 2009 compared to $1,083,695 for the same period of 2008. Interest expense for the nine months ended September 30, 2009 consists of interest accrued on our convertible debentures of $1,337,356, other interest of $37,866, amortization of debt discount of $7,513,000, amortization of debt issue costs of $449,052 and a charge of $2,642,750 for the 30% increase in the principal amount of our convertible debentures as a result of the default described in Note 5 to the financial statements. Interest expense for the nine months ended September 30, 2008 consists of interest accrued on our convertible debentures of $403,910, other interest of $19,081, amortization of debt discount of $609,523 and amortization of debt issue costs of $51,181.

Liquidity and Capital Resources

Our principal sources of operating capital since inception through ~~September~~March 3031, ~~2009~~ 2010 have been equity and debt financings totaling approximately $31,431,000, and to a lesser degree our revenues. Since inception, we have ~~incurred~~ incurred significant losses, and as of ~~September~~December 3031, 2009 we had an accumulated deficit of $38,360,101. Our accumulated deficit totaled $4138,~~121~~772,~~328~~663 at March 31, 2010. Our cash and cash equivalents balance at March 31, 2010 was $186,306, compared to $266,498 for the same period of 2009.

Sales of ~~the~~our ~~ICT DisplayCard and newly introduced OTP~~ products, ~~the Company’s main products,~~ are not expected to generate positive cash flow until the ~~second~~fourth quarter of 2010. As a result, there is substantial doubt about the Company’s ability to continue as a going concern at ~~September~~March 3031, ~~2009~~2010.

As of ~~September~~ 30May 10, ~~2009~~2010 we had approximately $~~853~~74,000 in cash and cash equivalents. Combined with anticipated revenue collections and planned expense reductions, the Company believes this amount will last ~~through~~until ~~the~~July, ~~first quarter of~~ 2010.

	Nine Months Ended September 30,
							Change in
	2009			2008
							2010
Cash & Cash Equivalents	$	852,904		$	200,844
	Three Months Ended March 31,						Versus 2009
Net cash used in operating activities	$	(401,062	)	$	(8,124,314	)
	2010			2009			$			%
Net cash used in investing activities	$	-		$	(36,942	)
At March 31:
Net cash provided by financing activities	$	1,177,321		$	8,022,500
Cash & Cash Equivalents	$	186,306		$	266,498		$	(80,192	)		(30	)%
Three months ended March 31:
Net cash (used in) provided by operating activities	$	(64,709	)	$	189,853		$	(254,562	)		(134	)%
Net cash provided by financing activities		5,250			-			5,250			100	%

Net Cash ~~Provided by~~ (Used in) Provided by Operating Activities

~~For~~We ~~the~~used ~~nine~~cash ~~months~~of ~~ended September 30~~$64,709 ~~2009~~for weour ~~used~~operating ~~$401,062~~activities induring ~~cash~~the ~~for~~three ~~our~~months ~~operating~~ended March ~~activities~~31, as2010 ~~compared~~and togenerated cash ~~used~~ of $8189,~~124,314~~853 ~~for~~from our operating activities during the three ~~same~~months ~~period~~ended ofMarch ~~2008~~31, 2009. The ~~decrease~~increase in cash used of $7254,~~723~~562 or 134% for the three months ended March 31,~~252~~ 2010 compared to the same period in 2009 was primarily attributable to a decrease in ~~payments~~deferred ~~for~~revenue ~~accounts payable and accrued expenses~~ of $2595,~~225~~318,~~699,~~ ~~an increase~~a decrease in ~~collections~~prepaids onand ~~accounts~~other ~~receivable~~current assets of $~~482~~24,~~647,~~732 and a decrease in ~~cash applied to~~ ~~inventory~~accrued interest of $1300,~~996~~034,~~082,~~ partially offset by an increase in ~~accrued~~cash ~~interest~~provided by accounts receivable of $1311,~~380,334~~ 635 and a decrease in loss (after adjustment for non-cash charges) of $1371,~~647,633~~671.

Net Cash Provided by Financing Activities

~~During~~We ~~the~~received ~~nine~~cash ~~months~~from ~~ended~~our ~~September~~financing ~~30,~~activities ~~2009,~~of ~~we received~~ $15,~~127,321~~250 ~~from~~during the ~~sale~~three months ofended ~~our~~March ~~Amended~~31, ~~Debentures.~~2010, Wefrom ~~also~~the ~~received~~exercise ~~$100,000~~of inemployee ~~bridge~~stock ~~financing~~options, ~~of which~~with ~~$50,000~~no ~~was~~cash provided ~~repaid~~by infinancing ~~September~~activities ~~and~~during the ~~balance~~three ~~repaid~~months inended March 31, ~~October~~2009.

Listed below are key financing transactions entered into by us in the last three years:

On January 8, 2008, we entered into a securities purchase agreement with 13 institutional and accredited investors. Pursuant to the terms of the agreement, we sold $3.5 million of our 8% Senior Secured Convertible Debenture. The debentures: (i) bear interest at 8% per year, paid quarterly in cash or registered common stock, at our discretion; (ii) have a maturity of January 8, 2011, (iii) are convertible at the holder’s option into shares of our common stock at $2.50 per share, (iv) are secured by all of our and our subsidiary’s assets including inventory, receivables, unencumbered equipment and intellectual property, and (v) have a forced conversion feature which allows us to force the conversion of the debentures if our common stock trades above $5.00 for 20 consecutive trading days and certain other conditions are met. In connection with the sale of the debentures, we also issued the purchasers five-year common stock purchase warrants to purchase an aggregate of 700,000 shares of our common stock at an exercise price of $2.75 per share. We used the net proceeds of the financing for our working capital requirements and to pay down certain obligations. Both the conversion price of the debentures and the warrants’ exercise price were reset following the April 15, 2008 financing discussed below.

