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EXECUTIVE INFORMATIONAL OVERVIEW ƒ the U.S Innovative Card Technologies, Inc. 10880 Wilshire Blvd. Suite 950 Los Angeles, CA 90024 Phone: (310) 312-0700 www.incardtech.com Powered Cards with Displays for One-Time Passcode (OTP) Authentication in Enterprise, Online Account Management, and Payment Applications Snapshot June 7, 2007 Innovative Card Technologies, Inc. (“InCard” or “the Company”) researches, develops, and markets powered cards with one-time passcode (OTP) authentication capabilities for payment, identification, and physical and logical access applications. The Company targets identification and access control in an enterprise environment. InCard has combined Radio Frequency Identification (RFID)† access and token technology into a convenient payment card form factor. Besides the enterprise market, InCard also aims to secure “card not present” transactions at financial institutions. InCard intends to enter the enterprise market with its token- replacement card; however, in the future InCard expects to supply payment cards to financial institutions with OTP technology embedded in the card, providing another layer of protection against credit card fraud. Through its proprietary Power Inlay Technology, InCard brings power-based applications into the card. Its principal product, the ICT DisplayCard, looks like a conventional transaction card and fits into a wallet. It contains an embedded chip that employs an algorithm to produce an OTP on a display screen on the front of the card by pressing a button on the card. A user enters the OTP into a keypad or computer, which sends the passcode to a remote processing center for authentication via a secure server. This technology is intended to increase security and decrease or potentially prevent “card not present” credit card fraud, which is rampant in internet and telephone purchases. The technology could also be effective in combating spyware and phishing schemes, since the OTP is only good for a single use. In an enterprise environment, the card’s RFID/magstripe physical access capability provides an employee access to their building and the OTP validates their login—all in one thin card. In March 2007, InCard began trading on the NASDAQ market under the symbol “INVC.” The Company is headquartered in Los Angeles, California. Recent Financial Data Ticker (Exchange) INVC (NASDAQ) Recent Price (06/06/07) $4.40 52-week Range $3.85 - $6.25 Shares Outstanding* 28.4 million Market Capitalization $125 million Avg. 50-day Volume 71,800 Insider Owners +5% 37.40% Institutional Owners 8.31% EPS (Qtr. ended 03/31/07) ($0.08) Employees 12 full-time *As of May 8, 2007 Key Points The Federal Financial Institutions Examination Council (FFIEC) issued guidance requiring banks to incorporate stronger security methods. Techniques such as dual-factor authentication are recommended for institutions offering internet-based financial services. As of January 1, 2007, financial institutions and third-party service providers that do not comply with these standards could be fined or lose their memberships. To InCard’s knowledge, aside from its Power Inlay Technology, there are no other available methods to place power into an International Organization for Standardization (ISO)-certified payment card. There were approximately 2.46 billion credit and debit cards in circulation in 2005, and 45 million tokens issued by enterprise organizations and financial institutions. These tokens provide added security for database and account logins as well as “card not present” transactions. The worldwide hardware authentication token market is forecast to grow to $764 million by 2009 from $493 million in 2004. EXECUTIVE INFORMATIONAL OVERVIEW The U.S. Federal Trade Commission’s (FTC) most recent identity theft survey (released in September 2003), confirmed that over 27.3 million people became victims of identity theft from 1998 to 2003 in the U.S. and, in 2004 approximately 42% of identity theft cases involved credit card fraud. As of May 9, 2007, InCard had approximately $5.4 million in cash and cash equivalents. †BOLD WORDS ARE REFERENCED IN THE GLOSSARY ON PAGES 42-43. Table of Contents Snapshot .......................................................................................................................................................1 Recent Financial Data...................................................................................................................................1 Key Points .....................................................................................................................................................1 Executive Overview.......................................................................................................................................3 Growth Strategy and Strategic Partnerships.................................................................................................6 Company Leadership....................................................................................................................................9 Core Story ...................................................................................................................................................12 Enterprise Security.................................................................................................................................12 Transaction Card Fraud .........................................................................................................................12 Legislative and Regulatory Responses To Credit Card Fraud ..............................................................19 InCard’s Technology ..............................................................................................................................20 Industry Affiliations .................................................................................................................................23 Competition .................................................................................................................................................26 Key Points to Consider................................................................................................................................28 Historical Financial Results.........................................................................................................................29 Risks............................................................................................................................................................32 Recent Events.............................................................................................................................................40 Glossary ......................................................................................................................................................42 CRYSTAL RESEARCH ASSOCIATES, LLC EXECUTIVE INFORMATIONAL OVERVIEW® PAGE 2 Executive Overview Innovative Card Technologies, Inc. (“InCard” or “the Company”) researches, develops, and markets powered cards with one-time passcode (OTP) authentication capabilities for payment, identification, and physical and logical access applications. The Company targets identification and access control in an enterprise environment. InCard has combined radio frequency identification (RFID) access and token technology into a convenient payment card form factor. In addition to the enterprise market, the Company aims to secure “card not present” transactions at financial institutions. InCard intends to enter the enterprise market through the introduction of its token-replacement card, the ICT DisplayCard (described below). However, the long-term goal is to supply payment cards to financial institutions with the OTP technology embedded in the card. The objective in this market is to effectively provide an additional layer of protection against payment card fraud, specifically the $50 billion lost annually to electronic fraud. Through the use of its proprietary Power Inlay Technology, InCard brings power-based applications directly into the card in order to significantly increase security and thwart fraudulent activity. The ICT DisplayCard The Company’s principal product, the ICT DisplayCard, has an embedded chip that generates a four-, six-, or eight-digit OTP using a stored algorithm. The chip produces an OTP on the front of the card when a small button on the card is pressed. Once the OTP is generated, a user enters this OTP into a keypad or computer, which sends it to a processing center for authentication. As the technology is built into the card itself, users may carry the card in a wallet or pocket, as they would any credit card. In addition to OTP generation, the card may be configured with payment and/or RFID physical access capabilities. InCard uses its proprietary Power Inlay Technology (consisting of a battery, circuit, and switch that can drive applications on token-replacement cards, financial transaction cards, and other information-bearing plastic cards) to power an embedded chip to produce an OTP. The OTP is authenticated remotely by a secure server to confirm that the true cardholder is actually the person making the transaction. This is intended to provide a mode of authentication that could be used to increase security and help prevent fraudulent activity on credit cards—specifically “card not present” fraud, where the physical card is not in the actual cardholder’s presence. InCard’s technology is unique from other currently employed authentication technologies,
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