On April 15, 2008, sold an additional $5 million of our 8% Senior Secured Convertible Debenture to EMC Corporation. As a result of market conditions, the conversion price of the debenture is $2.48 per share. This resulted in a re-pricing of our January 8, 2008 debentures. In connection with the sale of the additional debentures, we issued EMC a five-year common stock purchase warrant to purchase 1,008,064 shares of our common stock at an exercise price of $2.728 per share. Similar to the conversion of the debentures, this resulted in a re-pricing of the January 8, 2008 warrant exercise price to $2.728 per share. We used the net proceeds of the financing for our working capital requirements and to pay down certain obligations.

· On September 30, 2009 we sold an additional $1,173,416 face value of our Amended Debentures (convertible into 4,693,664 common shares) and 2,254,642 Amended Warrants. We received cash proceeds of $1,127,321. The Amended Debentures (i) bear interest at 8% per year commencing on April 1, 2010, paid quarterly, commencing July 1, 2010, in cash or, subject to certain conditions, registered shares of our common stock; (ii) have a maturity of January 8, 2011, (iii) are convertible at the holders’ option into shares of our common stock at $0.25 per share, (iv) are secured by all of our and our subsidiaries’ assets, including inventory, receivables, unencumbered equipment and intellectual property, and (v) have a forced conversion feature which allows us to force the conversion of the Amended Debentures if our common stock trades above $1.00 for 10 consecutive trading days. Such a forced conversion may be limited by contractual restrictions on the amount of our common stock which the holder may own and certain other conditions. Each Amended Warrant has a term of 5 years and an exercise price of $0.25 per share. The Amended Warrants also provide for the issuance of a replacement warrant in the event they are exercised for cash. Both the conversion price of the Amended Debentures and the exercise price of the Amended Warrants are subject to “full-ratchet” price protection in the event of stock issuances below their respective conversion or exercise prices, except for specified exempted issuances including grants of stock options and stock issuances to officers, directors, employees and consultants.

~~Restructuring~~Both the conversion price of the Amended Debentures and ~~Sales~~the exercise price of ~~Our~~the 8%Amended Warrants ~~Senior~~are ~~Secured~~subject ~~Debentures~~to “full-ratchet” price protection in the event of stock issuances below their respective conversion or exercise prices, except for specified exempted issuances including grants of stock options and stock issuances to officers, directors, employees and consultants.

Restructuring and Sales of Our 8% Senior Secured Debentures

On September 30, 2009, we completed the restructuring of our 8% Senior Secured Convertible Debentures as well as certain warrants held by the debenture holders. In connection with the restructuring, we sold an additional $1,173,416 face value of our Amended Debentures (convertible into 4,693,664 common shares) and 2,254,642 Amended Warrants. The effect of these transactions is a follows:

Cancellation of 8% Senior Secured Convertible Debentures in the amount of $7,581,981 and warrants to purchase 1,008,064 shares;

Issuance of Amended 8% Senior Secured Convertible Debentures in the amount $1,339,041 ($1.00 conversion price) and Amended Warrants to purchase 246,460 ($0.25 exercise price) common shares. These debentures and warrants do not contain any anti-dilution or repricing provisions;

Issuance of Amended 8% Senior Secured Convertible Debentures in the amount $4,509,703 ($0.25 conversion price) and Amended Warrants 2,843,715 ($0.25 exercise price); These debentures and warrants have anti-dilution and repricing provisions;

Gross cash proceeds to the Company in the amount of $1,127,321; and

Conversion of past due obligations to creditors and short term financing in the amount of $672,243.

The foregoing summary of the transaction is qualified in its entirety by reference to the full text of the transaction documents filed as exhibits to our Current Report on Form 8-K which was filed with the SEC on October 5, 2009. The information contained in such Current Report regarding the transaction is incorporated herein by reference. Refer to Note 5 to the financial statements for further discussion on the cancellation and restructuring.

Future Needs

Through the date of this report, our operations have been funded primarily through equity and debt financings totaling approximately $31,431,000 since inception.

We believe that our current cash of approximately $853,000 as of September 30, 2009, combined with anticipated revenue collections, will provide us with sufficient resources to fund our operations through the first quarter of 2010.20

~~If we are~~We ~~able~~believe tothat ~~successfully sell the ICT DisplayCard and~~ our ~~newly~~current ~~introduced~~cash ~~OTP products in substantial quantities during the and fourth quarter~~ of ~~2009~~approximately ~~and first~~$74,000 ~~quarter~~as of ~~2010~~May we10, ~~may be able to continue operations through the second quarter of~~ 2010~~. If we need additional capital~~, ~~we do not have any~~ ~~binding~~combined ~~commitments for, or readily available sources of, additional financing. Additional financing, whether through public or private equity or debt financing, arrangements~~ with ~~stockholders~~anticipated orrevenue ~~other sources~~collections, ~~may~~will ~~not~~provide ~~be available, or if available, may be on terms unacceptable to~~ us. Ifwith ~~we issue~~sufficient ~~additional~~resources ~~equity securities~~ to ~~raise~~fund ~~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. Ifuntil ~~adequate funds are not available to satisfy our capital requirements~~July, ~~our operations and liquidity could be materially adversely affected~~2010.

If we are able to successfully sell our products in substantial quantities during the second and third quarters of 2010 we may be able to continue operations until or through the third quarter of 2010. If we need additional capital, we do not have any binding commitments for, or readily available sources of, additional financing. Additional financing, whether through public or private equity or debt financing, arrangements with stockholders or other sources, 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.

Going Concern

Our independent registered public accountants have included a going concern explanatory paragraph in their unqualified ~~opinion~~opinions ofon our ~~2008~~2009 ~~financial~~and 2008 financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are not required to provide the information required by this items as we are considered a smaller reporting company, as defined by Rule 229.10(f)(1).

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report ~~(September~~ 30(March 31, ~~2009~~2010). Based on such evaluation which disclosed numerous material ~~weaknesses~~ weaknesses as noted below, our CEO and CFO has concluded that, as of the end of ~~such~~ such period, the Company’s disclosure controls and procedures were not effective in in recording, processing, summarizing and reporting, on a timely basis, ~~information~~ information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are not effective in ensuring that ~~information~~ information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

32Notwithstanding the conclusion that our disclosure and control procedures were not effective, we believe that our financial condition, results of operations and cash flows presented in this Report are fairly presented in all material respects. We base our conclusion on our ability to substantiate, with a high degree of confidence, the small number of significant general ledger accounts that comprise our financial statements.

~~Management~~Limitations ~~Report~~ on ~~Internal~~Effectiveness ~~Control~~of ~~Over~~Controls ~~Financial~~and ~~Reporting~~Procedures

~~Management~~Our ismanagement ~~responsible~~does ~~for~~not ~~establishing~~expect that our disclosure controls and ~~maintaining~~procedures ~~adequate~~or our internal ~~control~~controls ~~over financial~~will ~~reporting~~prevent all errors and all fraud. A control system, asno matter ~~defined~~how inwell ~~Rules 13a-15(f)~~conceived and ~~15d-15(f)~~operated, ~~under~~can ~~the~~provide only reasonable, not ~~Securities~~absolute, ~~Exchange~~assurance ~~Act~~that the objectives of ~~1934~~the control system are met. ~~Internal~~Further, the design of a control ~~over~~system ~~financial~~must ~~reporting~~reflect isthe afact that there are resource ~~process~~constraints ~~designed~~and ~~by,~~the orbenefits ~~under~~of controls must be considered relative to their costs. Because of the ~~supervision~~inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company’s ~~principal~~have been detected. These inherent ~~executive~~limitations ~~and~~include, ~~principal~~but ~~financial~~are ~~officers~~not limited to, ~~provide~~the ~~reasonable~~realities ~~assurance~~that tojudgments in ~~the~~decision-making ~~Company’s~~can ~~management~~be faulty and ~~board~~that breakdowns can occur because of ~~directors~~simple error ~~regarding~~or mistake. Additionally, controls can be circumvented by the ~~reliability~~individual acts of some persons, by collusion of two or more people, or by management ~~financial~~override ~~reporting~~of ~~and~~the control. The design of any system of controls also is based in part upon certain assumptions about the ~~preparation~~likelihood of ~~financial~~future ~~statements~~events ~~for~~and ~~external~~there ~~purposes~~can be no assurance that any design will succeed in ~~accordance~~achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with ~~generally~~the ~~accepted~~policies or ~~accounting~~procedures ~~principles~~may deteriorate. ~~Internal~~Because of the inherent limitations in a cost-effective control ~~over~~system, ~~financial~~misstatements ~~reporting~~due ~~includes~~to ~~those~~error ~~policies~~or ~~and~~fraud ~~procedures~~may occur and ~~that:~~not be detected.

· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2009. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Based on our assessment at September 30, 2009, management believes that our internal control over financial reporting was not effective based on criteria set forth by the COSO. The following material weaknesses were identified in our internal control over financial reporting at September 30, 2009:

· We have performed a financial close on a monthly basis effective April 2008. The analysis of actual to budgeted results is either done marginally or not at all and there is no mechanism in place to evaluate variances, investigate unusual activity or communicate findings to senior management or the board of directors.

· We are unable to maintain the proper segregation of various accounting and finance duties because of our small size and limited resources. At risk areas include cash receipts and payments, processing of journal entries and account reconciliations.

· Much of the financial closing process is done off-line on electronic spreadsheets that are maintained on individual computers, unable to be shared by accounting personnel and not backed up.

· We have not performed a physical inventory of fixed assets. As a result, we failed to identify idle fixed assets that were not in our possession until late in the closing process necessitating an adjustment to our results.

· Annual employee reviews are not performed.

· During the fourth quarter of 2008 our CEO and CFO resigned. This caused us to have limited oversight of operations and less review of activity.

· Due to the deficiencies discussed above, we were not able to complete our December 31, 2008 annual close in a timely manner which lead to the late filing of our Form 10-K.

We intend to remediate these material weaknesses during 2009. We have implemented the use of a financial closing checklist or to ensure that all items have been considered for inclusion in this report. We have also employed a new CEO who has increased oversight of operations and review of activity. As concerns the material weakness relating to segregation of duties, we are re-examining our procedures to include compensating controls and minimize the risk associated with having limited resources in the accounting department.

Notwithstanding these material weaknesses, we believe that our financial condition, results of operations and cash flows presented in this report on Form 10-Q are fairly presented in all material respects. We base our conclusion on our ability to substantiate, with a high degree of confidence, the small number of significant general ledger accounts that comprise our financial statements.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~None~~As of the date of this Quarterly Report, there are no material pending legal or governmental proceedings relating to our company or properties to which we are a party, and to our knowledge there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.

ITEM 1A. RISK FACTORS

~~Investing~~We inhave ~~our~~described ~~common stock involves a high degree of risk. We describe~~ below a number of uncertainties and risks which, in addition to uncertainties and risks presented elsewhere in this ~~Quarterly~~ Report, may adversely affect our business, operating results and financial condition. The uncertainties and risks enumerated below, as well as those presented elsewhere in this ~~Quarterly~~ Report, should be considered carefully in evaluating our company and our business and the value of our securities. The following important factors, among others, could cause our actual business, financial condition and future results to differ materially from those contained in forward-looking statements made in this Annual Report or presented elsewhere by management from time to time.

The occurrence of any event contained in the following risk factors could have a materially negative impact on the value of our common stock and other securities.

Risk Related to Our Business and Operations

There is serious doubt regarding our ability to continue as a going concern.

We have a history of recurring losses from operations and have an accumulated deficit of $4138,~~121~~772,~~328~~663 as of ~~September~~March 3031, ~~2009~~2010. Sales of our products are not expected to generate positive cash flow until the ~~second~~fourth quarter of 2010. As a result, there is substantial doubt about our ability to continue as a going concern. Our plan regarding these matters is to raise additional debt and/or equity financing to allow us the ability to cover our current cash flow requirements and meet our obligations as they become due. There can be no assurances that financing will be available or if available, that such financing will be available under favorable terms. In the event that we are unable to generate adequate revenues to cover expenses and cannot obtain additional financing in the near future, we may seek protection under bankruptcy laws.

Our ~~prior~~ auditors have added an explanatory paragraph to their opinion on our financial statements for the year ended December 31, ~~2008~~2009 because of concerns about ~~our~~ our ability to continue as a going concern. These concerns arise from the fact ~~that~~ that we have not yet established an ongoing source of revenues sufficient to ~~cover~~ cover our operating costs. As a result, we must raise additional capital in order to continue to operate our business. If we fail to generate positive cash flows or obtain additional financing when required, we will have to modify, delay or abandon some or all of our business and expansion plans.

We are an early stage company with an unproven business strategy.

Our business prospects are difficult to predict because of our limited operating history, early stage of development and unproven business strategy. We are primarily focused on developing OTP solutions and products. We made our first significant commercial sale of our ICT DisplayCard in 2008. Although we believe that our current product and those under development have significant profit potential, we may not attain profitable operations and may not succeed in realizing our business objectives.

We will require additional capital which we may be unable to obtain.

We believe that our current cash, combined with anticipated revenue collections, will be enough to fund our operations ~~through~~until July, ~~the first quarter of~~ 2010. We currently do not have any sources of additional financing and cannot assure you that such funding will be available. If we are unable to ~~raise~~ raise additional capital we may be forced to file for bankruptcy.

We depend on a limited number of suppliers for our current product.

We obtain the battery for our current product from Solicore, Inc., our single source supplier, on a purchase order basis. In the event of a disruption or discontinuation in supply, we may not be able to obtain batteries on a timely basis, which would disrupt our operations, delay production and impair our ability to manufacture and sell our products.

We obtain the display for our current product from SmartDisplayer, our single source supplier, under a written agreement. In the event of a disruption or discontinuation in supply, we may not be able to obtain displays on a timely basis, which would disrupt our operations, delay production and impair our ability to manufacture and sell our ICT DisplayCard.

~~Our dependence upon outside suppliers exposes us to risks, including:~~22

Our dependence upon outside suppliers exposes us to substantial risks, including but not limited to:

the possibility that our suppliers will experience major disruptions in production, which is exacerbated by the fact that we are a major customer of our suppliers;

the solvency of our suppliers and the potential that our suppliers will be solely dependent upon us;

· the potential inability of our suppliers to obtain required components or products; ~~· reduced control over pricing, quality and timely delivery, due to the difficulties in switching to alternative suppliers;~~

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

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

increases in prices of key components.

We may not be able to develop our products due to inadequate resources.

Our business strategy is to develop and market new OTP solutions and products. We believe that our revenue growth and profitability, if any, will substantially depend upon our ability to:

mass produce the ICT DisplayCard at significantly lower cost;

continue to fund research and development endeavors; and

develop, introduce and commercialize new products.

If we are not able to devote adequate resources to our new product development efforts, we may be unable to develop new products, which would adversely affect our revenue growth and profitability.

We depend on key personnel.

We rely to a substantial extent on the management, marketing and product development skills of our key employees and consultants, particularly Richard Nathan, our President, Chief Executive Officer and Chief ~~Executive~~Financial Officer, Craig Nelson, who supervises the manufacturing and testing of the InCard DisplayCard, and Mark Poidomani, our chief technology officer, to formulate and implement our business plan. Our success depends to a significant extent upon our ability to retain and ~~attract~~ attract key personnel. Competition for employees can be intense in the payment ~~card~~ card industry, and the process of locating key personnel with the right ~~combination~~ combination of skills is often lengthy. The loss of any key personnel may ~~significantly~~ significantly delay or prevent the achievement of product development and could have a material adverse effect on us.

Our products might not achieve market acceptance.

The commercial success of our products will depend upon the adoption of our products by payment card providers. In order to be successful, our products must meet the technical and cost requirements for card enhancements within the payment card industry. Market acceptance will depend on many factors, including:

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

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

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

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

We have not current produced our product in commercial quantities.

The ICT DisplayCard has only been produced in limited production quantities. We are applying our own resources and working in cooperation with other companies that have specialized technical expertise related to the manufacturing and production of thin flexible non-payment cards. Failure to secure or maintain these relationships or failure to successfully transition to full scale production may have a material negative effect on our business.

We rely substantially on third-party manufacturers.

To be successful, we must manufacture, or contract for the manufacture of, our products in compliance with industry standards and on a timely basis. As discussed in the risk factor above, we are working in cooperation with other companies that have specialized technical expertise related to the manufacturing of our ICT DisplayCard. We ~~also~~ currently use a limited number of sources for most of the supplies and services that we use in the manufacturing processes. ~~Our~~ Our manufacturing strategy presents ~~the~~substantial ~~following~~risk, ~~risks~~including but not limited to:

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

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

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

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

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

Some of our competitors have significantly greater resources than weus.

We believe that the principal competitive factors that affect the market for tokens include convenience, price, quality/reliability, ease of use, and distribution cost. We cannot assure you that we will be able to maintain our competitive position against current and potential competitors, especially those with significant marketing, service, support, technical and other competitive resources.

Our competitors have significantly greater financial, technical, marketing, purchasing and other resources than we do, and as a result, may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of products, or to deliver competitive products at a lower end-user price. Our inability to successfully compete will materially and adversely affect our business.

Risks Related to our Securities

Our common shares were delisted from the NASDAQ Capital Market.

On February 20, 2009, our common shares were delisted from the NASDAQ Capital Market. As a result, our shares now trade on the Over-the-Counter Bulletin Board and on the Pinksheets. Historically, the volume and liquidity of these markets has been significantly less than on the NASDAQ Capital Market. ~~Addition~~In addition, shares traded in these markets are ~~unlikely~~ unlikely to be followed by market analysts and there may be few market makers for our common stock. Also, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the price of our common stock. Any of these factors could adversely affect the liquidity and trading price of our common stock and could result in large fluctuations in market price.

Our common stock is subject to the penny stock regulations and restrictions.

Rule 3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a "penny stock," for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. It is likely that our shares will be considered to be penny stocks for the immediately foreseeable future. This classification severely and adversely affects any market liquidity for our common stock.

For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person's account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable determination that the transaction is suitable for that person and that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market which sets forth:

the basis on which the broker or dealer made the suitability determination, and

that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and commissions’ payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Because of these regulations, broker-dealers may not wish to engage in transactions with penny stocks. Accordingly, investors may encounter difficulties in their attempt to sell shares of our common stock. These additional sales practice and disclosure requirements could impede the sale of our common stock. In addition, the liquidity for our common stock may decrease, with a corresponding decrease in the price of our common stock. Our shares, in all probability, will be subject to such penny stock rules for the foreseeable future and our shareholders will, in all likelihood, find it difficult to sell their common stock.

The market for penny stocks has experienced numerous frauds and abuses.

We believe that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:

Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

“Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

As a result, many investors have the perception that penny stocks are too risky or involve a high degree of fraud. These factors will make the development of an active market for our common shares more difficult which further affects the liquidity of our common stock.

We do not ~~anticipate~~pay ~~paying~~ any ~~cash~~ dividends.

We plan to use all of our earnings; to the extent we have earnings, to fund our operations. We do not plan to pay any cash dividends in the foreseeable future. Therefore, any return on your investment will be derived from an increase in the price of our stock, which may or may not occur.

Sales of our common stock in the public market may depress our stock price.

As of ~~September~~March 3031, ~~2009~~2010, we had 2830,~~495~~558,~~256~~562 shares of common stock outstanding. On a ~~fully~~ fully diluted basis, including shares issuable upon exercise of warrants and ~~stock~~ stock options and convertible debentures, we have 6162,~~472~~131,~~563~~062 shares outstanding or or issuable~~. Additionally~~, onas of March 31, 2010. On September 30, 2009, we completed the restructuring of our 8% Senior Secured Convertible Debentures. As a result, the conversion price of the debentures as well as substantially all our outstanding warrants was adjusted to $0.25. All of these shares can be traded pursuant to a prospectus or via ~~a transaction pursuant to~~ Rule 144 ~~under~~ of the Securities Act of 1933. If our stockholders sell ~~substantial~~ substantial amounts of common stock in the public market, or the market perceives that such sales may occur, the market price of our common stock could fall, which could result in a significant loss on any investment you make in our common stock. The sale of a large number of shares could impair our ability to raise needed capital by depressing the price of our common stock.

We may be subject to securities litigation as the price of our common stock has drastically decreased over the past twelve months.

During the past ~~nine~~two ~~months~~years, the price of our common stock has decreased ~~from $1.27 on~~ ~~June 30, 2008 to $0~~drastically.~~27 as of November 9, 2009.~~ Although management feels that at all times it has acted in the best interest of the company’s shareholders, such declines in stock price have historically increased the probability of becoming the subject of a securities class action law suit. If we were to become the target of such litigation, we will have to spend considerable time and resources in defending such litigation. This would result in management diverting its focus from the development and sale of our products. Additionally, such litigation is extremely costly and will deplete our assets.

We may raise additional capital through a securities offering that could dilute your ownership interest and voting rights.

Our certificate of incorporation currently authorizes our board of directors to issue up to 75,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of ~~September~~March 3031, ~~2009~~2010, after taking into consideration our outstanding common and preferred shares and our contingently issuable shares, our board of directors will be entitled to issue up to 1312,~~527~~868,~~437~~938 additional common shares and 5,000,000 preferred shares. The power of the board of directors to issue these shares ~~of common stock, preferred stock~~ or ~~warrants~~securities orconvertible ~~options~~into tothese ~~purchase~~ shares ~~of our stock~~ is generally not subject to stockholder approval.

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

Our incorporation documents and Delaware law may inhibit a takeover that stockholders consider favorable and could also limit the market price of your stock, which may inhibit an attempt by our stockholders to change our direction or management.

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

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

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

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

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

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

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

New rules, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract qualified officers and directors.

We may be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of the recent and currently proposed changes in the rules and regulations that govern publicly held companies, including, but not limited to, certifications from executive officers and requirements for financial experts on the board of directors. The perceived increased personal risk associated with these recent changes may deter qualified individuals from accepting these roles. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in the issuance of a series of new rules and regulations and the strengthening of existing rules and regulations by the Securities and Exchange Commission (the “SEC”). Further, certain of these recent and proposed changes heighten the requirements for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of our business could be adversely affected.

Our management has concluded that, as of ~~September~~March 3031, ~~2009~~2010, our disclosure controls ~~and~~ and procedures were not effective.

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~September~~March 3031, ~~2009~~2010. Based on such evaluation which disclosed numerous material weaknesses, our CEO and CFO have concluded that, as of ~~September~~March 3031, ~~2009~~2010, the Company’s disclosure controls and procedures were not effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and were not effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. If we fail to implement new or improved disclosure controls, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our common stock.

We have identified numerous material weaknesses in our internal control over financial reporting.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on internal control over financial reporting in their Annual Reports on Form 10-K. This report is required to contain an assessment by management of the effectiveness of a company’s internal control over financial reporting. Our non-affiliated market capitalization qualified us as a “Smaller Reporting Company” effective in 2009. As a result, we are required to include our management’s report on internal control over financial reporting in this Annual Report but are not required to include our auditors’ attestation report on our internal control over financial reporting. As discussed in our December 31, 2008 Annual Report, we have concluded that, as of December 31, 2008, our internal control over financial reporting were not effective and identified a number of material weaknesses in our internal control over financial reporting. While we intend to remedy these weaknesses during the current fiscal year, we may be unable to do so. If we fail to implement required new or improved controls there may be an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our common stock to decline.

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

The following information is given with regard to ~~our equity~~unregistered securities sold during the period covered by this report that were not registered under the Securities Act and were not previously included in a Current Report on Form 8-K.

· InOn ~~April~~January of4, ~~2009~~2010, we ~~granted~~issued ~~stock~~John ~~option~~Ward, toIII, ~~purchase~~one of our non-executive directors, an ~~aggregate~~option ofto ~~150~~purchase 100,000 common shares. ~~The~~as ~~options~~compensation ~~were~~under ~~granted~~our tonon-executive ~~employees~~board ~~and~~compensation ~~consultants~~policy. The ~~options~~option ~~have~~has aan ~~five~~exercise ~~(5)~~price ~~year~~of ~~term~~$0.35, ~~The~~vests ~~exercise~~quarterly ~~price~~over ~~and~~the ~~vesting~~grant ofyear ~~the~~and ~~options~~has ~~are~~a asterm ~~follows:~~of 10 year.

~~— Options to purchase 100,000 common shares have an exercise price of $0.062 and vest immediately; and~~26

—· ~~Options~~On toJanuary ~~purchase~~7, 502010, we issued 100,000 common shares ~~have~~in anconnection ~~exercise~~with ~~price~~the conversion of $~~0.072 and vest: (i) 1/3 on February 20~~25,000 ~~2009;~~of ~~and~~our ~~(ii)~~convertible ~~2/3 vest quarterly over the following 2 years commencing on such date~~debentures.

~~The options~~· ~~were~~During February of 2010 we issued ~~pursuant~~352,667 toshares ~~our~~of ~~2007~~common ~~Equity~~stock ~~Incentive~~upon ~~Plan~~the exercise of 352,667 employee stock options. We received $5,250 in cash proceeds from the exercise of the options; the balance of the exercise price was paid through the reduction of accrued compensation in the amount of $24,137.

· On ~~July~~February 2217, ~~2009~~2010, we ~~granted~~issued ~~stock options to our directors~~1, ~~officers~~264,975 ~~employees~~common ~~and~~shares ~~consultants,~~in ~~pursuant~~connection towith ~~our~~the ~~2007~~conversion ~~Equity~~of ~~Compensation Plan~~$316,224 asof ~~follows:~~our convertible debentures.

~~Directors~~In ~~(pursuant~~connection towith ~~our~~the ~~director’s~~foregoing, ~~compensation~~the ~~policy~~Company relied upon the exemption from securities registration afforded by Rule 506 of Regulation D as ~~follows~~promulgated by the United States Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”): and/or Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. The issuances were made to a limited number of persons, and transfer of the securities was restricted in accordance with the requirements of the Securities Act of 1933.

Robert Ramsdell		Options to purchase 250,000 common shares of which 25,000 vest immediately and the balance vest quarterly over the grant year. The options expire on July 22, 2019 and have an exercise price of $0.18 per share;
Scott Ogilvie		Options to purchase 200,000 common shares of which 25,000 vest immediately and the balance vest quarterly over the grant year. The options expire on July 22, 2019 and have an exercise price of $0.18 per share;
Donald Joyce		Options to purchase 150,000 common shares of which 25,000 vest immediately and the balance vest quarterly over the grant year. The options expire on July 22, 2019 and have an exercise price of $0.18 per share;
Harry Tredennick		Options to purchase 125,000 common shares of which 25,000 vest immediately and the balance vest quarterly over the grant year. The options expire on July 22, 2019 and have an exercise price of $0.18 per share;
Officers:
Richard Nathan		Options to purchase an aggregate of 625,000 common shares. The options vest as follows: (i) options to purchase 100,000 common shares vest quarterly over the year following the grant date; and (ii) options to purchase 525,000 common shares vest over three years with 1/3 vesting on the one year anniversary of the grant date and 2/3 vesting quarterly over the following two years. The options all have an exercise price of $0.18 and expire on July 22, 2019.
Employees & Consultants		We issued options to purchase an aggregate of 572,000 common shares to employees and consultants. The options vest over three years with 1/3 vesting on the one year anniversary of the granted date and 2/3 vesting quarterly over the following two years. The options all have an exercise price of $0.18 and expire on July 22, 2014.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

We previously disclosed the default of our 8% Senior Secured Convertible Debentures in our Current Report on Form 8-K filed with the SEC February 20, 2009. The information contained in the October 5, 2009 Current Report on Form 8-K is incorporated herein by reference.

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

None

ITEM 4. (REMOVED AND RESERVED)

None

ITEM 5. OTHER INFORMATION

On September 30, 2009, we completed the restructuring of our 8% Senior Secured Convertible Debentures. We discussed the transaction in our Current Report filed on Form 8-K with the SEC on October 5, 2009. The information contained in the October 5, 2009 Current Report on Form 8-K is incorporated herein by reference.None

ITEM 5. OTHER INFORMATION

None

ITEM 6. ~~EXHIBITS~~ OTHER INFORMATION

The exhibits listed in the accompanying index to exhibits are ~~incorporated~~filed byor incorporated by reference as part of this Form 10-Q.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed by the undersigned hereunto duly authorized.

	~~INNOVATIVE CARD TECHNOLOGIES, INC~~	INNOVATIVE CARD TECHNOLOGIES, INC
Dated: November 13, 2009	By:	/S/ Richard Nathan
Dated: May 17, 2010		By:	/S/ Richard Nathan
		Richard Nathan Chief Executive Officer and Chief Financial Officer
			Richard Nathan Chief Executive Officer Chief Financial Officer and Director (Principal Executive Officer and Principal Accounting Officer)

41Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the following capacities and on the dates indicated.

INDEX TO EXHIBITS

			Incorporated by Reference
Exhibit No.	Description	Filed Herewith	Form	Exhibit No.	File No.	Filing Date
10.01	Form of Securities Purchase Agreement Dated January 8, 2008		8-K	10.1	001-33353	1/9/07
3.01(i)	Amended and Restated Certificate of Incorporation of Innovative Card Technologies, Inc. filed on 5/11/05		10-K	3.01(i)	001-33353	5/15/09
10.02	Form of 8% Senior Secured Convertible Debenture issued January 8, 2008		8-K	10.2	001-33353	1/9/07
3.02(i)	Certificate of Amendment to Certificate of Incorporation of Innovative Card Technologies, Inc. filed on 12/21/07		8-K	3.1	001-33353	1/2/08
10.03	Form of Common Stock Purchase Warranted issued January 8, 2008		8-K	10.3	001-33353	1/9/07
3.03(ii)	Amended and Restated Bylaws of Innovative Card Technologies, Inc. adopted on May 5, 2005		10-K	3.03(ii)	001-33353	5/15/09
10.04	Form of Registration Rights Agreement dated January 8, 2008		8-K	10.4	001-33353	1/9/07
10.01**	2004 Stock Incentive Plan as amended		S-8	10.1	333-137033	3/25/08
10.05	Form of Security Agreement dated January 8, 2008		8-K	10.5	001-33353	1/9/07
10.02	Form of Warrant pursuant to private placement dated October 19, 2005		8-K	4.1	000-51260	10/25/05
10.06	Form of Subsidiary Guarantee dated January 8, 2008		8-K	10.6	001-33353	1/9/07
10.03	Form of Warrant issued to TR Winston & Company, LLC dated May 30, 2006		8-K	4.1	000-51260	5/31/06
10.07**	Form of Lock-Up Agreement dated January 8, 2008		8-K	10.7	001-33353	1/9/07
10.04	Form of Securities Purchase Agreement dated May 30, 2006		8-K	10.1	000-51260	5/31/06
10.08	Form of Securities Purchase Agreement Dated April 15, 2008		8-K	10.1	001-33353	4/16/08
10.05	Form of Registration Rights Agreement dated May 30, 2006		8-K	10.2	000-51260	5/31/06
10.09	Form of 8% Senior Secured Convertible Debenture issued April 15, 2008		8-K	10.2	001-33353	4/16/08
10.06	Licensing Agreement dated September 26, 2006 by and between Innovative Card Technologies, Inc. and NCryptone, SA as license		SB-2	10.35	333-135715	7/12/06
10.10	Form of Common Stock Purchase Warranted issued April 15, 2008		8-K	10.3	001-33353	4/16/08
10.07	Licensing Agreement dated September 26, 2006 by and betweenNCryptone, SA as licensor and Innovative Card as license		SB-2	10.36	333-135715	7/12/06
10.11	Form of Registration Rights Agreement dated April 15, 2008		8-K	10.4	001-33353	4/16/08
10.08	Form of Indemnification Agreement for Executive Officers and Directors of Innovative Card Technologies, Inc.		8-K	10.1	001-33353	3/23/07
10.12	Form of Security Agreement dated April 15, 2008		8-K	10.5	001-33353	4/16/08
10.09**	2007 Equity Incentive Plan		10-QSB	10.44	001-33353	11/19/07
10.13	Form of Subsidiary Guarantee dated April 15, 2008		8-K	10.6	001-33353	4/16/08
10.10	Form of Indemnification Agreement entered into between the Company and Messrs. Delcarson and Caporale		8-K	10.1	001-33353	11/29/07
10.14	Form of Lock-Up Agreement dated April 15, 2008		8-K	10.7	001-33353	4/16/08

4228

10.15	Assignment of Debenture and Common Stock Warrants Agreement with EMC		8-K	10.01	001-33353	7/17/09
10.11	Form of Securities Purchase Agreement Dated January 8, 2008		8-K	10.1	001-33353	1/9/07
10.16	Waiver, Amendment and Exchange Agreement		8-K	10.16	001-33353	10/05/09
10.12	Form of 8% Senior Secured Convertible Debenture issued January 8, 2008		8-K	10.2	001-33353	1/9/07
10.17	Debenture & Warrant Purchase Agreement		8-K	10.17	001-33353	10/05/09
10.13	Form of Common Stock Purchase Warranted issued January 8, 2008		8-K	10.3	001-33353	1/9/07
10.18	Form of Amended Debenture dated September 30, 2009		8-K	10.18	001-33353	10/05/09
10.14	Form of Registration Rights Agreement dated January 8, 2008		8-K	10.4	001-33353	1/9/07
10.19	Form of Amended Warrant dated September 30, 2009		8-K	10.19	001-33353	10/05/09
10.15	Form of Security Agreement dated January 8, 2008		8-K	10.5	001-33353	1/9/07
31.1	Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	*
10.16	Form of Subsidiary Guarantee dated January 8, 2008		8-K	10.6	001-33353	1/9/07
31.2	Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	*
10.17	Form of Securities Purchase Agreement Dated April 15, 2008		8-K	10.1	001-33353	4/16/08
32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. § 1350	*
10.18	Form of 8% Senior Secured Convertible Debenture issued April 15, 2008		8-K	10.2	001-33353	4/16/08
32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. § 1350	*
10.19	Form of Common Stock Purchase Warranted issued April 15, 2008		8-K	10.3	001-33353	4/16/08
10.20	Form of Registration Rights Agreement dated April 15, 2008		8-K	10.4	001-33353	4/16/08
10.21	Form of Security Agreement dated April 15, 2008		8-K	10.5	001-33353	4/16/08
10.22	Form of Subsidiary Guarantee dated April 15, 2008		8-K	10.6	001-33353	4/16/08

10.23**

Form of Executive Employment Agreement of Vincent M. Schiavo, dated as of May 22, 2008

8-K

10.1

001-33353

5/27/08

10.24**

Employment Agreement of Mr. Richard Nathan dated February 20, 2009

8-K

10.01

001-33353

2/24/09

10.25	Assignment of Debenture and Common Stock Warrants Agreement with EMC	8-K	10.01	001-33353	7/17/09

10.26	Waiver, Amendment and Exchange Agreement	8-K	10.16	001-33353	10/05/09

10.27	Debenture & Warrant Purchase Agreement	8-K	10.17	001-33353	10/05/09

10.28	Form of Amended Debenture dated September 30, 2009	8-K	10.18	001-33353	10/05/09

10.29

Form of Amended Warrant dated September 30, 2009

8-K

10.19

001-33353

10/05/09

10.30**	2010 Equity Compensation Plan		8-K	4.01	001-33353	2/22/10

14.01	Code of Ethics		10-KSB	14.0	000-51260	3/20/06

21.1	List of Subsidiaries		SB-2	21.1	333-119814	10/19/04

31.1	Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	*

31.2	Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	*

32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. § 1350	*

32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. § 1350	*

**Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

4330

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